The Canadian health care system could save a quarter of its billion-dollar annual spending on lab tests if for-profit labs no longer did them, a new study suggests.

In an article published in Open Medicine, a peer-reviewed open-access journal, Ross Sutherland -- a registered nurse and the Chair of the Ontario Health Coalition -- says public health care systems pay for-profit corporations to deliver medical laboratory services. The transparency of those services is unclear, Sutherland says, because the corporations can invoke "confidential business information" to avoid disclosing just what they do and how much it is costs.

Nevertheless, Sutherland says available data point to excessive private-lab costs:

In 2012, Canadian governments will pay private corporations over a billion dollars (a conservative extrapolation from recent spending in Ontario, Manitoba, Alberta, British Columbia, and Saskatchewan) for medical laboratory services, making them among the most privatized of Canada's essential medical services. This estimate does not include payments to private laboratories from the federal government, territorial governments, public health departments, and public hospitals. Three multinational companies -- LifeLabs, Gamma-Dynacare and CML HealthCare -- will receive over 80% of this money. Canada's 40-year history of using the private sector to deliver this core medical service in 5 provinces provides a useful window on the effects of using for-profit corporations to provide publicly funded medical laboratory services.

Citing studies going back to the 1970s, Sutherland notes that quality-control management programs can't tell if their standards are being met by private labs. "Private labs in Manitoba, as in Ontario, are paid primarily from the public purse to deliver an essential medical service, but the public is not allowed to know whether they are producing high-quality results," he writes.

Integration of medical services is another problem:

In British Columbia, Manitoba, and Ontario separate administrative structures, payment mechanisms and data networks are maintained for the private sector's work in the community and the public hospitals' inpatient services. For example, the electronic integration of Ontario's laboratory records with other patient records, a provincial need identified as early as 1981, is made more complex by the existence of 3 competing for-profit laboratory record systems operating alongside multiple hospital systems. Bayne, in a 2003 review of British Columbia's laboratory system, notes a similar problem. One of the more successful attempts to integrate laboratory records has been in Nova Scotia, which has only public laboratories.

Comparing costs of private and public medical labs, Sutherland says, is difficult. Some research shows higher test costs in public hospital labs; others show the reverse. Still, most studies show private lab tests are more expensive:

More recently, the 2008 Ontario study found that in 12 small Ontario hospitals that were still processing their community's laboratory work the cost was $22 per community patient per year while the for-profit laboratories cost $33 per community patient. The Globe and Mail, investigating the rapidly rising costs of vitamin D testing, reported that the private laboratories in British Columbia charged $94 per test, Ontario private labs $52, and Ontario hospitals $32, while the Saskatchewan government lab did the test for $17.

Another indication of the excess money spent on for-profit laboratories is that, through the 1970s, 1980s, and 1990s, the expense of relatively uncontrolled fee-for-service provision resulted in costs rising faster in the private sector than in hospitals. To control costs, in 1993 Ontario cut payments to private labs by 10%, Alberta in 1994 by 53%, Manitoba in 1995 by "over 20%," and B.C. in 2004 by 20%.

Sutherland concludes:

Most provinces in Canada only use non-profit labs to perform publicly financed laboratory work. Alberta and Saskatchewan have shown that it is possible to restore contracted laboratory work to the public sector, and the fact that all private laboratories operate under fixed-term contracts makes it possible, in theory at least, to shift work back to the public sector when the contracts end. Two useful steps toward ending for-profit provision would be to stop fee-for-service funding and to integrate all laboratory work under the same public administrative structures.

...it is reasonable to assume that the Canadian health care system could save a minimum of $250 million per year by moving all publicly funded medical laboratory work into an integrated public non-profit medical laboratory system. Such a move would have the added benefits of facilitating the integration of medical records, staff, and administration, and of improving public accountability of the health care system. Both of these outcomes should lead to better cost control.

Crawford Kilian is a contributing editor of The Tyee.