DynaLife insolvent less than 90 days into contract for lab services, government documents show

When Alberta's United Conservative government contracted out community medical lab testing to a private company in December 2022, it said it would save tens of millions of dollars.

Two weeks before that contract with DynaLife Medical Labs was set to take effect, the company told the province it needed additional funding.

Less than three months later, DynaLife's owners said the company was insolvent and needed an additional $70 million. They soon asked the province to buy DynaLife, which it ultimately did at a cost of almost $100 million.

These revelations come from documents obtained by CBC News through freedom of information requests, including Alberta Health emails and briefing notes prepared for Premier Danielle Smith and health ministers Jason Copping and Adriana LaGrange.

The documents fill a gap in the public narrative of what happened between DynaLife taking on community lab services — such as collections of blood or urine for medical tests — in December 2022 and its purchase by the government nine months later.

Although increased wait times and other issues played out publicly, neither DynaLife nor the government gave any indication of financial troubles.

"We have the benefit of knowing how the story ends," said Fiona Clement, a professor in community health sciences at the University of Calgary who reviewed some of the documents.

"But as I was reading through, I thought, it seems like there were lots of red flags at many different points along the way here."

Documents describe insolvency

DynaLife was a major provider of lab services in Edmonton and northern Alberta when the request for proposals for the privatization contract was issued in December 2020.

Two companies were shortlisted: DynaLife and Australian firm Sonic Healthcare. Sonic later withdrew, according to the documents, "based on timelines and Covid restrictions limiting travel."

In June 2021, DynaLife was selected. One year later, the contract had been finalized and was set to take effect Dec. 5, 2022.

However, two weeks before that date, "concerns with the financial viability of DynaLife emerged," according to a briefing note prepared for the premier in July 2023. The company requested additional funding "beyond the terms of the contract. No formal action was taken at this point as the transition was just underway."

The handover of community lab services from public provider Alberta Precision Laboratories (APL) to DynaLife was not smooth. Although the company had operated in Edmonton and northern Alberta for years, it was newly establishing itself elsewhere in the province.

In Calgary, lab wait times ballooned as DynaLife struggled to manage the volume of tests. Based on the documents, other problems were emerging behind the scenes.

In late February 2023, DynaLife's owners — Labcorp, a large American health-care company, and OMERS, a municipal employee pension plan in Ontario — "informally flagged financial concerns" about the company, according to the briefing note to Smith.

That was followed by a formal notice on March 1, 2023, notifying APL of DynaLife's insolvency position.

A March 30, 2023, email from deputy health minister Paul Wynnyk's chief of staff to an AHS official laid out a summary of events.

It said the owners requested a one-time cash injection of $70 million, after which DynaLife "met with the premier's office to discuss the situation."

Meetings between AHS leadership and health minister Jason Copping produced a "consensus" that the request should not be granted.

The rationale, according to the briefing note prepared for the premier, was that DynaLife's explanations for its financial woes — particularly costs for pensions and wage parity between its existing employees and those from APL — amounted to "issues that should have generally been planned for by DynaLife."

A later briefing note for health minister LaGrange states that, in addition to the one-time capital injection, DynaLife was requesting "a significant ongoing increase to their annual payment," which would eliminate "all potential savings from the contract."

On March 10, 2023, APL informed DynaLife that the request had been denied. Three months later, DynaLife's owners approached AHS requesting negotiations to end the contract and sell DynaLife to AHS.

The 2023-24 AHS annual report breaks down the financial details of the acquisition. The government paid $31.5 million in cash and took on approximately $66 million in assumed liabilities from DynaLife.

More questions than answers

CBC News sent a list of questions to Alberta Health, nearly all of which were not addressed in a statement from LaGrange's press secretary, Jessi Rampton.

"Access to lab services must be quick and efficient, and at the time, DynaLife was not meeting these needs," said the statement. "The decision to shift from DynaLife to APL has led to a significant improvement in wait times for lab services."

According to the province, wait times in Calgary for walk-in and scheduled appointments have fallen 76 per cent since May 2023. Provincially, wait times for the next available appointment decreased from an average of nine days in 2023 to an average of 4.3 days in 2024.

Alberta Health did not answer numerous questions from CBC News, including:

• How much funding DynaLife requested in November 2022, and whether it was granted by the province.
• Whether the province was aware of any financial concerns regarding DynaLife during contract negotiations.
• Whether this experience altered the government's view on privatization of health care, and whether it would seek to privatize lab services again in the future.
   

OMERS, one of DynaLife's former owners, declined to answer a list of questions from CBC News. The other former owner, Labcorp, did not respond to multiple requests for comment.

Alberta Auditor General Doug Wylie announced in October 2023 that his office would investigate the procurement and contracting practices regarding DynaLife.

The report was expected to be released in early 2024. However, the Office of the Auditor General said last year that the report was delayed due to difficulties accessing information and scheduling interviews.

CBC News requested clarification on these difficulties, including what they were and whether they have been resolved. The auditor general's office declined to comment beyond stating that it hopes to release the report in early summer.

Alberta Health did not respond to a question from CBC News about whether or not the government has co-operated with Wylie's investigation.

Long history between DynaLife, province

The Alberta government had a long and complex history with DynaLife.

The company had been providing lab services in Edmonton and northern Alberta for years when in 2014 the Progressive Conservative government of Premier Jim Prentice awarded a $3-billion contract to Sonic Healthcare, an Australian firm, to replace DynaLife and hospital labs operated by AHS and Covenant Health.

DynaLife appealed that decision, but when the NDP came to power in 2015, it cancelled the deal with Sonic.

The NDP then decided to buy DynaLife, absorbing its for-profit operations into the public sphere in a plan that was estimated to cost $65 million — about $30 million less than the UCP would pay in 2023. The government also planned a "superlab" in Edmonton that would house all lab processing under one roof.

But after Jason Kenney's 2019 election victory, his United Conservative Party government killed those plans and ordered a review of AHS to find efficiencies and cost savings.

That report — completed by Ernst & Young in 2020 — recommended that AHS "further leverage private contracts" for lab services "with an initial focus on community-based testing." It estimated that doing so could save up to $102 million annually.

AHS later did its own analysis and revised that estimate to between $18 million and $36 million per year.

The report's recommendation eventually led to the DynaLife contract, and was cited numerous times in the Alberta Health documents.

DynaLife 'unable to deliver' on requirements

The documents show that DynaLife struggled to meet the level of service required by the contract.

August 2023 briefing documents for deputy health minister Andre Tremblay and associate deputy minister Darren Hedley state that DynaLife "has been unable to deliver on their contract requirements." The company was "failing on almost all key performance indicators" such as averages for patient wait times, lab testing times and transportation times.

The briefing documents note that the impacts of these failures were being felt primarily in areas that DynaLife did not previously operate in, especially Calgary.

The lab delays and "transport and handling errors" had resulted in "the need for re-collections," the documents say.

"Clinicians have reported treatment with incorrect antibiotics as a result of significant delays in microbiology testing."

Alberta Health did not answer questions from CBC News about these errors and incorrect treatment reports.

According to the briefing documents, the reasons DynaLife gave for its performance failures included:

• Underestimating "the time and effort to transition services."
• Seeking to immediately begin "optimizing workflows, destabilizing the system."
• Staff not being backfilled when off for training on Connect Care, the province's new digital health records platform.
• "Unanticipated costs for labour parity," including an extra bereavement day and the potential for a "higher than planned" employer pension contribution.

Labour issues

When community lab services shifted to DynaLife in 2022, so too did 1,300 workers from APL.

Employees at APL and DynaLife were represented by the same union, the Health Sciences Association of Alberta (HSAA), but had different collective bargaining agreements with their own pay scales and pension plans.

The APL workers were paid more for the same jobs they would be doing alongside DynaLife employees. But DynaLife resisted wage parity, which would mean matching that pay for its existing employees.

Under Alberta's Labour Relations Code, a company receiving a transfer of employees is obliged to honour the existing collective agreement of those employees. However, DynaLife wanted to avoid the expense of maintaining the APL employees' existing pension plans, offering enrolment in a group RRSP instead.

The dispute ended up before the Alberta Labour Relations Board (ALRB), which denied DynaLife's request to be exempted from the legal requirement in February 2023.

"DynaLife made an assumption ... that they didn't have to pay for the pension and they didn't have to match the wages as these workers were coming over. Well, lo and behold, we took [an] objection to that," said HSAA president Mike Parker.

The documents make plain the government's stance that DynaLife ought to have foreseen these labour-related costs. The March 30, 2023, email from deputy minister Wynnyk's chief of staff explained why the government was denying the company's request for a bailout of $70 million.

It said the request for proposals required DynaLife to take on all APL staff on their existing terms, and that collective agreements and pension information had been provided to the company during the RFP process.

The email also noted that the labour relations board ruling "is consistent with the ALRB's past practice and is not unusual."

Privatization qualms

Alberta Health told CBC News that the wait times for lab services have greatly improved since being brought back into the public health system.

The July 2023 briefing note for Smith states: "While the decision to terminate was initiated by the owners, this may be used as an example of failed 'privatization' by some public interest groups."

Clement, the University of Calgary professor, is skeptical of the idea that privatization leads to cost savings.

"Any time we're talking about a different provider being able to provide care more cheaply … than the public health-care system that's already established, I think a really fair question to ask is, well, why?" she said.

Rebecca Graff-McRae, a researcher at the University of Alberta's Parkland Institute who authored a 2022 report examining privatization of Alberta's lab services, echoed that sentiment.

"DynaLife based their bid off of the assumption that they could pay one group of their workers less," she said.

Advocates for public health care "have said for a long time that if you build a profit margin into one of these contracts, you either have to cut corners somewhere, you have to charge more, you have to pay your workers less, or you have to deliver less," said Graff-McRae.

Public, employees kept in the dark

Neither DynaLife nor the government ever gave any public indication of the company's financial troubles. Notably, this period also included a provincial election on May 29, 2023, where the UCP won re-election under new leader Danielle Smith.

The March 30, 2023 email from deputy minister Wynnyk's chief of staff to an AHS official reflects the government's sensitivity to the insolvency situation as a possible political issue.

It requests an update on "what 'mitigation plan' AHS has in place should this contract dispute escalate, particularly given we are so close to the election." No reply is included in the documents CBC News received.

The July 2023 briefing note for Smith states that DynaLife employees, aside from leadership, had not been told of the situation.

Former DynaLife CEO Jason Pincock declined to speak with CBC News for this story, directing all questions to the Office of the Auditor General.

On April 18, 2023, weeks after the province had been given formal notice of DynaLife's insolvency, Pincock appeared on CBC Calgary's Calgary Eyeopener to address the ballooning wait times for lab services.

"It's a very complex issue," he said on the program, "but we are very committed to the Calgary region."