September 9, 1997

PUBLIC ACCOUNTS

COMMITTEE

The Committee met at 2:00 p.m. at the Glynmill Inn

in Corner Brook.

CHAIR (E. Byrne): Order, please!

Good afternoon. Before we start, I would just like

to inform the media, certainly the television media, that you have a few moments

if you wish to take some more shots, and then we will ask for the cameras to be

turned off, if that is okay. So whenever you are finished you can let me know.

[Pause]

CHAIR: Ladies and gentlemen, thank you for

coming to the Public Accounts Committee hearing.

Some formalities first: I would just like to take

the time to introduce the Committee. My name is Ed Byrne, the MHA for Kilbride,

and Chair of the Public Accounts Committee. To my right is Tom Lush, MHA for

Terra Nova, vice-chair of the Public Accounts Committee; a new member, the MHA

for Port au Port, Gerald Smith; the MHA for Harbour Main - Whitbourne, Don

Whelan; to my right the MHA for Cape St. Francis, Jack Byrne; and the MHA for

Conception Bay South, Bob French. One other member couldn't attend because of

previous commitments, Ms Anna Thistle, MHA for Grand Falls - Windsor. I would

like to certainly recognize, as well, to the public meeting the MHA for Humber

East, who I believe is in the back of the room, Robert Mercer.

Before I get into what the hearing is about and why

we have called a hearing, I would ask the Clerk if she could swear in the

witnesses please. Before you do that, if the witnesses could please identify

themselves. If a committee member asks a question, could you identify yourselves

each time, as well? Could you do that for the record, please?

DR. WATTS: Harry Watts.

JUDGE LEGROW: Bruce Legrow.

MR. MULLINS: John Mullins.

MR. WATERMAN: Dennis Waterman.

CHAIR: Thank you.

You could swear them in, please. It will just take

a moment.

SWEARING OF WITNESSES

Dr. Harry Watts

Judge Bruce Legrow

John Mullins

Dennis Waterman

Claude Janes

CHAIR: Any other public servants here with respect

to the Department of Health as well.

Ms Marshall.

MS MARSHALL: To my right is John Noseworthy, who

is the Deputy Auditor General, and to my left is Mr. Claude Janes. Mr. Janes was

the audit manager on the audit. In the audience are Mr. Tony Dingwell and Mr.

Scott Walters, who are both auditors with the office.

CHAIR: Okay. Chris will be from the Department of

Health, I think.

MR. HART: Yes. My name is Mr. Chris Hart, I'm the

Assistant Deputy Minister. I have with me Kent Decker and Moira Hennessey.

CHAIR: I just want to explain to both the

witnesses and certainly those people who have taken the opportunity from the

general public to attend today's hearing that the Public Accounts Committee is

the only standing committee of the House of Assembly. The proceedings that you

are taking

part in here today, by the virtue of being here, are an extension of

the House of Assembly. Therefore, the rules of the House of Assembly would

normally, and do, apply to the proceedings of the hearing.

What will take place is that members will ask

questions of the witnesses. It will be very much an interaction exchange of the

issue at hand, and it will be free-flowing that way, from the witnesses point of

view.

The reason that the hearing has been called is

because, as a Public Accounts Committee we are primarily and only concerned with

the expenditure of public dollars. We aren't a partisan Committee, although the

Committee is made up of both government and Opposition members. Our role is not

to question government policy. It isn't within our mandate or the definition of

what we are about. It is strictly to deal with the proper and appropriate

expenditure of public dollars.

Most of our hearings result from the Auditor General's

report that is tabled in the House of Assembly each year around Christmas time.

There are exceptions, of course, and the Public Accounts Committee has requested

the Auditor General, from time to time, to look into specific situations or

circumstances that may take place.

Within our scope, I guess, or our mandate, wherever

public dollars are expended or spent, certainly the Public Accounts Committee is

concerned with the appropriate and proper spending of that money. There are over

some 200 Crown agencies, government departments, certainly that fall within our

purview.

The issue before us today deals with the Western

Health Care Board as raised in the Auditor General's report of last year when

tabled in the House in December. The Public Accounts Committee met shortly after

the tabling of that report to decide what in that report would we like to look

at. We haven't, in any way, shape, or form, singled out the Western Health Care

Board, because everything in the Auditor General's report this year we have set

on our priority list to look at. This is one of probably ten to twelve different

hearings that we will be holding throughout the Province on a variety of issues.

In terms of witnesses that we have requested today,

they certainly were in decision making positions. It is an opportunity to

exchange information and to share concerns that the witnesses may have with the

Auditor General's report. You may take exception to comments that the Auditor

General may make or vice versa. That is what the purpose of the hearing is, to

exchange ideas and to share that information for a fuller public disclosure on

the issue at hand.

With that, I would like to ask the Auditor General if

she has any opening comments. Ms Marshall.

MS MARSHALL: No, I have no opening comments, thank

you, Mr. Chair.

CHAIR: Okay. I will certainly defer then to Judge

Legrow as chair of the board, if he has any opening comments to make to the

committee before we get into the actual questioning.

JUDGE LEGROW: Thank you, Mr. Chair.

Just briefly, Western Health Care Corporation, I

guess, assumed control of the health care facilities in the Western region on

January 1, 1996. I think the Auditor General's report covered the fiscal year

April 1994 to March 1995, so mostly everything that happened, of course, in that

report, would be with regards to the Western Memorial Hospital. As I say, the

Western Health Care Corporation didn't get involved in the running of these

organizations till January 1, 1996, so the other three gentlemen with me

certainly would be in a better position to answer the questions regarding the

report than I would be.

CHAIR: Fair enough. Anybody else like to -

MR MULLINS: Yes, if I may.

CHAIR: Okay.

MR. MULLINS: I'm John Mullins, and I was the chair

for many years of the Western Memorial Hospital Corporation. As Bruce says, this

report covers a narrow time span, but many of the things that grow out of it go

back quite a number of years and involve a lot of board members besides myself.

I came here today to speak as a volunteer trustee who

has been around the system a long time. I have not had occasion to confer with

other board members, so I don't speak for other board members at all; I speak

entirely for myself. I have no staff, nor did I ever have the staff even when I

was board chairman, so what I say is largely based on what I can remember of

events that are described in these reports, and the events that lead up to it.

I jotted down a few comments while I was waiting. I

don't want to get into a long diatribe here on governance versus -

CHAIR: I think a lot of that will come out in the

questioning.

MR. MULLINS: It will, yes.

CHAIR: In terms of your opening remarks, that is

fine.

MR MULLINS: Okay. That is an important factor in

some of the elements that we will be discussing, and as you say it will probably

be dealt with. Fair enough.

I have perhaps two main points. I could make many

others, but there are perhaps two I might like to make. I come here to say to

you that the decisions we made over the many years that I was involved, I do not

claim that they were right. Maybe we got 50 per cent of them right, I don't

know. But I claim that we made the best decision we could in good faith with the

facts that were put before us at the time. I stand by that. There may be faults

and flaws and slip-ups, but I stand by that statement and don't intend to back

off of it.

The other thing - again skipping perhaps some of the

things I might have said - I have concerns here about process, somewhat, and

about public perception. This report was put forward to the public. Our

colleagues here were suspended by government. There was a thing hanging out

there that somehow a great investigation would be done, they would be cleared or

damned or whatever. As far as I know, that never happened. Mr. Waterman was

reinstated and Dr. Watts has gone back to his clinical practice. The only people

who are permanently out of the picture on this are the two board members who

remained. The other board members are anonymous at this point, but the two of us

who remained in the system were turfed out, as you well know.

As far as the public perception goes, many of the

things in this report are, I won't say technical, but they are policy items. One

can have a disagreement about them. That is not the way the public perceived

this. Perhaps I could best sum that up by quoting one lady at the bingo hall who

said: They must have done something wrong because their names are in the paper.

How do you get around that? I think when Dennis was reinstated I got a call from

a member of the media, and he asked me did I feel vindicated. I said: I don't

know, I don't know what you are talking about. What do you mean, vindicated? He

said: There are going to be no charges. I said: I would be almost as shocked if

that were the case than I am to hear you say this.

I think there was a cloud there that related policy

matters to some hint of wrongdoing. I don't stand here to admit any wrongdoing.

I think the decisions we made we felt we had the right to make. One can quibble

about that. We made them in good faith and I'm prepared to stand by them. That

is enough for now. I could say more.

CHAIR: Just a quick response. I think that

probably demonstrates the need for a process like this, that would allow for

either more information to get out or to dispel things that you may think are

not necessarily right or whatever the case may be.

MR. MULLINS: No, these are the issues I have.

CHAIR: Okay.

MR. MULLINS: In the report the details were we did

this and that on such a day. Maybe we did, maybe we didn't, I don't know; but I

stand by it. I will have more time as we go.

CHAIR: Anybody else? No? I will ask Mr. Lush if he

would like to start for us.

MR. LUSH: I would just lead right off, from the

top, with Mr. Mullins' statement when he mentioned perception. There is no

question, perception is what we are dealing with. I was reading an excerpt from

the paper at the time, and I will read it now and ask Mr. Mullins or anyone else

to react to it. It was the minister's statement at the time, Mr. Matthews, and

he was reacting to the Auditor General's report.

He said, and I'm quoting from the paper: The

overriding concern is the inappropriate expenditure of public funds. Then he

goes on to say: It is a matter of great concern that dollars provided for health

care purposes were taken out of the health care system. Would you like to

comment on that?

MR MULLINS: I share his concern. It is a valid

concern. I don't know exactly what he means by taken out of the health care

system. I think I know what he is getting at, but I share his concern, and

certainly he is right. I think the extent to which that was done and the

question of degree between what was health care and what wasn't is a pretty grey

area, in my opinion.

MR. LUSH: I think that statement, in itself, gave

the impression that there was money taken out of the system. I think, if I were

a board member I would want to clarify that in no uncertain terms.

MR. MULLINS: Yes. If you want to take it in that

sense, yes. When you spoke, I didn't take it in that context. I thought you were

referring to using it for purposes other than health care. I'm sure that the

words you used there are exactly those that registered with the public, without

a doubt, and led to what I perceive is this cloud or whatever that just will

never go away, no matter what you say.

MR. LUSH: Starting right from the top of the

Auditor General's conclusions, when she - and I don't know what page I'm working

from. I'm working from page 3 which says Conclusions, and under Management

Practices. The Auditor General says: "Significant problems were identified

during our review of Western Memorial Hospital Corporation and as a result, we

found the Corporation's management practices were inadequate. In particular..."

The Auditor General mentions an "accumulated back debt

of $4.5 million," and then went on to say that the Corporation "had loaned $4.8

million to the Board of Trustees Fund and the Special Capital Fund." The

question I want to put to the members is the last statement, which says: "In

addition, the Board has not determined how it will repay the $4.5 million owing

to the bank."

MR. MULLINS: That isn't my reading of it, or that

isn't my recollection of it. Dennis can speak in more detail than that, but as

to how that debt was run up, that occurred in a relatively short time span

toward the end of our mandate, perhaps five or six years. Dennis, you jump in

and correct me, because I'm not prepped very well for this.

CHAIR: I just remind the witnesses, when you go to

speak just say your name for the record.

MR MULLINS: (Inaudible).

CHAIR: I understand that, but for the public

record we need it; so thanks.

MR MULLINS: We will get around to what that money

was used for. That is on the record, and we have identified that. As I

understood it, we were going to repay that by an allowance in our budget which

had been discussed and agreed with the Department of Health. Dennis may wish to

be more specific or refresh my memory a little better on that. Go ahead.

MR. WATERMAN: If I may, Mr. Chairman, I think the

technical issue that is recorded here is certainly correct in terms of the size

of the debt and so on. But the way that the debt was structured and the way the

debt was incurred over a period of years certainly, I think, needs some

explanation. Certainly the inference that is made from the particular comment

here leads one to think otherwise.

The Board made some decisions over the years to carry

out certain programs. Some programs were of an operational type nature and some

programs were of a capital nature. Over the course of several years the cost of

these programs certainly built up to in excess of what the Board was able to

support from, let's say, it's own cash reserves. We continued on with these

programs because the Board felt at the time that these programs were necessary

in order to assure that the type of medical coverage available to the Western

Newfoundland area was appropriate.

It carried out programs of recruitment, it carried out

programs in one instance, for example, where the Board, through its private

funds, paid the family practice physicians doing coverage in the emergency

department a top-up to do psychiatry coverage. They paid them $150 or $105,

depending on whether it was a fee-for-service physician or a salaried physician

doing this coverage, for every eight-hour shift that was covered in the

emergency area.

The reason we did this is because at the time there

was no psychiatry coverage. We had no psychiatrists in Western Newfoundland at

all, with the possible exception, and depending upon the timing, of one in

Stephenville. Certainly in the Corner Brook area we had no psychiatrist at the

time. We made these payments in order to provide some measure of psychiatric

coverage in the emergency department. Whether it was done rightly or wrongly was

a decision the Board made. This was a void in our service and it felt that it

would put the private funds in to cover this service off.

The irony of this whole thing is that we had positions

in our budget from MCP for three salaried psychiatrists at the time. We made

several overtures to MCP to try and have this money redirected so that we could

use it to at least have some basic form of psychiatry coverage. That did not

happen. We were refused that money, based on the premise that MCP felt that they

were already paying for the fee-for-service or the salaried physicians to

provide the basic coverage there in emergency, and they would not top it up by

the $150 or the $105 amount that was prescribed. Consequently, this went on for

a number of years, and over the course of the years this was a sizeable

contributor to the debt that was incurred, in excess of $1 million.

That was one aspect only. Another program that the

Board undertook at the time was the medical sponsorship program. Again, this

goes back to the lack of specialists in the area of psychiatry and in other

areas throughout Western Newfoundland. We had a tremendous void in the number

and types of specialists that were required to provide what was deemed to be an

adequate level of service. The Board undertook to sponsor medical students to

the course of over - well, in most years, spending anywhere from $200,000 to

$300,000 per year. This again went on for a number of years, and again obviously

depleted the cash position of the Board, but these programs continued on because

again we felt that these were the necessary kinds of things that had to be done

in order to assure some kind of an appropriate level of medical service for the

forthcoming years.

If you take these two programs together, then

certainly there were several million dollars spent by the board in support of

these two programs, these programs that they felt were necessary. That, in

addition to some of the capital projects the Board undertook, very quickly

depleted the financial resources of the Board, but obviously were carried out

for reasons that were felt to be necessary at the time.

MR. LUSH: What is the financial status of the

Board now?

MR. WATERMAN: The financial status of the Board

right now - are you referring to the Western Health Care Corporation?

MR. LUSH: Yes.

MR. WATERMAN: The financial status of the Board

right now is in serious condition. It is a carryover of where we have been,

where we have been going. We have been attempting to bring in a balanced budget

under the Western Health Care Corporation, but as of the last set of

negotiations with the Province, prior to the happenings on the $20 million fund

which was announced last month, we were budgeting a $5 million deficit for the

current year. That will be mitigated somewhat by the fact that the Province has

announced at this point that it will support the organization to the tune of

approximately $2.3 million for the current year, with another $600,000 to be

made available for the next year.

It will also look at other measures to reduce the

deficit, let's say the cumulative affect of the deficit, because it is going to

be late this year to obviously initiate any programs to reduce the deficit in

the current year. But it will bring in measures to reduce the deficit and

recover the deficit over the next couple of years. This, of course, is

contingent upon the recommendations coming from the operating review which is

currently under way.

MR. LUSH: Finished for the moment, Mr. Chair.

CHAIR: Mr. Byrne.

MR. J. BYRNE: Yes, thank you.

When I read the report, it seemed to me - at least it

appeared to me - to be a pretty dire, I suppose, indictment of the workings of

the Health Care Corporation. Mr. Mullins made a statement that the perception,

if people read that - that is certainly the impression I got when I read it. I

believe, to be quite honest with you - and I understand that you were a

volunteer at the time and what have you - it was right that people would have

that perception from the readings of the report itself.

From my perspective, being on the Committee, I think

what we have to look at now is the problems that were there. We did have

responses from the board, and probably asked questions along the lines of: What

has been done to correct the problem, and possibly get to the bottom of why

these things happen in the first place?

One question I have: The Auditor General mentioned

that there was a $4 million line of credit. I'm wondering now is that is still

in place. What is the (inaudible)?

MR. MULLINS: I'm no longer on the board, so you

had better...

MR. WATERMAN: Yes, Mr. Byrne. Currently we have an

operating line of credit in excess of $4 million. It is currently at $13 million

as a result of the ongoing operations since this took place. We have a line of

credit in place with the minister's approval to this level.

MR. J. BYRNE: So, I think from that department

(inaudible). Now, we may appear to jump all over the place with respect to the

report itself, but on page 8, I remember reading that sometimes with respect to

the collection of bills, in particular from people who have been in the hospital

and what have you, you were talking about getting a collection agency in place.

What is the story on that now?

MR. WATERMAN: We followed up on that, Mr. Byrne.

Obviously, at the time when the March 1995 audit was done, and the subsequent

audit by the Auditor General's department, we did have a high amount of

receivables. Some of that was as a result of some software problems in billings

to Workers' Compensation. That isn't the only issue obviously, but that was part

of it. We were developing a new billing system to comply with the requirements

of Workers' Compensation. We did that get completed by the end of the fiscal

year, but obviously at that time we had an accumulation of a large number of

billings which were subsequently collected in the next fiscal year. That was

part of the issue there at the time.

Again, as far as the collection procedures are

concerned, we have had a revision of policies in the financial services area.

Accounts now basically that are deemed to be difficult to collect will go to a

collection agency.

MR. J. BYRNE: With respect to that collection

agency, I think I also read in the report that when you are hiring or

contracting outside help, professionals, what have you, there were some problems

along that line too. What have you done along those lines?

MR. WATERMAN: I am sorry!

MR. J. BYRNE: With respect to the collection

agency: If you were going to contract that work out to a collection agency, how

did you determine who would get that work?

MR. WATERMAN: We developed a set of specifications

and did a tender call.

MR. J. BYRNE: Okay. Also in the report I noticed

that there were loans and advances given to employees.

MR WATERMAN: Yes.

MR. J. BYRNE: I think that has been addressed in

the response there. Can you give us some criteria that was being used at that

time to give the advances and/or loans?

MR. WATERMAN: In response to that, several

different types of loans were available. First of all, I will address the issue

of physician advances. As part of the recruitment program, in order to attract

physicians to the area and to assist that physician when setting up and

purchasing the necessary equipment, finding the appropriate office space,

providing up-front expenditures and so on to get his practice in shape, the

corporation agreed that it will provide a loan of $20,000 to each physician on

an interest-free basis for two years, after which the loan would be repaid in

full or an appropriate amortization will be set up with an interest factor.

CHAIR: So again that was used as an incentive to

get physicians for the area? Is that correct?

MR. WATERMAN: That was used as an incentive to get

physicians, yes. That is correct. That was one aspect of it.

The other aspect was an Employee Assistance Program

which was set up to provide financial assistance to those employees who were

deemed to need such after going through a thorough evaluation by a social worker

on site, and after being subjected to a financial, sort of credit counselling

agency on the outside with recommendations back to a CEO. When those

recommendations came back to provide some measure of financial assistance, the

corporation undertook that it would set up a loan agreement with that individual

to provide such financial assistance to him, again with a recovery period based

on the individual's ability to be able to repay. That was one part of it.

The other part was the executive advanced salary which

came in back in 1983, and that was as a measure of remuneration to the executive

group back in 1983, whereby there were no salary increases granted in that

particular year. After consideration by the board, I guess an approach by senior

management at the time, the board agreed that it would provide a salary advance

of six months to each executive which would be paid back over the course of that

six months and fully repaid, at which time the individual would be able to draw

down another six months salary; so that was a part of it as well. I think that

pretty well constitutes the kinds of loans that were available.

MR. J. BYRNE: I am getting pretty specific here. I

notice here it says: Interest rates charged on loans and advances vary from 0

per cent to 11.5 per cent. What was used to determine if I were going to get a

loan at 1 per cent or if Mr. Jones were going to get a loan at 3 per cent, 5 per

cent or 8 per cent?

MR. WATERMAN: Basically, Mr. Byrne, the rates may

vary but they are based on the principal, and interest was applicable to it at

the then prime rate at the bank plus 2 per cent. So they may vary depending on

how prime was at the time. Essentially, those loans that were granted to

physicians were, as I mentioned earlier, on an interest-free basis, and

basically, most of the EAP loans, unless they were very long term for any reason

- and there were one of two of those - were subjected to an interest factor.

CHAIR: Mr. Lush.

MR. LUSH: The question asked by Mr. Byrne, when we

were talking about the loans and the advances, what is the status of these now?

Are there any outstanding loans, are they all paid or being recovered?

MR. WATERMAN: Mr. Lush, the status of all these

loans is: Number one, the executive advances have been discontinued for several

years. Well, the process of granting them has been discontinued for about two

years and the last one was paid six months after that, so they have been fully

repaid. The EAP loans are, for the most part, repaid with the minor exception of

one or two long-term ones for which we have mortgages on properties and so on

available. There were a couple instances when some of our employees were in

danger of losing their homes for private circumstances and the board undertook

to provide mortgage funding which was property security and so on and it is duly

registered. So some of those have not been fully repaid but will be. They are on

schedule in terms of the amortization schedule, but yet they have not been fully

repaid and we expect they will be. The bulk of the EAP loans have been repaid.

The physician advances, as they come due, are being

repaid. At this particular point, all of them, with the exception of one I can

think of, are being repaid on a regular schedule. The other one, we have had to

pursue one individual, but we are getting payment on that. I think we are within

a couple thousand dollars now of depleting that balance in full. So, for all

intents and purposes, those loans have been repaid.

MR. LUSH: Is that a normal practice in the

Department of Health, to grant EAP loans?

MR. WATERMAN: Again, I really cannot comment on

what is normal in other sectors. This is a program that we undertook as a

corporation, after due study of the problem and from recommendations that were

provided by, I think, the Occupational Health and Safety Committee at that time.

We developed a program in-house which we thought would be suitable for

addressing those types of concerns that our particular employees were bringing

forward. I guess, whether or not it was too generous from a financial point of

view is a question of

interpretation. Certainly, it was felt at the time that

the numbers we were using for those types of situations, when people were in

dire circumstances, were appropriate for those particular programs.

MR. LUSH: Who are the people? What types of people

qualified for these loans?

MR. WATERMAN: Any staff member who had any

particular financial, emotional or any other kind of problem. It was a program

that was more than just financial in nature but we did respond to financial

concerns. Any staff member, basically, and that could have been a nurse, a

housekeeper, dietary staff, whomever. We did have a system set in place, and it

is still in place with the exception of the financial component, where if

anybody had a particular concern, then there was an anonymous method for them to

consult the EAP counsellor to try and seek some relief for that particular

problem.

MR. LUSH: I am interested in finding out whether

this program was prevalent in private industry or whether it was something

unique to this particular board, and the board thought that this program was

necessary.

MR. WATERMAN: To my knowledge, Mr. Lush, thinking

back to when the program was set up, it was, I guess, an evolving kind of

program in many industries across the country. I think a lot of the private

sector had similar programs. I cannot say they were exactly the same as ours but

they did have similar EAP type programs available for their employees. I feel

quite certain that there are a fair number of publicly funded organizations that

also have these types of programs in place. These programs are still in place,

but they vary somewhat from one organization to the other. I certainly cannot

comment on anybody else's organization, but for our own, we still have this

program in place.

We do not provide the level of financial assistance

any more. Our financial assistance is limited to $50 and that would be in dire

circumstances, where an individual presents and perhaps has no money to buy

groceries for his family over the next week or so. We will provide funding up to

that level with the knowledge that it will be recovered from the next pay day

for which the employee is eligible. We do provide psychological counselling and

other types of services, social work counselling and so on, to those employees

who need it.

Again, we have information only on the (inaudible)

numbers on this program; as you can appreciate, these programs are kept strictly

confidential between the individual employee and the case counsellor who

administers the program.

MR. LUSH: Just a final question. Back again, just

following up on the line of questioning by Mr. Byrne: I think, in response to

Mr. Byrne's question, re the line of credit of $4 million, did you say it is now

in excess of that? Did I hear the right figure?

MR. WATERMAN: That is right, sir. We do have a

line of credit at this point of $13 million approved through the minister's

office. As you can appreciate, this is an accumulation of some deficit

operations for the last year and the ongoing deficit for the current year to

which I referred earlier. This is a matter that we have had many discussions

with the permanent help on and hopefully we will be able to work with the

department in resolving this issue. We go on record as advising the department

and the Western Health Care Corporation, that we obviously need to make some

program adjustments to get down to a balanced-budget situation. We obviously

cannot make those program adjustments until such time as we have a general

agreement with the department to do that. Currently, those matters are under

discussion. As I said earlier, there is an operational review underway, which I

am sure everybody has heard of, and we expect the recommendations from that

review sometime this fall. Presumably, they will point out some program changes

which will allow for, let us say, a lessening of the deficit that we are

currently experiencing.

CHAIR: Okay, just a final quick question, and then

I am going to defer to the Auditor General.

In terms of the line of credit, the $13 million

operating line of credit: Does that have a lot to do with the fact that

provincial monies that have been allocated through the Budget are late in coming

or, as a result of your daily expenditures or monthly expenditures, that the

monies coming from the Province are delayed in any way shape or form? Does it

deal with any aspect of that?

MR. WATERMAN: Yes. In fact, it does deal with some

of that, but certainly I think the main contributing factor to this is the

ongoing current deficit in our operations. We do have a current deficit. We have

attempted to deal with this deficit. At this point, we have not been successful

in dealing with it because we have not been successful in discussions or

negotiations with any particular program changes. That is basically where we are

at this point.

Presumably, when the operational review report comes

down, and that will be delivered to Cabinet, there will be recommendations made

to Cabinet whereby the operation of Western Health Care Corporation will be

affected to some degree, such that presumably we will be able to deal with the

deficit through those programs.

CHAIR: I will go to the Auditor General.

MR. WATERMAN: I think that is part of the mandate

that is given to the operational review consultants, to deal with not only

program restraints but also a debt management plan.

CHAIR: Go ahead.

MS MARSHALL: Yes, Mr. Chair. I would just like to

make a few comments on the testimony.

First of all, the line of credit of $4.5 million. The

concern that I have is that at some point in time the hospital is going to have

to repay that $4.5 million, even if the Department of Health funds a portion of

that. It will have to dip into existing programs in order to come up with the

money to repay that $4.5 million.

The other concern that I have is I've been trying to

track exactly what their line of credit is, and we haven't seen a set of audited

financial statements from the Corporation for the past two years. The only such

statements I've seen are the ones we looked at back in 1996, which was for the

year ended 31 March 1995. There are two years of audited financial statements

missing.

With regard to the physician loans, I would just like

to make a couple of comments on that. First of all, we could not locate any

board policy that provided for those physician loans. With regard to the limit

of $20,000, there were loans there which were far in excess of that $20,000. The

other concern I have about these loans is that the Corporation didn't have the

money really to lend out this money to physicians or to employees. It already

had a debt of over $4 million. Effectively, what they were doing was they were

borrowing from the bank so they could lend the money out. That of course was a

concern to me.

With regard to the loans to the employees, about

$36,000 was for the employee assistance program. There were many loans there to

employees; some were quite high. We had one here for about $22,000. There was

another one there for $15,000. I don't think that is appropriate use of public

monies.

With regard to the executive advances, that was

approved by a policy back in 1983. My

interpretation of the policy is that it

provided for a one-time advance just for that particular year. These advances

were given out up to 1996, which is thirteen years after that policy is

mentioned in the board minutes. I don't think that is appropriate either. In any

event, as I said earlier, the Corporation didn't have the money to provide

advances or loans, so effectively it was borrowing so it could carry out these

practices.

CHAIR: Would you like to respond to those

comments? Either member of the board or -

MR. WATERMAN: Again, the numbers that Ms Marshall

is quoting, I can't comment on those at this point or be specific. There were

instances where physicians were granted in excess of $20,000. That I do recall,

and there were special circumstances for those.

With respect to the policy coming out in 1983, again

this was an ongoing policy which we were following. I guess it was a practice at

the point after 1983. Looking back on the reference for it, it perhaps should

have been solidified more in terms of a specific policy. We did use that as the

ongoing policy, and certainly that was done with the full knowledge of all

involved.

CHAIR: In terms of the two years' audited

financial statements, are they on their way?

MR. WATERMAN: I'm sorry, yes. If I may comment on

that.

The problem here arises from the consolidation of the

various boards that took place effective January 1, 1996. At that point, Western

Health Care Corporation came together as a result of the merger of, I think,

seven different boards, each of which were operating on their own,

independently, and filing their own financial statements.

With the merger of operations we experienced

considerable problems in bringing together the financial records to the point

where we had some serious delays and we ran into, again, some personnel related

problems with the individuals who were working in those areas. The Director of

Financial Services at the time resigned from the organization, and his second in

command basically left the organization as well and left us without an

individual in that position for a period of up to almost six months before we

had a replacement there.

We went through the process of recruiting through the

system in the region, across the Province, both of which failed to come up with

a suitable candidate. By the time we went public and finally got a suitable

candidate, that individual worked his notice back at his then current place of

employment before he came with us, and that took just about a six-month period.

As you can appreciate, with the merger and the lack of personnel in that area

for that time, it did create a lot of confusion.

I can tell you that as of today we have finished a

nine-month financial statement for December 31, 1995, for all of the independent

boards prior to the merger. We have the March, 1996 statements essentially

finished. There are a few final touches to be done on that, but they are pretty

well in draft form at this point. The March, 1997 audit is well underway, and we

have a time frame as of the end of October to have those statements finalized

and submitted to the Department of Health. Again, we have been in constant

discussion with the Department of Health on these matters. They are very aware

of our circumstances, and again I think it is somewhat similar to other

organizations in the Province as a result of the merger issues and so on. We do

expect that we will have all of the financial statements tendered well before

the end of the current calendar year, and our financial status brought up to

date.

CHAIR: I have a couple of questions in terms of

the follow-ups that have been asked.

With respect to loans given to executives: The Auditor

General identified that there were no T-4s or T-4As associated with it which

would put, I guess, the corporation in direct contravention of the Income Tax

Act. Have there been any repercussions as a result of that? If so, what are

they? What is the nature of that now? If you could just elaborate on that a bit.

MR. WATERMAN: First of all, as I mentioned

previously, it is not an issue at this point because it is not in effect any

more. At the time, when these matters were current, we had many discussions with

the Revenue Canada individual who does the audits on our particular

organization, and he was certainly aware of this. Those loans that were

outstanding, it is my understanding that he basically wrote each individual and

advised them of the tax liability that they had incurred on that.

CHAIR: So it became the individual's

responsibility, then, to report it from an income purpose.

MR. WATERMAN: Yes, it was certainly an issue of

which Revenue Canada, through their auditor, was very much aware.

CHAIR: So the board brought that to their

attention, and brought it to the individual's attention; is that what you are

saying?

MR. WATERMAN: Well, we brought it to the attention

of the Revenue Canada auditor in our discussions with him.

CHAIR: Okay, Jack Byrne, you want one quick

question as a follow-up. Then I am going to go to Gerald Smith.

MR. J. BYRNE: I want to get something clear in my

mind. I don't want to appear to be beating a dead horse, but I am back to the

$13 million line of credit. Am I clear in thinking that you would be using that

now to finance the deficit that you have built up; and, if that is the case,

then in actual fact, because of the operations of the Health Care Corporation in

the past, what will happen in the future under the operational review is that

the people in this area will end up losing services in the health care

facilities in this area of the Province because of that?

MR. WATERMAN: If I may, no, Sir, I think that is a

misinterpretation of the intention here. The operational review, as I understand

it, will bring forward recommendations under the allegation that essentially

Western Newfoundland is over-serviced in terms of hospital beds and other

services. They have done a review. We understand that they will be bringing

forward recommendations which will, I guess, highlight that there can be a

reduction in certain services, bed sizes, with corresponding reduction in some

services, which will allow for program reductions and subsequently less cost,

which will obviously decrease the ongoing deficit.

The problem, of course, is that at this point we have

$5 million less income than we have an expenditure base at this point, and

unless that problem is curtailed, and that accumulates over the years which it

has done for the last year or so, then obviously it will continue to build. As I

say, we are in discussions with the department, awaiting the operational review

issues as well, to actually determine which program changes will be made. That

is something which at this point is outside of our control, until this in fact

does happened.

I did mention that in the $20-million reserve that the

government brought forward last month, there is $2.3 million available to the

corporation as a baseline increase for the current year, and discussions about a

$4.5 million one-time working capital injection into the organization as well.

So those measures will certainly help, and in concert with the operational

review recommendations and any actions that may be coming out of that,

presumably will allow the corporation to bring forward a balanced budget,

hopefully with some kind of a debt-management, debt-recovery program over the

next couple of years, to bring this back to a normal situation.

CHAIR: Just one quick question here.

It is not a situation that is unique to the Western

Health Care Corporation. We have just discovered, for example, the St. John's

Health Care Corporation is going to be in a deficit situation of about $4

million or $5 million this year. Next year, they are anticipating $6 or $7

million. The year after that they are anticipating a $10 million deficit.

The Department of Health has informed that corporation

that, by the year 2000 they will not be allowed to run a deficit. Has the

Department of Health also informed the Western Health Care Board that by the

year 2000, the board will not be allowed to be in a debt situation, and that if

you are, or you are running a deficit, you will have to clear that up for that

particular year, or by that year?

MR. WATERMAN: To the best of my knowledge, we have

had no official correspondence from the Department of Health on that particular

matter. We do understand that deficits are really not technically permitted. We

know that we have a serious deficit problem that we have to address, and we

continuously put forward suggestions and recommendations as to perhaps how these

matters might be handled if we have the approval to make the program

adjustments. We have not had the approval to do that. We have been told

essentially to put things on hold, carry on until such time as the review is

completed. At that point, we anticipate, with the program reductions, resulting

cost savings and the debt-recovery program, that given a certain point in the

future, be it year 2000 or whatever - we are not sure until we know what the

actual size of the program reductions might be - we fully expect that we will

have a balanced budget with a reasonable debt-recovery program involved in it.

We know we cannot carry on this way. The board is

aware of that. We have made our representation to the Province that we want to

get back to a balanced-budget situation, and hopefully that will happen before

the start of the next fiscal year.

CHAIR: I will get back to some of it in a minute.

Mr. Smith.

MR. SMITH: Thank you, Mr. Chairman. I am Gerald

Smith, the MHA for Port au Port.

As a person who represents an area within the western

region that is served by the Western Health Care Corporation, I am somewhat

familiar with the concerns being discussed here today. I should say, at the

outset, that I am hoping that this process will serve to clear up some of the

confusion that is out there. There is no question, in my opinion, that the

Western Health Care Corporation took a serious hit when this report was

released, in terms of credibility.

The people in my district, many of them, have raised

concerns with me and have asked me questions as to what has happened with some

of the things that are contained in the report. I know there were some efforts

made by the current Chairman, Judge Legrow, to address these concerns and lay

them to rest. But that is still out there, it is certainly still out there among

the people of the Province whom I talked to. So I think we should welcome this

opportunity, through this process, hopefully to lay some of these concerns to

rest. I think the only way we can do that is to really deal head-on with the

issues that are contained within the report.

The thing that people are really concerned about, the

people with whom I spoke, is the way the monies were used, especially the

advances and the loans. The ordinary people with whom I spoke, find it hard to

understand that. You know, I hear your explanation, for example, that in order

to attract qualified people to our region we have to put some of these things in

place. I am I'm not disputing that. My question to you right now - and I would

also ask, perhaps, the Auditor General to respond. I understand that this

practice of making loans and salary advances available has been or was in place

for some years. Is this common practice within the health care field?

MR. WATERMAN: Again, Mr. Smith, it is not an area

that I can comment on, because I really can't comment on anybody else's -

MR. SMITH: Okay, maybe the Auditor General. Are

you aware if this is a standard practice?

MS MARSHALL: No, this is not standard practice in

any health care institutions that we have audited. This was unusual.

MR. SMITH: So you have not seen this in other -

MS MARSHALL: No, I don't recall seeing it. I don't

know if you would (inaudible), Claude.

MR. JANES: Not to this extent.

MR. SMITH: Going back to what my colleague, Mr.

Lush, said at the beginning, when he was quoting the minister's statement in the

paper, I suspect what Mr. Matthews was referring to when he was talking was the

$500,000 - because if there was $500,000 there in outstanding loans or advances

or whatever, then presumably that is $500,000 that was not available to the

board of the day to use directly in health care. I guess that is what he was

referencing.

That is the kind of concern I get from people out

there. I know we have said today we aren't here to rehash what (inaudible), but

I think unless we are able to lay it to rest - and we are told now that has been

taken care of and it won't happen again.

Just to go to page 18 in the report, and quoting from

the report: "Corporate credit cards were used for personal expenses. In 1990, an

internal Corporation memo indicated that approximately $33,000 in personal

expenses were charged to an employee's corporate credit card and paid by the

Corporation from April 1989 to March 1990. This amount was recorded as an

account receivable; however, no payments have been made by the employee." I

think it has been indicated since then that that amount has in fact been

recovered. Can you confirm that for us today?

MR WATERMAN: Yes, it has.

MR. SMITH: Thank you.

Further on there: "Our review of 1994-95 credit card

transactions disclosed that the same employee charged $5,689 for personal

accommodations in Japan to his corporate credit card. This amount was paid by

the Corporation and was neither recovered nor recorded as an account

receivable." When I read this report, that certainly causes me concern on two

points. For example, the fact that it indicates here that it isn't even recorded

as an account receivable: Can you speak to that?

MR. WATERMAN: If at the time that was in fact so,

then that was subsequently changed. There could have been an accounting error,

but that was recognized as a personal expenditure by the individual involved.

That was accumulated with the other balance of the $35,000 approximately that

was shown there earlier. As a matter of fact, we did have an agreement put in

place for the repayment of that amount by the individual, and that agreement was

amended I think to reflect that as well. It certainly was recognized as being a

receivable of the individual. There was no intent to do otherwise with that. The

problem was that particular charge came in after the agreement had been

established for the repayment of the balance of $35,000.

MR. SMITH: To that point: Perhaps as well I could

maybe suggest to the present board chair, that I think in all fairness to the

individual concerned something needs to be said to that point as well. I'm

hoping the fact that it has been stated here today - because there is still

concern out there among the general public that that money has not been

recovered.

MR. WATERMAN: If I may, Mr. Smith, I can say

categorically that that money has been recovered in full from the individual

within the last year.

MR. SMITH: Thank you. That needs to be said and it

needs to go on the record, because it isn't out there, it isn't common

knowledge, and people are raising it with me.

The other question, I guess, that I have when I read

that is more in terms of the internal controls and auditing controls as such.

What reassurance can you give right now to the people of the Western region that

the internal auditing procedures and everything that we have in place to protect

the public, and to ensure that public funds being allocated to the Western

Health Care Corporation, are in fact going to be used for that intention?

For example, as an ordinary citizen reading that, I

would be concerned when a report says that this is not even set up as a

receivable. You can see the concern of the ordinary person looking at that and

saying that this is a significant amount of money. It seems to me that that

should have been picked up right away. One would think it would be.

MR. WATERMAN: I think it was a matter of timing,

Mr. Smith, since when the charge came in it was picked up. I can't say exactly

when. If it were done other than set up in the receivable, that error was picked

up reasonably timely after that. As I said earlier, there was certainly no

intent for that to go otherwise, and it was certainly recognized as a receivable

from the individual.

MR. SMITH: Again, all I can go on is the basis

that the Auditor General has produced a report which has drawn attention to

this. Maybe you might want to just elaborate on that.

MS MARSHALL: I have to clarify it so that you

understand what I'm saying here. The $33,000 went up to March, 1990. The

statements between March, 1990 up to 1994, we didn't look at those statements;

they weren't readily available. There may be charges on loans that were personal

in nature; I don't know. We didn't review them for that purpose. We did look at

the 1994-1995 statements, and that is where we identified this $5,689. That was

picked up by the auditors.

There is a comment there on page 18 that I just want

to bring to your attention. It says: "Due to the weak controls over corporate

credit card usage, other personal employee charges may have been paid by the

Corporation and not recovered or recorded." At the time of the audit, Mr.

Noseworthy did meet with Mr. Waterman, and I don't think anybody could give us

any assurance that all personal charges had been picked up. Now, there may not

have been any more personal charges, but we did not look at those statements for

that four-year period. I don't have a lot of faith in the internal controls.

CHAIR: If I could just ask the board to respond to

that.

JUDGE LEGROW: As you indicated earlier, the board

certainly took a hit credibility-wise when the Auditor General's report was

released. Since then I met with the Auditor General, of course, and I guess her

comment to me with regards to our board is that we weren't involved in what had

happened in the past, that we would be judged on how we addressed some of the

concerns raised. That was a concern of our board.

Since that time, in fact, our finance and audit

committee, as its main mandate, has taken all the recommendations of the Auditor

General in her report, and at our last board meeting, basically - we have now, I

think, addressed all of the concerns that she has raised to ensure that in

future we do indeed comply with Treasury Board policy with regards to salaries,

benefits, the management, et cetera, that the Public Tender Act has complied

with. All of the other recommendations mentioned in the Auditor General's report

will be complied with.

From the Western Health Care Corporation, that is all

I can say. We addressed the issues, we have dealt with all of them, and all I

can do today is try to ensure the general public that the concerns raised by the

Auditor General have been addressed by the present board.

MR. SMITH: One further question with regards to

this, and then I will defer to someone else: In terms of the last statement that

Ms Marshall just referenced here, that in fact the suspicion may have been - I

mean, in the absence of not being able to conclude one way or the other - that

there may have been other employees who were in a similar situation, did the

subsequent review of this - after the Auditor General's staff were asking these

questions, I would have assumed that internally someone would have gone back and

started checking these records to see were there, in fact, any other employees

who were identified in a similar situation?

MR. WATERMAN: As you are aware, Mr. Smith, I was

personally suspended by the corporation at the time when this came down. There

may have been two months when this was a very hot topic. It is my understanding

that the Department of Health officials came out and carried out an audit. I

know they did, because obviously by the time I came back and was reinstated I

dealt with the Department of Health officials in meetings. It is my

understanding that they carried out a fairly intensive audit of travel expenses

as it pertained to myself and any other executive. To the best of my knowledge,

at this point, that audit came up clean. I cannot say that there was nobody

else, but to the best of my knowledge there was not.

MR. SMITH: Okay, thank you.

Thank you, Mr. Chair.

CHAIR: Mr. French?

MR. FRENCH: I think probably Mr. Mullins said it

right, that perception, I guess, is everything in a lot of places sometimes. I

had the same concerns as my colleague, Mr. Byrne, when I read this report. As a

matter of fact, a colleague of mine said to me, "How do we get a job there?"

That is how much they perceived what they had read.

I am glad to hear that some of these things are now in

place, but I am still going to ask some questions as they relate to money

because it really bothers me. While the minister and I may not agree on a lot of

things, I do agree with him that it is money that I feel we certainly should

have had for health care.

I notice on page 3, in 1996 two computers costing

$14,646 were purchased by the corporation on behalf of a senior employee who

already owed the corporation $40,538 for personal expenses and $11,447 for

salary advances. There was no interest being charged on these amounts, and the

$14,446 was being repaid at $250 a pay period. My question is: Have all of those

debts now been taken care of, and was there, in fact, any interest charged on

any of this while the person was paying off those loans?

MR. WATERMAN: Yes, Mr. French, I would like to

address that particular question.

First of all, let me just say that the debts have been

repaid; but let me just talk about, for a minute, the nature of these particular

debts. I know the reputation of one of our senior officials has taken a terrific

beating in the media and throughout the Province, and I think that has been

unjustified in many, many areas. This is one circumstance where this individual,

because of the integrity that he showed, said: Look, I need to buy these

personal computers for basically business purposes, but because there is some

element of me having to take these home from time to time, take them on the road

with me, to carry out the work of the corporation, it may be misconstrued that

these are personal. Therefore, I will buy them as personal; however, what I

would like to do is put them through the corporation records and we will set up

a payroll deduction program where we can pay for these computers over a

reasonable period of time, which I think was about a year-and-a-half or so; and

there was a record set up for that. That individual - again, this was not a

personal expenditure of his. This was a true corporate expenditure, but because

there was some possible misconstruing of how that might be used, he did agree

that he would pay for those personally.

After this became an issue, my advice to him was:

Look, why don't you just put them through the corporation books, take back the

money that you have paid on them - he had paid several thousand at that point -

be refunded the money that you have paid, and show them as a true corporation

asset.

It was not an intention of buying a personal computer

for personal use through this method. It was a matter, I think, of a man's

integrity, of saying, `Because it can be construed that way, I would like to

take this most prudent route'.

MR. FRENCH: What you are saying to me now is that

all of this money has now been recovered?

MR. WATERMAN: Yes, Sir, it has all been recovered.

MR. FRENCH: Okay.

DR. WATTS: If I could, that person is me. Exactly,

as Dennis said, I did not want to charge them off against - when we didn't have

(inaudible). How could I say that my computer was (inaudible) and yet I was

doing two functions. I was doing work many hours after hours. I was on the road

continually. A portable computer was the only way I could communicate and do

things. My secretary wasn't only my own personal secretary; she was secretary to

two other people in the office. She didn't have time, so I did my own reports. I

was expected to turn them out. I did a newsletter for the corporation, which I

think Judge Legrow would say went out in a timely fashion. I did that on my own,

and if I didn't have that kind of material to support me, how was I going to do

it? Therefore, I had said that I would take (inaudible). At the same time, I was

making donations to a foundation in the insignificant amount of $2,000 a year

out of my payroll deduction. I don't think that I was trying to (inaudible) at

the time.

MR. FRENCH: It is certainly not meant that way,

but again I say that the Auditor General pointed it out in this report as a

flaw. Maybe, as she says in other parts of the report, information was not

readily available; and that is said in various other places in this report. If

that information had been available then maybe this

section would never have

been written. I say that to you as well.

MR. WATERMAN: If I may again just comment on that,

we did have some discussions with the particular auditors on that particular

issue. We did point out to the auditors the nature of that particular

expenditure, and why it was set up that way; however, it showed up in the report

the way it did and I cannot comment as to how that - we did make out points. We

did explain to them what was going on and why it was set up that way. Again, why

it showed up the way it did, I -

CHAIR: Bob, if I may interject.

Elizabeth.

MS MARSHALL: In effect, it was an asset belonging

to an employee of the corporation.

MR. WATERMAN: Yes, ma'am.

MS MARSHALL: And it was set up on the

corporation's books, and if that employee left he would take that computer with

him. I don't think it is appropriate that personal transactions and corporate

transactions be intermixed.

MR. WATERMAN: I understand the comment you are

making, but again I can only allude to the fact that it was deemed to be a

personal business transaction as such, where the computer was a personal

computer but was being used, for the most part, for business matters. Under

other circumstances that certainly would have been a capital asset of the

corporation and recorded as same.

MS MARSHALL: Yes.

MR. WATERMAN: But this was different.

MS MARSHALL: Well, if it was an asset that belongs

to the corporation and is going to be used by the corporation for corporation

business, then the corporation should have purchased the computer.

MR. WATERMAN: Well that is probably true, Ms

Marshall. We recognize that. Again, as I mentioned earlier, Dr. Watts did

indicate that there was certainly a personal aspect to this, where he was taking

it out of the office, on the road, and perhaps even using it for personal

business from time to time - that may be most likely - but certainly the bulk of

the business that particular computer was used for was certainly corporation

business. I can attest to that personally, having been on the road several times

preparing for meetings with Dr. Watts, doing preparation using his computer,

developing reports, developing scenarios and papers and proposals and so on

using that computer. That happened several times to myself, and I know the way

Dr. Watts travelled. He certainly used that for business purposes as much as

possible; however, he chose to pay for it personally and that was the method we

used. I understand it was not appropriate in terms of the financial regulations,

and perhaps we should not have done it that way, but that is the way it ended

up.

CHAIR: Okay. We are just going to take a

ten-minute break. There is some coffee and tea in the back for those who wish to

have it. We will start back at 3:20 p.m., and we will start with Mr. French.

Recess

CHAIR: Order, please!

If I can get everybody's attention for just a second,

the hearing is now reconvened and we will go back to Mr. French for some more

questions he has. Bob?

MR. FRENCH: Thank you, Mr. Chairman.

I would like to ask a couple of more questions and

then I will defer to my colleague, Mr. Whelan.

I guess as we go on today and tomorrow we will be back

and forth talking about money, but I would just like to get on to something else

here.

The Auditor General also pointed out, which is

something that intrigues me a great deal, having been out to Port aux Basques

and Corner Brook and attended a couple of health care meetings, and concerns

that were raised - one of the things that the Auditor General points out on page

4: A waiting list for surgery is not maintained by the hospital to provide

information on the demand of its services in this area. Has that now been

corrected? If somebody is expected to go for whatever type of surgery, do we now

have a waiting list, and is that list now prioritized so that we get the person

needing the medical attention first and so on? Has that now been done? Has that

now been corrected?

MR. WATERMAN: If I may - and I am sure Dr. Watts

will want to make some comments on this as well - the practice at Western

Memorial Hospital at the time was not to maintain an organizational waiting

list. We have a number of ORs and OR slates that are available to various

surgical specialists on a routine kind of basis. What we do is allow the various

surgeons to prioritize their own listing so they can bring in their patients as

they deem necessary, and they have the prescribed times at any time during the

week. So, we don't make the decision as to who comes in, who has surgery, or

what type of surgery. That decision is left with the particular surgeon for his

own patients on his own priority listing.

If we need to get information at any given time as to

what the particular waiting list might be for any particular discipline, any

particular type of surgery that is required, or whatever the circumstances might

be, then we have a mechanism of going back to the particular physician's office

and getting a recompiling of a particular list. So the priorities are done by

the surgeons, and I think that is probably the most effective way to do this to

ensure that those persons who need particular attention get it, based on the

priority that their own surgeon puts on.

I don't know, Dr. Watts, if you want to comment on

that.

DR. WATTS: Yes. Waiting lists are the most useless

method of saying what the demand for services is. We do have waiting lists. If

some physicians, some surgeons, wished to have them there, they were kept there.

We have had some who, particularly for (inaudible) surgery, who were on the list

for two and three years, and we would call them and find they had had their

surgery some place else, they didn't want to have it done or whatever. Yet they

were shown on the list as being in demand for service and they didn't want it.

The issue is that the physician or the surgeon

involved is probably the best person to determine who should get the priority.

Anyone who is emergent or urgent would be put on that short list. That is not a

really long waiting list because you don't want to hang around very long if you

are emergent or urgent. They would be put into a very short waiting list to say

that these have to be fitted in.

Emergents were done when they had to be done, urgents

would be done within twenty-four to forty-eight hours, and they would be done in

the open room space, open timing was done. If they couldn't be accommodated that

way, they would be accommodated hours after the regular surgery. From the point

of provision of services, of the actual keeping of a waiting list, it was done

if the particular surgeon wished it to be maintained in the admitting office,

but most of them did their own and they would determine who did it.

MR. FRENCH: I would just like to ask this. Again

on page 4 the Auditor General says: "We found instances of non-compliance with

the Public Tender Act. Five of 24 purchases reviewed were not tendered and the

Minister of Works, Services and Transportation was not informed in contravention

of the Act. In addition, four purchases that were tendered referred to a

specific model of equipment or equivalent and thus gave an unfair advantage to

certain suppliers."

I just wonder have we now done anything to correct

that in this particular instance. Because I do note - and there are some

questions here on that - that there are cases whereby if we specify a certain

amount of equipment then we eliminate, maybe, some other people. We have found

in some instances - and I'm sure we are going to find as we stay on this

Committee and go through it - that there may well be reasons as to why that is

done.

I have had phone calls from people in the medical

field who have said to me: I supply the same piece of equipment. This piece of

equipment does the same job. I just wonder: Are we now sticking to the Public

Tender Act, and have we refrained from specifying equipment if there is other

equipment out there that is just as suitable?

MR. WATERMAN: Yes, Mr. French, we certainly are

complying with the Public Tender Act in every way that we certainly can. As you

know, the Act is very restrictive in many areas, and as much as we can comply

with the Act we certainly intend to do so.

The two instances that you mentioned: There were five

particular tenders or purchases which were not in accordance with the Public

Tender Act. I've provided an explanation, I think, in the brochure for all of

them. All of them are for certain specific reasons which the Public Tender Act

provides the latitude to work within. The thing we did not do, which was done

sometime after the fact, and I agree should have been done at the time, was a

form B should have been filed with the House of Assembly, with the minister, to

indicate that we did not follow the Public Tender Act, as it were, for the

particular reasons that would have been outlined on form B. Both form Bs were

filed after the fact, and that again was an oversight in our materials

management department which was brought to our attention.

On that particular issue, we did follow the Public

Tender Act specifically because most of these were sole suppliers, emergency

suppliers and so on, and the detail has all been outlined. Unless you want me to

go through the detail that is there in the file, I think it is explained fairly

well.

The other aspect that you mention: When a particular

piece of equipment was used, let's say, as a specification for a tender call,

again, my understanding on this is that this is not a normal process, but it is

a process which happens from time to time; which not necessarily says that we

are going to buy that piece of equipment, but a piece of equipment, or a

purchase for a piece of equipment, can be called for using certain features that

one particular brand of equipment would have. They would say: Features similar

to XYZ piece of equipment that this would offer.

Again, we had some discussions with our materials

management people on this. We understand that this happens quite frequently in

the health care business where routine specifications for certain new types of

equipment, certain pieces of technology, may not be immediately available. There

is a piece of equipment which is held out as being a standard, and what they

have done is call for quotations based on the features found on that particular

piece of equipment, with the piece of equipment having been mentioned as a

standard. It does not, in any way at all, prohibit the purchase of any other

particular piece of equipment that can supply those types of features that have

been asked for. So while we use it as a standard, it does not mean that we would

purchase only that piece of equipment.

MR. FRENCH: So you can assure me today that any

purchases made now, that are outside the Public Tender Act, the reasoning for

this is being reported to the Minister of Works, Services and Transportation?

All of us, as a committee, certainly every so many months, I believe it is three

times, get a report in the House of everything that has been awarded without

going to public tender. So you can assure me now, that any of these things that

do not go to public tender will certainly appear in our report?

MR. WATERMAN: Mr. French, certainly that is the

policy of the organization and we expect our senior staff to comply with that

policy. If a form needs to be filed, then it should be filed within the

prescribed time frame. Again, we check periodically with those people and make

sure that it is done and, to the best of my knowledge, we will carry that out.

CHAIR: I have one more question.

The Auditor General, in her Report in a number of

instances, talks about contravention of the Hospitals Act, which governs the

Province. I understand that

an act which was put through the House of Assembly

recently (inaudible) dealing with health care, is still something that you as a

group, not you personally, operate under in terms of its legislative compliance,

the regulatory regime that is associated with it that would govern the

activities and management of the board.

Do you have any comments on that? Because it would

seem that there are two sets of standards by which you are being judged; one

being interpreted by the corporation at the time in terms of what gave it life,

in terms of the legislation of the Province, and the other is in terms of the

Hospitals Act. Do you see any merger of that taking place? Has there been any

discussion with the Department of Health that would consolidate that, that would

give probably a clearer focus or clearer direction to the board in terms of

actually what governs, ultimately, the actions of the board and its executive

and all employees?

MR. WATERMAN: The issue you raise is certainly one

of the most salient points I think that needs some discussion at this particular

hearing.

Western Memorial Hospital was set up by

an Act of the

Newfoundland Legislature in 1989. It was a specific act which was amended

several times over the course of the years, which gave the authority to a board

to be established in Western Newfoundland for the purpose of operating Western

Memorial Hospital Corporation. That act was very specific in many ways in terms

of the board's composition and the powers and authority that were conferred to

the board.

The board operated under that act right up until

December 31, 1995. At least, as far as the board was aware, that was a

particular piece of legislation by which it should have been operating. We were

advised by the Auditor General that the Hospitals Act which came in in 1971

superseded any other act, and we should have been operating under the Hospitals

Act as of the date it came in. That very well may be, but certainly over the

course of the years, every document that we filed with any regulatory body, the

Department of Health or whomever -

CHAIR: From 1971 to 1995: You are talking about

that period of time?

MR. WATERMAN: Yes, the whole period from 1949

right up to 1995.

CHAIR: When the Hospitals Act became enacted

through the Legislature in 1971, that is the act the Auditor General said should

have been governing the operations of the board.

MR. WATERMAN: Yes. I was not an employee of the

corporation in 1971 when the act came in, but it is my understanding that there

was never any information conveyed to the board from 1971 up to 1995 saying that

it was operating under the wrong piece of legislation; so the corporation

continued to operate under the scope of the Western Memorial Hospital Act which,

as I say, provided the board with some different powers from the Hospitals Act.

CHAIR: No Minister of Health, irrespective of

Party, from 1971 to 1995, ever informed the board of that, that you should be

operating under the Hospitals Act. Is that what you are saying?

MR. WATERMAN: To the best of my knowledge, that is

correct. As I say, any document that we filed was under the reference to the

Western Memorial Hospital Act. We, in fact, carried out discussions with the

Department of Health in the mid-80s with a view to consolidating the Western

Memorial Hospital Act and the Hospitals Act in general. Those discussions were

carried out over a period of a couple of years and were never completed as such;

and at some point in the late eighties I guess they were let go for whatever

reasons, but I presume it was because at some point we were looking at

regionalization of services anyway which presumably would change the whole

structure. Up until the mid-eighties there were discussions going on between the

Department of Health and the corporation with a view to merging the Western

Memorial Hospital Act into the Hospitals Act. As I say, they were never

completed and the corporation continued to operate under the scope of the

Western Memorial Act.

CHAIR: Mr. Mullins, I think you wanted to make a

comment.

MR. MULLINS: I was really only going to say what

Dennis has said, but since I was a board member through a good deal of this time

I would just like to reiterate what he said. We operated under the Western

Memorial Hospital Act which actually was formulated in '47 to build the hospital

you see up on the hill there. To be fair to everybody, the Department of Health

and everybody else, and successive ministers through the years, I could sit here

and say, well, nobody ever told me, and that is true, but at the same time I

don't recall that much occasion arose for anybody to tell me, if you will, until

rather late in, say, the eighties; and at that time there were lengthy

discussions about bringing Western under the Hospitals Act. That went on for two

or three years back and forth, what would be changed, how we would do it, and

this and that, and eventually that all became mute because the board was

abandoned and a new board set up. So it never did happen, but we operated as

though we were under the Western act.

Looking back at it, I don't remember, especially in

the early days, if it ever became an issue, if you know what I mean by that.

CHAIR: Dr. Watts.

DR. WATTS: Thank you, Mr. Chairman.

We had negotiations that originally started - I think

there were a number of hospitals which did not completely fall under the

Hospitals Act. There were certain areas that were different. Grand Falls was one

in Central Newfoundland, the General Hospital. I think Grand Falls was the first

to negotiate an agreement to become fully under the Hospitals Act. That is

certainly how it was to apply. There were a number of discussions held with

Western Memorial. One of our previous board members on our legal council gave us

advice that there were areas in that agreement that we should maintain the

ability to have some financial control of the western region to do the kinds of

things were felt to be necessary. That was one of the issues, and there were a

number of proposed agreements for codicils.

CHAIR: Issues that would have been particular to

this region of the Province, you are saying?

DR. WATTS: Right, and there were a number of

different sort of codicils which were going to be included if Western Memorial

had agreed. So there was an ongoing debate with the Department of Health and it

never got concluded. As I say, I think really in the whole issue of looking at

joint management and consolidation, which started with The Royal Commission and

moved on to the various (inaudible). So, our advice was that these were what we

operated on. Whether that was right or wrong, I cannot say. I am not a legal

person.

CHAIR: Auditor General, do you have a comment on

that?

MS MARSHALL: There is a

section in the Hospitals

Act that says: Where this act - meaning the Hospitals Act - conflicts with the

Department of Health Act or any other act, this act shall prevail. So it appears

that the hospital should have complied with the Hospitals Act.

CHAIR: In your investigation you didn't, I guess,

uncover anything - and I mean that in a positive sense, not that there is

anything to cover up - in terms of any discussions with the Department of Heath

over the year to -

MS MARSHALL: No.

CHAIR: I see a problem in that if a board is

operating under an assumption - and has for some time - without being given

clear direction, that there would be a cause for confusion, even though there

are two acts. It causes some concern in terms of decisions that would have been

made, probably, based upon what is in the act.

MS MARSHALL: I am not aware of any direction or

any of the discussions between the hospital and the Department of Health, but

the issue that we identified related to the debt of the corporation, and whether

it received the approval of the minister.

CHAIR: Okay, fair enough. Thank you.

MR. MULLINS: To follow up on that, we are not

arguing at all that we didn't know it was there or anything.

CHAIR: No, I understand.

MR. MULLINS: As I say, it never became an issue at

all.

CHAIR: It is a question of concern.

MR. MULLINS: It was fairly late in the game when

these discussions took place, and they came to nothing because it seemed to

become academic after the new boards were announced.

CHAIR: Why I ask it, and why it concerns me, is

because if we are operating under two sets of standards, supposedly one

assumption or perception is that you should be operating under the Hospitals Act

(inaudible) then it does cause some concern. It may be an academic question or a

moot point, but only when something occurs or a decision is made that

contravenes one act is when it really becomes necessary and when it becomes more

to the point to question, why is that so. I just clarify that.

I will pass it on to Don Whelan.

MR. WHELAN: Thank you, Mr. Chairman.

I would like, if I could, to get some idea, some

grasp, on the working relationship between the board and the administration. I'm

wondering how close the board monitored the day to day or the week to week or

the month to month operation of the Western Memorial Hospital. One of the

reasons I'm asking that question is because of the comments made by the Auditor

General on page 17.

She noted that during 1994-1995, 1995-1996, the

Corporation paid $374,714 to consultants "...for engineering services for a

capital project..." That is a fairly substantial amount of money. In her report

the Auditor General found "there was no written contract" between the firm and

the Corporation, that there was no call for proposals, and that "the Board did

not approve the selection of the engineering firm." That makes me wonder: What

was the working relationship between the Board and the administration, and how

closely was the day to day or the week to week or even the year to year

operation of the hospital monitored?

MR. MULLINS: When I made a little

preamble at the

beginning, this was what I was alluding to, the question of governance versus

management. It is a problem in public sector institutions, which we are talking

about here, but if you follow the business press you will see it is also very

much a problem with the corporate sector. What do board members know, and when

do they know it, and how do they control it?

I was chairman for most of it so I knew more of what

was going on than the average board member. I was perhaps consulted more often,

I sat on more committees, but even I had a private life too and a demanding job,

and I was limited in the amount of time I could put into it. Put yourself in the

position of an ordinary board member who shows up once a month and has a stack

that high in front of him, and he is there till midnight trying to get through

all this material.

The only thing you can do, from the point of view of

the board - and there is quite a bit of literature on this and discussion on how

this should be done, theories - is see to it that systems are in place. You

cannot monitor it yourself. You can't do that, I don't think. You can't manage

it. The last thing a board member wants to become is a manager. If you are an

engineer like I was, you are sorely tempted to go up and plunge into the

(inaudible). You can't do that sort of thing. You have to let the system present

itself to you in some fashion.

MR. WHELAN: At what point in time would you have

found out about an expenditure like that?

MR. MULLINS: Which one? I'm sorry.

MR. WHELAN: At what point in time, how long after

the actual -

MR. MULLINS: I think - Dennis may want to

contradict me, I'm getting a little rusty - we would have know through the

(inaudible), I think, roughly where that stood. We were not aloof from that. We

sat on committees that dealt with that project. It was a shared project. There

were others as well besides Western. We would more or less have known along the

way, you know. The same way with many of these things.

The only expenditure here that I was completely in the

dark on till it was brought to my attention was the infamous expense account. I

don't want to go back to that, but that is a fact. In the main, we were aware of

the things. I have to say that up front, that I don't wash my hands and say:

Management people did this. I don't do that. I was there, I was responsible, and

I take my share of the credit or the blame, whichever.

MR. WHELAN: What was the rationale behind the

expenditure without any proposal?

CHAIR: Mr. Waterman, did you want to make a

comment here?

MR. WATERMAN: I would like to respond to that one.

That is a certain particular issue for which the board was one partner of three

involved in this particular capital project. This project involved the

development of the DVA unit at the O'Connell Centre. Involved in that obviously

was the DVA department, and the Department of Health was involved, along with

representatives from the Board and administration at Western Memorial at the

time. The Royal Canadian Legion, I should also say, were involved in that

committee as advisors, more or less.

We had a tripartite agreement, along with the Royal

Canadian Legion, which met and basically made all decisions pertaining to the

development of that particular project. While I think the comment is stated

there that the board was not informed, that is certainly an issue where not only

was the board informed as to what went on there, but the board took an active

part in the planning and the decision making that came out of that particular

project.

The reference there to the engineering services. First

of all, as you are quite aware, professional services are not covered under the

Public Tender Act, and so obviously we didn't have to public tender that.

However, we were delinquent. We should have had a specific policy in place to

handle, I guess, the issuance of contracts for professional services. We didn't

have it in place at the time; we do now.

However, looking at engineering services, as you are

quite aware, any engineering work in the Province is carried out under a

prescribed fee set by the Association of Professional Engineers of Newfoundland.

So regardless, if you got an engineering firm from Corner Brook, one from West

Street, Corner Brook, versus one from the west side of Corner Brook, versus one

from downtown Corner Brook, you are going to pay the same rate because it is a

prescribed fee that they are all going to charge.

What we essentially had decided to do, as a

corporation, was to share the work for engineering services around to local

engineering firms whenever we possibly could, whenever the expertise was

available within the community to do so. Many times that was not so. If

speciality engineering or architectural requirements were called for, we often

times had to go outside the city; but whenever we could, within the city, we

would engage any of the local engineering firms that had the necessary expertise

to carry out the work for us.

In this particular case, we did engage one particular

firm, and that was certainly made known to all three parties involved plus, as I

say, the advisory group from the Legion, so it was certainly something of which

the board was aware. The committee minutes are well documented as to all of the

issues pertaining to the engineering services, and the issues pertaining

thereto.

I am not sure exactly how it was reported to the

Western Memorial board at the time, because Western Memorial was one of three

parties involved in the decisions on it.

CHAIR: Judge Legrow.

JUDGE LEGROW: Mr. Chairman, I guess from Western

Health Care Corporation's point of view, as Mr. Mullins indicated, the role of

board versus management is certainly a difficult one. Governance is an issue

with which we are presently dealing. In fact, the board is in the process of

adopting, I guess, a new role of governance model, called a Carver model, where

basically the board has one employee, that being the CEO. It is very difficult,

as Mr. Mullins indicated, for board members with certain expertise to want to

get involved in management. That certainly is not the role of the board.

With regard to, I guess, monitoring, this model of

governance also underlines where specific decisions of the CEO are monitored

regularly by the board so that there is certainly regular monitoring by all the

decisions of the CEO.

From a board point of view, and I guess a

chairperson's point of view, I frequently get calls, say, from press, with

regard to a specific decision made. I will say, "Well, I don't know anything

about that". They will say, "Why? You are the board chair". But that is a

management decision. I cannot get involved in the management of the Western

Health Care Corporation. I have a full-time job. It is difficult for the public

and the press to try to appreciate the role of the board and that of management,

and it is certainly a very confusing area. Board sets the policy and management

carries that policy out, and it is a difficult concept to sell.

MR. WHELAN: Mr. Legrow, just for public

clarification, could you give us your views as to what role the board has to

play in the health care system in Western Newfoundland?

JUDGE LEGROW: Okay. In a nutshell, as I indicated,

the board sets the policy. In other words, the board will say: Look, this is the

standard of health care that we are going to have in the western region. Whether

it be primary care all over and secondary care will be carried out in

Stephenville, in Corner Brook, or whatever, we establish policy. We say to

management: Here is the service you have to provide; you go provide it.

I guess that is the way - the board does not get

involved in the hiring of an accountant here or a nurse there, or things like

that. A lot of management decisions that happen, in a sense, are no business of

the board because it is a day-to-day running of the operation, in which really

board trustees cannot get involved.

CHAIR: If I could just interject, I wonder if the

Auditor General could make a comment on the board versus management, because it

is an important issue. It is a grey area, and it is -

MS MARSHALL: I agree with Judge Legrow regarding

the role of the board in establishing policy. The problem we have with this

particular item is that there was no board policy established. So I was

wondering, how did that particular firm get selected? Especially when you are

talking about consultants, where there is a significant amount of money spent -

in this case it was about $375,000 - I question: How was that firm selected? Why

was that one picked to receive this job?

In the absence of a board policy, I inquire: Well, did

the board select and approve this particular firm? Who exactly selected them?

Was it clerical, or a manager, or a director? Who, exactly, and what is the

policy of the board regarding consultants? That was the issue with which I had

concerns.

CHAIR: Would you like to respond to that, because

it is the question that comes to the point, I think.

MR. WATERMAN: Certainly.

The issue of policy is one where there is no specific

written policy; we will agree with that. Also, the fact that -

CHAIR: Even to this day, Mr. Waterman?

MR. WATERMAN: Pardon me?

CHAIR: Is there a policy today?

MR. WATERMAN: Yes, there is. There is a policy

which has been formulated and is in place. We have a particular division of our

organization that is responsible for engineering services, for facilities

mainly, which covers off engineering services. We do have a policy which will

cover us from here on in, but at the time, as it was not covered under the

Public Tendering Act, the decisions were made in consultation with the director

of that particular area in consultation with the various engineering firms, to

determine basically those who were able to carry out the work, and to select one

which would be acceptable to this tripartite committee. The recommendations were

brought forward to this committee. I cannot vouch for the wording, but at a

committee meeting they were accepted, that this engineering firm would carry out

the work.

CHAIR: When you say that consultations were

carried out with various engineering firms, can you elaborate on that?

MR. WATERMAN: Not having been directly involved,

Mr. Chairman, my understanding on that is that the individual brought forward

recommendations to the committee based upon discussions with the engineering

firms, presumably on hours and so on that it would take to do this, with some

discussion about the scope of the job to be undertaken. After due consultation,

he brought back some recommendations to the committee. That is my understanding

of it.

I should qualify that by saying I was not party to all

those committee meetings but I was very much aware of the project being

undertaken. Perhaps Dr. Watts or Mr. Mullins may wish to comment on that.

MR. MULLINS: That is essentially correct.

CHAIR: Don, do you have a question on that?

MR. WHELAN: What do you feel is your

responsibility, Mr. Legrow, when you see a health board or the hospital system

running a debt of approximately $5 million? It goes against the hospital act, as

far as I understand. The Board is not supposed to run a debt. What action should

you or should you not have taken when you saw that type of thing happening?

JUDGE LEGROW: In fact, Mr. Mullins might be the

right one in that. As I say, from the Western Health Care Corporation's point of

view, it was a debt we inherited when we took over the -

WITNESS: (Inaudible).

JUDGE LEGROW: Yes, the other institutions.

MR. WHELAN: Maybe it would have been more

appropriate for Mr. Mullins to -

MR. WATERMAN: Can I ask for clarification? Are we

referring to the current level of deficit that the Corporation's undertaken, or

the ongoing accumulated debt?

MR. WHELAN: Well, it was accruing for a number of

years.

MR. MULLINS: Yes, but the question of deficits is

not new. I think I said a little earlier that somebody in the media called me at

the beginning of this ruckus and asked: Is it common to have deficits? My answer

was: I knew unofficially it bloody well was common, but officially I don't know,

because you aren't supposed to have deficits. You are forbidden to have

deficits.

The problem that arises, however, is the patients keep

coming to the door. So what do you do? When you get to the limit of your deficit

do you go down and turn the sign over like the barber does and say: We're

closed? That is the problem. I know we are sitting here now and we are talking

about loans and all these things which get a very high profile, but at the end

of the day they don't cost very much money and they don't matter a whole hell of

a lot to your operating deficit. That is a fact. If you are going to make a

major impact on a deficit of $5 million or $6 million, you better do something

major in operations. You just can't do it.

Seventy-five per cent of your cost is labour, labour

benefits, so you have to attack that area. There is nothing else you - what can

you do? You have to shut something. The way deficits are arrived at in many

ways, one of the classics is that you go through the budget negotiating process,

which probably will get discussed here somewhere, and you agree a number with

the government, or rather you are told what the number will be. In general, one

agrees with that. We have debates behind closed doors which are acrimonious at

times, but nevertheless a number is arrived at.

Now, if the year goes on, if you go through your

fiscal year and you hit that number and you start to go beyond it, and you made

certain commitments - for example, a few years ago here we had an awful ruckus

about the twenty-two bed closure. As I recall now, and Dennis or Harry can

correct me, but I believe that was built into our budget, that we would have

twenty-two beds down. We didn't get them down in time, for a variety of reasons.

There were legitimate reasons, there was great public pressure, but every day

they stayed open was a nail in our coffin budget-wise. I don't know how you cope

with that decision. What do you do? You trim some small things, but to get a big

chunk of money you have to (inaudible). Am I answering you?

MR. WHELAN: Yes, it is giving me an understanding

of the situation you find yourself in. I appreciate it now.

MR. WATERMAN: Can I make a comment on the process

of that too, having been involved in the process with the board and senior

officials many times over the years? Certainly, the whole issue of a balanced

budget is one that is taken quite seriously at the board level. We undertake a

very rigorous planning process to try and come up with the appropriate methods

to ensure that we come up with a balanced budget. What we essentially do is

develop these programs and we come up with an impact statement as to what it

means to implement these kinds of programs on the general level of health care

throughout the region.

This impact statement is vetted through our senior

management, it is vetted through our finance committee, and it is vetted through

our board before it goes anywhere. Once the board accepts this impact statement

as being the route that we should take to try and curtail deficits, or to bring

our operation back to a break-even basis, then we enter into discussions with

the government, with the Department of Health - I should say the Department of

Health because it is not necessarily the government - and from there, depending

on the nature of those programs, we may or may not be able to implement them

totally or at all in some cases. So if we are not able to implement we have to

go back to the drawing board and try to come up with more. So it becomes a

source of ongoing discussion from time to time as to the route we take.

Unfortunately time goes on and you don't just cut your

expenditures overnight if you have to make some program changes. There are all

kinds of collective agreement issues to which you have to adhere. These things

cost money. It is like trying to turn around a tanker out in the Bay of Islands.

You cannot do it in five minutes. You have to have programs in place. You have

to allow for the additional cost over time until these programs can be fully

implemented. People who are displaced from programs have to be, by virtue of

collective agreements, handled in some other part of the organization. That

costs money. You cannot lay off people in certain areas immediately. Collective

agreements tell you, in certain cases, that if an individual has x number of

years of service, if you are going to try and displace that individual, you are

going to have to pay up to thirty to forty weeks' salary just to be able to do

that.

All of these things cost money, so it is not an easy

task to try and turn around an organization such as one the size of the Western

Health Care Corporation, or Western Memorial at the time. It is a big

organization and we are impeded every step of the way in terms of trying to take

these kinds of actions.

I think the committee should be aware that it is not

an issue we take lightly. It is an issue on which we spent an inordinate amount

of time in planning and coming up with programs, program changes, to try and

meet that balanced budget condition. It is not always within the purview of the

corporation of the board to be able to make those decisions. It is a joint kind

of issue and a very tough issue to come to grips with, especially when you are

dealing with a deficit as high as we are dealing with right now.

JUDGE LEGROW: Mr. Chairman.

CHAIR: Go ahead.

JUDGE LEGROW: It is also an issue that can draw, I

guess, public wrath. As Mr. Waterman indicated, an impact statement is prepared

with regard to - as an example, I guess, in 1995-'96 we were told that we had to

take a significant amount out of our budget. Dr. Watts prepared an impact

statement, presented it to the board, and basically the discussion was that this

amount was significant, that you could not just take bits and pieces out of

here, that to take that amount of dollars out of the system would result in

significant changes, whether it be closing an institution here or there.

Of course, you are all aware of the fact that that

document got released to the press, and two weeks later we had 800 people - Mr.

Smith will remember - at the Arts and Culture Centre in Stephenville, saying

that the board was going to close down Sir Thomas Roddick Hospital. We had no

intention of closing down Sir Thomas Roddick Hospital. What we had done was

indicate to government: Look, if you want us to take this number of dollars out

of our system, this is what we are going to have to do.

CHAIR: This is what the impact will be.

JUDGE LEGROW: Yes, would be, if that is what we

had done. Of course, as I say, the process got sidetracked by the fact that the

document was leaked to the press and to the public. It goes to show what can

happen in the process.

We do take deficits fairly seriously, but it is

difficult, almost impossible, to address them, to get rid of them. Certainly,

you have to face facts; government is going to have to bail us out. Let's face

facts now. We have a deficit of $6 million.

CHAIR: If that doesn't happen, then the reduction

in services will be -

JUDGE LEGROW: Obviously significant.

CHAIR: They will be swift and immediate; is that

what you are saying?

JUDGE LEGROW: That is the only way you can do it

now.

CHAIR: Dr. Watts?

DR. WATTS: Thank you, Mr. Chair.

I think that one of the issues - you have talked about

governance and what the boards did and so on, one of the directions the board at

Western Memorial Hospital gave to us, as senior staff, was that we were to, when

making reductions, spare direct services to patients, and that our function was

to provide services. Therefore, we tried to be innovative in the way we did

things at Western and to cut out issues which were not going to affect patient

care, or as little as possible.

These are the kind of things that we would do, as

Dennis has said. We would put together a package, we would talk to the board

about it, they would agree, and then we would go talk to the department about

what we were into. So we did a number of things.

One of the earliest things I can remember, there was a

big kerfuffle about Western cutting out the uniform allowance. Now it hurts the

people who are buying and so on, et cetera. That doesn't sound like much, but as

Mr. Mullins has said, 75 per cent of our costs in the health care system are

basically wages and benefits. We felt that, you know, saying that people didn't

have to wear a specific uniform in the contracts would be one way of saying

that. I think it was at that time $35 a month.

MR. WATERMAN: I think $130 a year.

DR. WATTS: So for the number of employees we had

that saved. But once that kind of money has been taken out, the next year you

cannot save that again. It might have been simpler, from the budgeting point of

view, to reduce services at that time, because that has a major ongoing savings,

and then the next time it came down we might have been able to reduce, say, the

taking out of the uniform allowance.

We had reduced the number of support staff. In areas

like administration, we reduced significantly the number of people that were

there. We reduced significantly the number of people who were involved in, say,

the accounting department, at the same time taking on greater responsibilities.

I guess, maybe we cut too far there, but our direction from the board was to try

and put forward a plan which would not hurt patient services, and we tried to

keep those going as long as we could.

There was always a trade-off of how much do you do,

how far do you go with these types of services, what can you reduce in other

areas. Some of them become very unproductive over time. You can cut out

maintenance for a short period of time, but if you leave it for any length of

time then your whole capital projects are going to go. We tried to be

innovative, and a lot of the things that we did came with that (inaudible).

One of the things was the EAP program we talked about

earlier on. We felt that if we had people who were able to work, employees who

were able to work, who were not stressed, that they gave a much better level,

and it has obviously worked. In the literature it showed that that worked. We

felt that putting money out to provide those services, whether it be in services

in counselling or whether it be to help them through their debt problems,

particularly for the hard to recruit specialists - some of these areas that we

are talking about were paramedicals and medical people who were in trouble and

they were not able to function. So we helped to maintain the services that that

(inaudible).

That was one of the board directions that was given to

us; try to do things which are not going to impact on the service level, to

impact on the supports and so on, to try and do as much with the dollars that

were there.

MR. MULLINS: I just want to go back to a point I

made earlier, probably for the third time. This is an area, as I said, where we

could get in trouble. We are talking about this deficit thing. From this report

one draws the conclusion that all these problems would be resolved if the

expense account hadn't been run up, if we hadn't made loans to employees,

doctors and so forth. People jump from that to the fact that we have currently a

$6 million deficit.

That isn't true. Those things didn't cause it, and to

correct it requires a hell of a lot more than that. That is a very important

point that has to be taken into account there. I think you people should

thoroughly understand that. There is no easy way; there is no quick fix. You can

only put so much water in the soup. After that you have to think a lot about it.

CHAIR: I will let Dr. Watts just clue up fairly

quickly, and then we will go on to Mr. Whelan. Do you have another question?

MR. WHELAN: I think I will reserve my other

questions probably until tomorrow.

CHAIR: Okay. Did you want to clue up quickly on

that point, Dr. Watts?

DR. WATTS: Yes. I think you have to recognize

where some of these issues of the debt came from. A lot of them have payment

mechanisms built into them. Western Memorial Hospital Corporation originally

operated the Western Memorial Hospital, and that was it. Back in the early 1980s

Western Memorial Hospital assumed the operation of the cottage hospital in

Burgeo.

There were a number of significant problems which we

had to deal with in Burgeo, one being that it was a very inefficient plant. It

was eventually decided that the board, to save dollars on the operating costs,

would insulate the building and put on new siding and so on. For two reasons:

One, in that there was a great fear that this was Corner Brook taking over

Burgeo, and they had to see some positive things that were going to come out of

this realignment, from their point of view; and two, it would save dollars on

the maintenance side, which would be able to amortize the cost of that. That

would have to be set up as debt which then had to be paid down. That is one type

of thing.

We were then given the operation of the Bonne Bay

area. There was a clinic there in which the physician was operating where he

could not talk to a patient without the other patients hearing. If he wanted to

get into his filing cabinet he had to break down the examining table. It was a

very rudimentary operation, and I don't think it is acceptable in this day and

age for physicians, and it was one of the problems of maintaining people there.

So the board, in its wisdom, decided that if we were going to operate that then

we had to provide some sort of service, and they built a clinic. It is amazing,

when you start to build a clinic, what the expectations are, because we had

consultations with the public there. They had some people who were wheelchair

dependent, and they wished to have it. We wanted to have a physio service

system. We were fortunate enough to have a physiotherapist in the Bonne Bay

area, so there was an area to be built for that. Then it had to be built onto

it.

Getting land was difficult. Eventually we got some

land there which we developed. Then it required a second storey, but it had to

be wheelchair accessible and it had to have an elevator, and the cost of that

particular - but the Hospital Corporation said, we need to do this to provide

the kinds of services, and we have a method of paying that off, which was

basically: when we took over the operation there, the physician had been

providing medications. We said that we didn't think that was appropriate, that

we would provide the medications but they should not be subsidized; they should

pay the same rate as you would pay in a pharmacy in Corner Brook, and that the

monies, the profits that were made from that, would be used to pay down for that

operation. Again, that was set up as part of the debt.

The same thing happened in Jackson's Arm when we were

there. Then, as this grew, the financial picture, then it came to: Well, we will

cut back. Rather than cutting out services we will slow down the repayment

process for some of these, and that is where a lot of it came from. So they were

done providing services to the rural areas, services here in Corner Brook, that

we wanted to maintain. Then that showed up as more of the kind of debt that was

being carried.

CHAIR: A quick question. The Auditor General, in

her report, identified - and I am quoting from her report - "On 23 September

1991 the Minister of Health informed hospitals of a Government decision to

request all hospitals to eliminate the provision of monetary and non-monetary

supplements to management staff. Our review indicated that the Corporation did

not comply with this for the 1994-95 fiscal year as follows: 100 per cent of the

premiums on the executive and managers' long-term disability insurance was paid

at a cost of $75,050. Of this amount, $37,525 was charged to the shareable funds

as regular employee benefits to be funded by the Province while the remaining

$37,525 was charged to the Board of Trustees Fund. 100 per cent of executives'

group health, group life, and voluntary insurance was paid at a cost of $9,853.

The Corporation also matched its managers' dental plan premiums at a cost of

$28,242."

The Auditor General goes on to say that, "If the

Corporation had complied with the Government directive, they should have paid

only $3,500 of the insurance premiums. As a result, the Corporation contravened

Government policy and provided monetary supplements..." - to its executive staff

- "...totalling approximately $109,645".

That is a significant amount of money. The question

is: Can you comment on this point? Why was that decision made? You have just

talked about reducing supplements for staff on uniforms. As Mr. Mullins alluded

to, if you are trying to save money, 75 per cent of your budget goes toward

staff and salaries and operations. Could you comment on why that decision was

made, number one, how it came about; and, number two, what is the current

board's current policy on this?

MR. WATERMAN: If I may comment on that, first of

all I will comment on the current board's policy.

CHAIR: Okay.

MR. WATERMAN: Essentially, all of these issues

have been dealt with to the point that none of them are in place at this point.

There has been a new set of management policies accepted by the board which

precludes payment of any of these issues; so that is over, finished, at this

point.

I should like to go back to the comment that you made

about the minister's letter, and I think you referenced September, 1991, as -

CHAIR: That is what is contained in the Auditor

General's Report, in the information that we have.

MR. WATERMAN: Yes.

CHAIR: Again, I think, from the point of view of

my colleague, as Gerald Smith has said, it is important to ask the question so

that some closure can be had with this, you know?

MR. WATERMAN: I would like to comment on the whole

issue of the use of board funds. This has been an issue which has been ongoing

for a number of years between the Minister of Health and the various boards; not

only with Western Memorial Hospital Corporation, but certainly with all the

other hospital corporations throughout the Province. I can comment on that

because previously I acted for a term as the president of the Newfoundland and

Labrador Health Care Association, and this was an issue which was current at

that particular time. I'm talking perhaps only two years ago.

The Minister of Health, over the years, has issued a

number of directives with respect to the use of board funds. Each of these

directives were challenged from time to time by the various boards saying that,

in essence, the boards should retain the right to use board funds for their

specific purposes as long as they felt that they were using them in the best

interests of health care.

In terms of the monetary supplements, that hasn't been

an issue with the Western Memorial Board for quite a few years. There was a time

when there was a non-shareable supplement, a board supplement, paid to certain

individuals within the organization, and they were based on a need to recruit

basis, but those were all eliminated at least ten years ago, if not longer.

Some of these programs came in over time. The board

felt that within the scope of the legislation under which it was operating, and

with respect to the lack of clarity with respect to the minister's directives on

the use of board funds, and the fact that these were challenged by the system

and were never accepted by the system as being the directive, the board felt it

was still within its scope to be able to continue on these particular funds.

This has only recently been settled.

I would refer you to page 331 of the document which

shows the document from the department which is, again, "Guidelines Respecting

the Use of Board Funds." This was issued in January 1997, the current year. It

is as a result, as a matter of fact, of discussions that took place between the

Association and the Department of Health through its liaison meetings back and

forth about the particular tenets of this particular guideline. Some of these

the various members of the Association felt were not appropriate, and they

shouldn't have to be restricted by some of the issues that were there. In the

final analysis, when it was all said and done, after a number of discussions,

the association did accept these as being the guidelines. Again, that was only

in January 1997. Prior to that, over the years, the minister issued a letter

from time to time with respect to the use of board funds, but every time a

letter was issued there was a challenge issued back, and the thing was never

totally resolved at any point in between.

I think it is safe to say, at this point the system

has accepted the January 1997 guidelines and it's prepared to live by them.

Prior to that, the board felt that it still had the right to spend those monies

as they deemed fit.

CHAIR: So the board considered the minister's

directive as not being applicable in this instance because you were spending

board funds. I would like to ask the Auditor General if she would make a comment

on what her feelings are on that.

MS MARSHALL: I would interpret the minister's

policy and check to ensure that the organization complied with the policy as

prescribed by the minister. I wouldn't make any allowance for the board, whether

it felt that the policy was right or not.

The amount of money that goes into those board funds

primarily does come from resources that are public resources. For example, if

the Department of Health pays you your advances in advance and you earn interest

on it, that is what goes into the board funds. If someone is in a private or

semi-private room, some of that revenue goes into board funds. Almost all that

goes into board funds gets generated from public resources. I don't see that as

being in dispute, that the minister can't prescribe some sort of policy over

those funds.

MR. WATERMAN: That may in fact be, and certainly

the source of the funds has never been in question. We do recognize that the

income that has been generated in the board fund over the years, when there was

money available for investments, was certainly part of the source of the private

funds of the board. The one differential is there is a prescribed amount on

every dollar that is paid for a private or semi-private room which the board is

able to retain for its private funds.

We also, as Dr. Watts mentioned, ran a retail pharmacy

operation on the Northern Peninsula. The surplus from that area was part of the

board's private funds. We also ran parking meters on a property which were

purchased from board funds which generated $60,000 to $70,000 a year in income.

These were part of the board funds. There were other commissions and so on that

were paid for, smaller items, but it mounted up to probably $10,000 a year. In

the good, years all these particular revenue sources were part of the board

funds. I grant you, some of it did come from the use of the investment of the

advances when cash flows were in a much better position.

There was always a question of the use of the interest

that was generated on those funds. There was never a directive that I'm aware

of, or never a directive that the Board accepted - and I think I can go on

record as saying that the system in general accepted - as to the minister having

particular control over the use of these particular funds. It was challenged

continuously by the boards and the health care system in general.

MS MARSHALL: But these are public resources, and I

think that the minister is entirely within his right to prescribe the policy. I

don't think that those funds would be left up to the boards to exercise

discretionary decisions over.

MR. WATERMAN: That very well may be, with all due

respect, madam, but it was an issue. It was an issue that we dealt with, and the

boards felt that their position was opposite from what has just been expressed,

and that they did, in fact, have a right to spend that money. They did challenge

the minister's decision many times in the past on that. As I say, it was never a

situation that was fully resolved until January of this year in this particular

document, which came out originally in the fall of 1996 or probably even the

summer of 1996. It was discussed among the various boards and, in fact, went to

the association as well.

I do recall some discussions with the Department of

Health on this as to certain parts of this particular