Court documents reveal more details about Networc dispute with AHS

Plenty of troubling facts have emerged in the media about the bankruptcy of Networc Health Inc., the private Calgary surgical clinic that Wildrose Alliance Leader Danielle Smith says Alberta taxpayers should bail out and keep operating.

For example, it is well known to the public from mainstream media reports that Alberta Health Services has intervened in bankruptcy proceedings against Networc in order to ensure that hip and knee surgeries can continue in the Calgary area, and that this court action has turned into an increasingly acrimonious public battle.

It has been reported that in order to keep the private surgical clinic afloat, AHS has had to fork over $765,000 in receiver costs, $1.3 million in secured debt (in the form of two CIBC lines of credit acquired by the province-wide health "superboard" in May 2010) and in operating costs through to January 2011, including $960,000 in rent.

It's also been reported that a deal under which AHS would have hired employees from the private surgical centre in a former Salvation Army hospital [2] in Calgary, which does business under the name Health Resource Centre, has gone off the rails.

In a Calgary Herald report [3] Friday, Networc Health CEO Tom Saunders accused AHS of structuring the offer to Health Resource Centre employees in a way designed to force his company out of business. In the same report, AHS CEO Stephen Duckett said the health superboard withdrew its offer of a deal because Networc officials rejected it.

As yet unreported by the mainstream media, however, are the following interesting points found by researcher Shannon Phillips in court documents [4] related to the legal scrap between Networc and AHS:

• - There is no provision for repayment of the outstanding Receiver's Certificate [5] balance of $500,000 plus interest.
• - Networc argues that in order to meet its most-optimistic financial scenario for its business until January 2011, its three senior managers must be kept on.
• - Based on current six-month figures in the report of the Interim Receiver, we can calculate that those officers (Mr. Saunders, CFO Bernie Simpson and Chief Medical Officer Dr. Stephen Miller) were each paid annual base salaries of $239,000, not including other benefits or perks such as a car allowance.
• - Cash flow projections by the Interim Receiver indicate that Networc expects to pay $1.4 million in legal costs out of normal cash flow. (According to the Interim Receiver, however, AHS disputes this figure.)
• - For its best-case scenario to be met, Networc wants AHS to agree to its position on payment of its legal counsel.
• - Unsecured creditors are owed more than $8.4 million, money that could be unpaid if AHS and the taxpayer don’t pony up.
• - The largest portion of this debt, $7.4 million, is to Clark Builders [6] for an expansion to Networc's surgical facilities at its Health Resource Centre in Calgary.

The Interim Receiver's report included two financial scenarios to January 2011 -- a "base case" and a more optimistic "summer push" that assumed AHS would give the company a larger number of surgeries to complete.

The base case would result in the company facing a shortfall of $1.7 million. The more optimistic projection would result in the company facing a shortfall of $1.4 million -- a sum very close to Networc's expected bill for legal fees.

It would be fair for taxpayers to wonder, if they are being told by the Wildrose Alliance that they should pay for Networc's legal costs, if this means they are in effect being asked to underwrite the costs of restructuring Networc now that it has failed as a private surgical clinic so that it can go into some other kind of business after January 2011.

Notwithstanding ludicrous suggestions by supporters of privatized health care, "health economists" and the like that a business deal gone bad shouldn't be part of the debate about the privatization of health care, that is exactly what should happen.

This fiasco clearly illustrates two things: that health care belongs in the public sector and exactly where the Wildrose Alliance intends to take us if they get the opportunity.

This post also appears on David Climenhaga's blog, Alberta Diary [7].

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