Patient funds covered real estate
MUHC diverted $5.3 million from operating budget
The McGill University Health Centre used $5.3 million in public funds meant for patient care to cover the deficits of a money-losing real-estate venture, government auditors have found.
In 2006, the Royal Victoria Hospital Foundation acquired a commercial office building at 5100 de Maisonneuve Blvd. for $40 million. The MUHC then signed a lease with the foundation to manage the property for 30 years and agreed to assume all risks involved with the building.
But for nearly a decade, much of the rental space in the building remained vacant, while the Royal Vic foundation had to pay off a mortgage that was worth 100 per cent of the purchase price of the property. As a result, the foundation accumulated deficits totalling $5.3 million.
And since the MUHC was on the hook legally for any rental losses at 5100 de Maisonneuve, it ended up redirecting $5.3 million from the hospital network’s operating budgets — money that is supposed to go to care for patients — to cover the foundation’s deficits.
“The MUHC ended up footing the bill to cover the shortfall in rental revenues in the building for many consecutive years, financing the operational deficits of a third party (the foundation) to the cumulative tune of $5.3 million,” Johanne Beauvais, Health Minister Gaétan Barrette’s press attaché, told the Montreal Gazette in an email Friday.
Asked whether the MUHC siphoned funds from its operating budget to cover the rental losses at 5100 de Maisonneuve, Beauvais responded:
“Indeed, operational budgets ended up covering for the loss of rental revenues, which is why the minister firmly requested this practice to end.”
Michel Bureau, a former deputy health minister, was appointed by the Quebec government in 2013 to scrutinize the MUHC’s troubled finances. In April, Bureau produced a report that raised numerous questions about the property at 5100 de Maisonneuve, suggesting that the MUHC was using public funds to cover the foundation’s deficits.
However, the Bureau report did not cite any figures.
Barrette delved into the 5100 de Maisonneuve file after the Montreal Gazette published a series of articles about the property at the end of October. The articles examined why a private clinic staffed by MUHC doctors that opened in the building on Oct. 13 was charging the parents of children for blood tests that used to be covered under medicare at the former Montreal Children’s Hospital location.
Since the private Brunswick Medical Group started renting the space for the clinic from the MUHC, the foundation has not run any deficits.
The MUHC had also affixed its crest above the main entrance at 5100 de Maisonneuve. Barrette ordered the MUHC to remove the logo and the hospital network complied. The minister also re-examined the financial ramifications of the foundation’s investment in the property.
Beauvais noted that the MUHC signed the lease with the Royal Vic foundation under the orders of the late Arthur Porter, who was head of the MUHC at the time. At least two government reports faulted the MUHC for never obtaining the required prior authorization of the government to enter into the lease agreement with the foundation.
“The whole series of transactions (involving 5100 de Maisonneuve) were never necessary for the implementation of the clinical plan approved in 2007, were never authorized by the relevant authorities, and were initiated in great secrecy by the late Arthur Porter,” Beauvais added.
“The unauthorized lease is a legal problem the MUHC must extricate itself from, and the current board of directors agrees.”
On Nov. 6, Barrette sent a formal letter to the MUHC ordering it to cancel the lease “at the earliest opportune moment.”
Barrette also ordered the MUHC to report to the government about the property regularly, and “until such time as the lease is cancelled, no money can come out of the MUHC budget to cover rental fees or other payments in relation to that building.”
The MUHC’s Public Affairs Department, headed by Richard Fahey, refused repeated interview requests by the Montreal Gazette concerning 5100 de Maisonneuve. But the department did release the following statement:
“Following the release of Dr. Bureau’s report earlier this year, the MUHC discussed the property at 5100 de Maisonneuve with government officials. The MUHC has agreed to a deferred plan to discontinue its emphyteutic lease that will not impact financial results.”
Should the MUHC cancel the lease, it would have to pay a considerable penalty. And should the Royal Vic try to sell the building in today’s market, it might lose money “since it’s not certain (in today’s real-estate market) that the actual value of the building is equivalent to the price paid in 2006,” Bureau warned in his report.
The Royal Vic foundation purchased 5100 de Maisonneuve from Air Canada under orders by Porter. Four months after the acquisition, Porter was appointed to the board of directors of Air Canada.
Porter died in jail in Panama on June 30 of complications from cancer as he fought extradition to Quebec to face criminal charges that he accepted $22.5 million in bribes to help engineering firm SNC-Lavalin win the contract to build the $1.3-billion superhospital.
The unauthorized lease is a legal problem the MUHC must extricate itself from, and the current board of directors agrees.