Story ID: 117_BERTSCHE+_OrngeJune22AINJuly12MarkedUp_CA_Huber.doc
Ornge Stain: Ontario’s Air-ambulance Service Under Investigation
By: Mark Huber
Caption: Something appears to have gone badly wrong after the government gave over control of the operation.
Word Count: 3527
Ontario’s Legislative Assembly will continue its hearings over the summer into alleged performance failings and mismanagement at the Canadian province’s government-funded air-ambulance service known as “Ornge.” The hearings started on March 28 and, as of press time, it was unclear when Members of the Provincial Parliament (MPPs) would issue their final report into what appears to have gone badly wrong after Ontario’s Liberal Party-led government gave overall control of the service to privately owned Ornge. Instead, the opposition politicians who instigated the hearings called last month for a full select committee investigation with full judicial powers, to get to the bottom of allegations and testimony aired in the parliamentary sessions.
Ornge has one of the most modern air-ambulance fleets in the world, operating 12 AgustaWestland AW139s (10 in service) and 10 Pilatus PC-12s from 12 bases across Ontario; it employs 500 people. Last year, Ornge directly transferred or contracted for the transfer of 19,000 patients, both in the air and on the ground, for which Ontario paid Ornge $150 million to provide the service within the framework of Canada’s nationalized health-care system. Under the arrangement, Ornge uses both its own aircraft and contracts for supplemental lift from other operators.
Air-ambulance service has always been a vital component of Ontario’s health-care system. The province is geographically large and its rural hamlets are often great distances from modern medical care. When Ornge was formed in 2005, its mandate was to significantly improve the air-ambulance service in the province, which was then being served by a diverse fleet of 70 rotary-wing and fixed-wing medical aircraft owned and flown by some 30 different contractors, and administered by the provincial Ministry of Health.
Ornge created a trust to obtain capital to buy new aircraft, outfit them with medical interiors, establish bases and train staff. Between 2009 and 2011, the trust raised $300 million from bond issues in the capital markets. Ornge paid $28 million to acquire a fleet of 11 used Sikorsky S-76As from Canadian Helicopters Ltd (CHL) to fly while awaiting delivery of the AW139s it chose to order; Ornge also bought a $15 million office building.
Ontario paid Ornge more money to set up a complementary ground-ambulance service. Ornge was intended to be such a model of efficiency that its founder and former CEO, Dr. Chris Mazza, hoped to replicate it in other countries and someday add jet service to the mix. At one point, Ornge pursued a joint venture with U.S.-based AirMed, an operator of medically equipped Hawkers.
A special report by Ontario’s auditor general found that in fiscal year 2009-2010, Ornge turned down 7,700 requests for assistance; some 4,700 of those were on-scene requests, while another 3,000 involved the transfer of patients between medical facilities. Of the latter, 1,900 were classified “urgent.” Since 2007, according to National Healthwatch (which describes itself as “Canada’s nerve center for the health-related industry”), 145 Ornge patient incidents have been investigated by the Ministry of Health, 26 of which involve the death of patients. Forty of those incidents have occurred since installation of new management this year. Factors such as aircraft not being available for missions due to maintenance, lack of crewmembers and other reasons are not unknown among air-medical operations, but Conservative Party MPP Frank Klees suggested at the hearings that Ornge would appear to have more than usual. Helicopter operator CHL, for example, claims that it provided exemplary service under the old pre-Ornge arrangement and subsequently as an Ornge contractor. In a published letter “to the people of Ontario” dated April 19, CHL CEO Don Wall stated that CHL had flown more than 140,000 Ontario patients since 1977, with a dispatch rate of 97 percent. CHL pilots flew the S-76As that Ornge had bought from CHL until March 31, when CHL flew its last flight for Ornge.
The auditor general also found that, while the number of patients transported by Ornge decreased by 6 percent between 2007 and 2011, Ornge’s annual funding increased by 20 percent.
“I have spoken to a number of [Ornge] paramedics and pilots who are extremely frustrated,” Klees told AIN. Klees said that one of their chief frustrations is the AW139s’ custom $600,000 Ornge-specified two-patient Aerolite medical interiors, which he said are so ergonomically challenged that paramedics cannot perform patient CPR in the helicopters.
Aerolite provided the following response to AIN: “Aerolite built a customized EMS interior for the Ornge AW139s to the technical layout specifications demanded by Ornge. Aerolite won the Ornge contract after a year-long competitive bid process involving various EMS interior manufacturers and completion centers. Before building the first Ornge interior, Aerolite held two EMS interior mockup reviews to verify ergonomics, patient handling, clinical functionality and safety. Aerolite built mockups of the proposed interior in an actual AW139 fuselage. Functional seats, cabinets, stretchers and so on were built to actual scale and presented to the medical staff, paramedics, project management and management of Ornge. The fact that headroom above the patient was limited was recognized early on in the project. Ornge management decided that other considerations, such as intubation and medical attendant position in relation to a patient, would trump the headroom consideration. The current management reconsidered the headroom issue after frontline Ornge staff voiced concerns. A regulatory exemption that will allow the stretcher to be flown in a lower position (thus guaranteeing correct headroom above a patient) was implemented in early February 2012. Aerolite is now working with Ornge on a permanent solution to this issue.”
Under questioning before the Public Accounts committee, Steven Farquhar, Ornge v-p of operations, said that Ornge never field-tested the interiors before they were ordered. Ornge spokesman James MacDonald confirmed to AIN that Ornge has received a temporary exemption from Transport Canada to allow patients to be transported in the transverse position, facilitating CPR, and that Ornge is evaluating new interior options that will be field tested.
MacDonald also said that Ornge is aggressively recruiting AW139 pilots. “Every effort is being made to fill open vacancies and bolster the current pilot roster,” he said.
Ornge declined to make the company’s new CEO, Ron McKerlie, available to AIN to discuss its ongoing operational issues.
Ornge under the Microscope
Ornge has found itself under the microscope since late last year for both performance issues and concerns over the way it handled financial transactions involving both real estate and aircraft acquisitions. Transactions have provoked controversy in the Ontario parliament, where they were portrayed as entailing the conversion of public debt into private equity and/or revenues. While, technically, the bond debtor is “Ornge Issuer Trust,” the auditor general notes, “this debt is included in the provincial debt in the province’s financial statements, and the Ministry (of Health) is funding the ongoing financing payments.”
Numerous audits and official investigations are under way by various agencies, including the Ontario Provincial Police (OPP) and the Provincial Parliament’s Committee on Public Accounts. Members of that committee have asked the U.S. Justice Department to investigate the conduct of AgustaWestland’s Philadelphia office regarding the sale of AW139s to Ornge for possible violations of the Foreign Corrupt Practices Act.
The U.S. Justice Department told AIN that as a matter of policy it does not comment on potential or ongoing investigations. AgustaWestland’s U.S. office in Philadelphia did not respond to AIN’s numerous e-mails and phone calls requesting comment.
In the wake of allegations of sweetheart loans, exorbitant salaries and directors’ fees, and the creation of a complex web of for-profit companies attached to Ornge that Ontario officials believe engaged in suspicious transactions, Ornge founder and former CEO Mazza, his board and several senior executives no longer work for Ornge. Some were formally fired by the Ministry of Health; others lost their jobs when the ministry placed Ornge’s for-profit operations into receivership, effectively eliminating their jobs. Mazza has been absent from public view since going on medical leave from Ornge on December 22 last year. He left Ornge in early February. The Public Accounts committee wants to hear from him, but at the time of the hearings his lawyers said he was under psychiatric care and too ill to testify. MPPs have been pressing for a warrant that would force Mazza to appear before them in July.
At hearings on May 16, former Ornge v-p of finance Maria Renzella confirmed Canadian press reports that Mazza’s 2011 salary was $1.4 million. Board members made $100,000 to $200,000 per year each. “Those directors’ fees were exorbitant and were not in any way justified,” Klees told AIN. “For any director of any board to even pretend that he was meeting his fiduciary responsibilities–you don’t have to look any further than their directors’ fees to call that into question.”
Senior executives at Ornge made six-figure salaries. According to testimony at the hearing, Mazza sent several of them, including his girlfriend, Kelly Long (described as having risen through the ranks “very quickly” to become a vice president at an Ornge affiliate company), to university to get MBAs at Ornge’s expense.
What Ornge referred to as its official charities allegedly received big donations from suppliers, including $2.9 million from AgustaWestland. The charities (such as the Ornge Foundation, with a mandate to “support and promote improvement of patient care”) allegedly steered money, in part, to a $43,000 speedboat and to a $500,000 deal with Orange County Choppers for a pair of custom motorcycles and an appearance on the American Chopper television program. AgustaWestland in Philadelphia did not respond to AIN’s request for comment on these transactions.
A March 2012 special report by Ontario’s auditor general concluded that Ornge used its for-profit companies, in part, to obfuscate its financial transactions, including shielding senior executives from a Canadian law (the “Sunshine List”) that requires the disclosure of all salaries over $100,000 in government-funded entities. The practice also made it more difficult for the Ministry of Health to determine the true cost of service delivery, according to the auditor general. Ornge formed independent entities, such as Ornge Air, to deliver air-ambulance services to Ornge.
The auditor general stated, “These entities were not covered by the performance agreement Ornge has with the Ministry (of Health), and therefore the Ministry would likely not have access to the records of these entities…the Ministry cannot periodically spot-check whether the costs incurred by these entities and billed back to Ornge are reasonable or whether potential conflicts of interest have been avoided. Avoiding potential conflicts would be especially important given that…some members of Ornge’s management and board were shareholders of certain of these entities.”
Ontario officials also questioned whether another Ornge for-profit company, Ornge Global Real Estate, used $15 million of the $300 million bond proceeds to generate a $9 million profit by artificially inflating the value of the office building that housed Ornge. According to the auditor general’s report, Ornge “entered into a complex arrangement with some of the other entities it created to sell the building and lease it back to itself. An independent real-estate appraiser we engaged estimates that, under its lease with a related Ornge company, Ornge’s rent payments were 40 percent higher than fair market value rent…Ornge’s above-market rent enabled one of the entities involved in the arrangement, Ornge Global Real Estate, to obtain $24 million in financing for the building that Ornge paid $15 million for. We understand that the $9 million ‘profit’ generated as a result was being flowed to a company called Ornge Global Holdings LP… At the time of our audit, Ornge Global Holdings LP was owned by members of Ornge’s senior management and the board.”
With regard to Ornge’s aircraft, the auditor general complained that “an open public competitive tender was not used” and that Ornge over-bought: “Although Ornge’s own analysis indicated nine helicopters and six airplanes were needed, Ornge purchased 12 new helicopters and 10 new airplanes. Ornge advised the Ministry [of Health] that the excess capacity could be made available to its other business ventures.” Two of the AW139s were outfitted with passenger seating, rendering them unavailable for medevac transport.
Ornge’s transaction on the AW139s has drawn scrutiny on a number of fronts, with MPP Klees (in a May 3 session of the Ontario Provincial Parliament) publicly accusing AgustaWestland of providing what he characterized as a multimillion-dollar “kickback” to Ornge’s charity, in the form of the $2.9 million donation, as well as two marketing services and endorsement contracts worth $6.7 million to for-profit companies Ornge Peel and Ornge Global.
AgustaWestland claims it did nothing wrong. In his testimony before the Public Accounts committee on April 18, AW executive vice president Louis Bartolotta, who is based at AW Philadelphia and negotiated the Ornge deal, valued one of the marketing services agreements with Ornge at $4.77 million and called it “a very honest, straightforward contract for services.” When asked what AW received, he mentioned an 80-page report designed to identify “where countries might have a requirement for aeromedical transportation, where the Ornge model might fit.” Although Ornge was a relatively new player in the aeromedical business, Bartolotta said AW “felt that their expertise was superior to anything else we could find in the marketplace.” Bartolottasaid that AW expected to receive additional reports under the agreement, but indicated that the work was not done.
Much of the marketing report was prepared by Long and Carrie Anne Brunet, an Ornge executive who is the daughter of former Ornge chairman Rainer Beltzner. Ornge’s new management has turned over a copy of the report to the Ontario Provincial Police as part of its investigation.
AW declined to make Bartolotta available for an interview or to reveal any details of its marketing agreements with Ornge. In a prepared statement to AIN, AW spokesman Geoff Russell said, “AgustaWestland is proud of its work on behalf of Ornge and the aircraft we delivered. We will cooperate with any appropriate authority and provide any assistance we can.” Russell also said AW “willingly contributed to the Ornge Foundation, because it believed in their work.”
In an official statement about Ornge on its website, AW posted the following on March 7, “It is our belief that the propriety of our actions, soundness of the selection of the AW139 and its fitness for the mission it performs on behalf of the citizens of Ontario cannot be questioned. State-of-the-art design and full protection against icing are only two of the many characteristics which make the AW139 capable of delivering the highest level of patient care and serving Ontario so well.”
In his testimony before the Public Accounts committee on May 9, Rick Potter, former Ornge Air chief operating officer (COO), made further specific criticisms of the way Ornge’s top management handled its transactions with AW. Questioned by the committee, Potter acknowledged that he is a long-time supporter of the Conservative Party, which has been leading the opposition to the Liberal Party’s handling of the matter.
Ornge’s original agreement with AW was for 10 helicopters and options for two more, subsequently exercised, for a total of $144 million. Before delivery, Potter said, AW presented a bill to Ornge for $12 million more to cover the cost of increased gross weight, an additional landing light and an upgrade to the communications package for the fleet. However, AW owed Ornge $2 million in late-delivery charges.
In his testimony, Potter said that he and Bartolotta had met in Philadelphia to work out the math and Potter claimed to have come away with AW waiving the additional charges. Potter believed he had struck a sound bargain, but he alleges that Ornge CEO Mazza was less than pleased and pressed for Ornge to pay the additional charges AW wanted. “[Mazza] said something to the effect that there were other things to be considered,” Potter told the committee.
Tom Rothfels, the Ornge executive who handled the original negotiations with AW for the helicopters, testified that Mazza had insisted on paying AW more than the contract required, but Rothfels said the amount came to about $600,000 per helicopter. He said, “I think I reiterated a number of times to Rick Potter, to [Ornge attorney] Cindy Heinz, to Maria Renzella and to Chris Mazza that the $600,000 weight upgrade was a fictional charge and that we, Ornge, should not be paying it.”
Numbers provided at the hearings by Rothfels, Potter, Klees and Bartolotta are hard to compare apples-to-apples. Rothfels’ total extra payment comes to $7.2 million for the 12 aircraft ordered, while Potter said the amount was about $10 million. Klees claims that AW paid $2.9 million to an Ornge charity and $6.7 million for two marketing agreements, for a total of $9.6 million, or about $10 million. Bartolotta said in his testimony that AW paid $4.77 million for one marketing agreement.
Potter is no longer an employee of Ornge Air, but he remained as a consultant at $20,000 a month until the end of May. Rothfels said he resigned his position after and partly because of the unusual deal regarding the extra payment to AW.
Opposition Restates Its Case
The Air Transport Association of Canada (ATAC) has always opposed the decision to allow Ornge to acquire its own aircraft and has restated its position. In an open letter to Ontario Premier Dalton McGuinty dated March 16, ATAC CEO John McKenna wrote, “The prospect of a monopoly provider (Ornge) of air-ambulance services continuing to operate flights while it also contracts flights from private operators is ethically very questionable. We do not believe that there was ever a credible case made to justify the move from a private deliverer of air-ambulance services by reputable and responsible regional air carriers to a government monopoly provider. The takeover of those services by Ornge was not based on complaints of bad service but seemingly on Ornge management’s desire to build an empire using public funds. Private operators had provided a continuous, competitive, scandal-free and much appreciated service for decades.”
Potter, the former Ornge Air COO, testified that a service like Ornge was needed and said that the dispatch rate of the private providers had fallen to 65 percent and that some were still flying unpressurized, piston-powered aircraft. Potter implemented a program of independent safety audits of Ornge contractors and required them to install safety equipment such as Taws, Tcas and GPS. He also defended Ornge’s flight operations and the decision to acquire the AW139s. “We have an availability rate of 95 to 96 percent. We have the most over-trained Pilatus pilots in the world. The AW139s have 30 percent more performance” than the S-76s they replaced, Potter said. “I stand by the selection of the aircraft.”
In his March report, Ontario’s auditor general recommended a number of reforms for Ornge, including better cost comparisons and cost tracking of Ornge services by the Ministry of Health; using actual patient transfer data to rationalize the number of Ornge air and ground ambulances; electronically linking Ornge’s dispatch system to land-ambulance dispatch systems; more accurately tracking Ornge’s actual response times; and conducting unannounced visits and reviews of Ornge bases and its dispatch center. Ornge’s new management and the Ministry of Health are taking the recommendations under advisement.
From an air-operations perspective, Potter maintains that Ornge is 90 to 95 percent of “where it should be.”
MPP Klees said he thinks the new management team at Ornge is “very competent and [is] attempting to get the place cleaned up, but I am not at all assured that things are happening as fast or as efficiently as they should be.”
At the end of the Public Accounts Committee hearing on May 9, Klees characterized Ornge as “the worst scandal this Province has ever seen. What went wrong was greed. There were a lot of people at the [public] trough. A lot of people took a concept and, quite frankly, abused it.”
On June 21, Ornge provided AIN with the following statement:
“Ornge’s new leadership team and board of directors welcomes this report and is committed to moving forward with its recommendations.At the time of its release, the new leadership at Ornge had already put in place a number of measures to improve patient care, governance and oversight, and we continue to make significant progress. These measures include the appointment of a new volunteer board of directors; the implementation of an improved performance agreement with the Government of Ontario; the formation of a committee under the direction of Ornge Board member Dr. Barry McLellan to address patient care issues; a strengthened on-scene response process; the implementation of an interim solution to improve the configuration of the medical interiors of the helicopters; and a thorough internal review of all policies and procedures.”
Unless otherwise noted, the sources for this article are the official transcript of testimony presented to the Province of Ontario investigation into the conduct of air-ambulance service Ornge and the author’s interview with Ontario Conservative Party MPP Frank Klees.