Plans for private for-profit hospitals do not seem to be the product of any in-depth analysis, writes Colm Keena, Public Affairs Correspondent.

There is something of a rush on at the moment in terms of investing money in private for-profit hospitals. Approximately 15 new private hospitals have entered or are about to enter the system, representing capital investment of up to €1 billion.

More are no doubt being planned given the decision in the Budget not to close down tax incentives for such hospitals while signalling the end of other property-based schemes.

The increased number of private for-profit hospitals will provide more hospital beds for a growing population. However the development, a relatively dramatic one in terms of the nature of the Irish hospital system, does not seem to be the product of any in-depth analysis nor does it appear to be part of any sophisticated treatment plan for a system that is obviously under strain.

Indeed, the head of the Health Service Executive, Professor Brendan Drumm, has expressed the general view that a shift from a publicly delivered health service would be disastrous.

The Tánaiste and Minister for Health, Mary Harney, has announced that private, for-profit hospitals are to be built on the campuses of public hospitals in Limerick, Waterford, and, in Dublin, St James, Beaumont and Blanchardstown.

The idea is that up to 1,000 private beds in public hospitals, would be freed up. Meanwhile, outside the campuses of public hospitals, new stand-alone for-profit hospitals are built, being built or are in the pipeline.

The Beacon Hospital in Sandyford, Co Dublin, is set to provide 183 beds and eight operating theatres as well as accident and emergency services. The hospital will be run by a publicly quoted US company, Triad Hospitals. In 2004, Triad had a turnover of $4.45 billion. Beacon also plans to build hospitals in Cork and Limerick.

The Hermitage Clinic is a 125 bed hospital being built in Lucan, Co Dublin, by a group that includes property developer Sean Mulryan of Ballymore, Larry Goodman and orthopaedic surgeon, Jimmy Sheehan.

Mr Sheehan is a founder of the Blackrock Clinic who is currently in negotiations with BUPA in relation to buying the clinic. Mr Sheehan and Mr Goodman are also involved in the recently opened Galway Clinic, which has up to 75 consultants in 39 suites.

In all instances investors in the hospitals will be able to avail of a tax relief scheme introduced in the 2001 Finance Act. The provision allows for capital costs to be written off over a seven year period.

Goodbody Corporate Finance has been involved in raising investment for a number of schemes. A report by the firm in August listed nine developments involving 668 beds currently under way. Grouped with the new on-campus hospitals, that makes for 1,668 new for profit hospital beds, as well as a swathe of new consultants suites.

It is a significant new for-profit input into the Irish hospital system that, it seems, has its origins in a conversation between then Minister for Finance Charlie McCreevy and Mr Sheehan which in turn led to the tax relief scheme mentioned above.

Mr Sheehan, in Ivor Kenny's most recent book, Achievers, expressed the view that 3,000 more acute hospital beds are urgently needed. He said the State has not been able to provide the beds needed, because it lacks the ability to deliver them within a reasonable timeframe, but cautioned that some private developers motivated by the attractions of the tax scheme, rather than the desire to provide services, are looking to build hospitals in "fields" rather than in places where they are needed.

The question that arises is whether the introduction of a new layer of for-profit hospitals into the Irish system is the best solution to the strains that obviously exist. One danger is that organisations seeking to make a profit will cherry pick when deciding what services they will offer. The tax relief scheme sets out levels and types of services that must exist in order for a hospital to qualify but the danger of cherry picking remains.

For-profit hospitals will be tempted to provide the type of treatments that can be delivered smoothly and efficiently, and leave the more complicated, messy cases for the State. Furthermore, there is an obvious temptation for such organisations, and the persons working within them, to recommend patients for expensive, hi-tech treatments that might not be recommended by a consultant operating in a not-for-profit environment.

The international evidence is that for-profit hospitals produce a lower medical staff to patient ratio than not-for-profit hospitals, but spend more on administration. They deliver services at a higher cost. Given the incentives that govern their operation, that should come as no surprise to a business person or an economist.

The popular idea that the increased involvement of the private sector brings increased efficiency, does not seem to apply in the hospital sector.

The Goodbody report, which is generally upbeat about the prospects for investment in for-profit hospitals in Ireland, notes that while people in the US pay the most per capita on healthcare in the world, they get a system that comes 37th in the world in terms of OECD rankings. The US spends $4,900 per person per annum on healthcare. Ireland spends €1,950, placing it at the lower end of the scale in Europe.

Government spending on healthcare is 5.9 per cent of GDP (7.9 per cent of GNP), which again is at the lower end of the monetary commitments of European governments.

The huge growth in the Irish economy in the past decade has been matched by significant growth in the health spend, but the fact remains that the per capita spend, or spend as measured against the size of the economy, is low.

The Irish healthcare system may be under terrible strain but there are a number of what seem to be obvious contributory factors for this being the case.

It slashed its healthcare budgets in the 1980s, becoming one of only two countries in Europe to reduce its proportion of GDP spend on healthcare.

The system still has less beds than it did in the early 1980s and the State is experiencing great difficulty in bringing the system up to the required capacity, now that resources are available.

The State generally is finding it difficult to achieve the infrastructural catch-up that is needed after the slump during the 1980s.

It seems to be incapable of taking on some of the powerful interest groups in the health system. But these are problems that should be capable of being surmounted by a modern State and in themselves should not be dictating the type of healthcare model adopted.

It is frequently stated that countries using socialised insurance models create the most efficient and attractive healthcare systems. Examples are Canada, France and Australia. The Goodbody review, despite its interest in promoting private investment, would seem to support this view.

Why we are not striving to produce such a model is not clear.