Firms are eager to build private clinics besides public hospitals but tax changes may curb interest. David Labanyi reports
At least six major companies have expressed an interest in developing private hospitals on public hospital sites despite no formal tendering process being in place yet, the Health Service Executive said.
It added that each of the Irish and foreign-based firms had expressed an interest in developing more than one hospital on sites at Tallaght, Beaumont, Cork University, Limerick Regional and Waterford Regional Hospital campuses.
The development of private clinics on the grounds of existing public hospitals was announced last year by the Minister for Health Mary Harney, who wants to use the mechanism to make 1,000 more private beds available.
Corporate financiers predict a very significant private sector appetite in tendering to build these private hospitals.
This is the second significant initiative by the Government to encourage the investment of private for-profit hospitals, following on a tax incentive scheme announced in the Finance Act (2001) that allows investors write off their capital costs over seven years.
Following a major review of property-based tax shelters for the Department of Health, Indecon consultants recommended that reliefs for investments in private hospitals and nursing homes be retained, while those for sports clinics should be phased out.
However, the Minister for Finance Brian Cowen last week proposed a surprise change in the Finance Bill, which, if passed, may make investments in private hospitals less attractive, according to corporate financiers.
Cowen has proposed extending the time a tax-incentive funded hospital must operate as a hospital from 10 to 15 years. This is to close off possible abuses of the scheme which could, hypothetically, have seen medical facilities refurbished, perhaps as apartments, and being sold.
Paul Higgins, director of Goodbody Corporate Finance was involved in raising €43 million in equity for the €180 million required to build the private Beacon Hospital in Sandyford, Dublin, which is set to open its 183 beds later this year.
"This change wasn't flagged in the Budget and will definitely make investments in private hospitals less attractive.
"The Finance Bill has proposed that a hospital has to remain a hospital for 15 years, which I think, has increased the risk quite significantly.
"If the hospital closes before year 15 you would have to hand all the money back to the Revenue, plus interest and other charges. Most tax investors will have gained the benefit of the capital allowances after seven years," he says.
The impact of this change, if passed when the Finance Bill comes before the Dáil in March, on the 15 other proposed private hospitals at the planning stage is unclear.
The new rules would apply to all hospitals opening after August 1st, 2006. It is not known whether the Beacon will be open before this date.
The tax incentives kick-started investor interest in private hospitals but he doubted whether it would lead to a large number being built, says Higgins.
To date, only the Galway clinic has been built under the scheme with the Beacon and the 125 bed Hermitage Clinic in Lucan, Co Dublin, under construction.
"Hospitals are big capital projects that are difficult to fund by the private sector. In broad terms there are only two customers; the Government through the Health Service Executive or the National Treatment Purchase Fund and the private health insurers, primarily the VHI, given its market share," says Higgins.
"Neither of those customers will commit to using a facility until it opens," he added. "So I think the incentive is unlikely to lead to a surplus of supply."
However, there is one important additional factor that makes them attractive, according to Higgins, and that is strong Government support to bring the private sector into healthcare.
A report into property-based tax incentive schemes by Indecon published last week predicted that just under €500 million in private funding could be attracted into private hospital investments.
The existing structure of the reliefs means investors can only offset rental income, meaning that the scheme effectively acts as a tax shelter for large-scale landlords.
"At the moment capital allowances are only effectively available for offset against rental income," said Higgins adding that the investors in the Galway Clinic, the Beacon and Hermitage are offsetting their capital allowances against the rental income on their property assets.
"The vast majority of people don't have large rental flows and so can't avail of these shelters. They are only applicable to a relatively small proportion of the population."
Joan Burton Labour Party finance spokeswoman described the tax incentives for private hospitals as an "outrageous piece of policy formation".
"How will these private hospitals link in with the rest of the health strategy, in particular the Hanley report? My problem with the reliefs is they are tax driven, rather than health driven on a basis of medical need.
"They are a sweet-heart deal between Fianna Fáil and the Progressive Democrats and some of the wealthiest people in Ireland. The result will be private hospitals scattered around the country like currants in a bun."
Although the HSE is charged with implementing the Department of Health's strategy on private for-profit hospitals, its chief executive Prof Brendan Drumm has spoken publicly of his opposition to such a policy.