Tax changes introduced by the Government, despite objections from the Department of Health and reservations in the Department of Finance, could result in the development of a large number of private hospitals operating for profit in Ireland.
At least eight private hospital groups are seeking to develop hospitals in Ireland following the Government's introduction of generous tax incentives aimed at for-profit hospitals.
These incentives were introduced by the Minister for Finance, Mr McCreevy, following representations from private hospital developers and despite objections from the Department of Health and his own officials, according to documents released under the Freedom of Information Act.
The founder of the Blackrock Clinic, Mr Jimmy Sheehan, who successfully lobbied for tax relief for hospitals run as charities and who is also developing a hospital in Galway, has warned against the consequences of the extension of the tax relief to commercial hospitals.
In a draft letter intended for the Minister for Finance but which was never sent, the Minister for Health, Mr Martin, expressed the view that the Government's policy of reducing private beds in public hospitals in response to a growing private sector could reduce the availability of consultants to public patients, lead to legal challenges from consultants and undermine negotiations to amend their contracts.
This letter was drafted in March 2001 and was apparently overtaken by the introduction of the tax relief.
One of the planned private hospitals is on the site of the public hospital in Beaumont, where consultants are currently negotiating the size of their shareholding in a development by the stockmarket-listed Ramsay Healthcare group from Australia.
The Department of Health objected that tax relief for private hospitals was counter to Government policy to reduce the State's subsidy of the private health sector, that their proliferation could drive up the cost of insurance premiums and that the relief would go to hospitals which were too small.
The Department of Finance objected that the tax relief was costly and the discount offered to public-sector users of private beds "seems low".
The VHI has seen an "unprecedented interest" from would-be developers of private hospitals, according to its chief executive, Mr Vincent Sheridan.
Most developers are awaiting the outcome of a VHI review of future demand for private medicine to determine if they will establish facilities in Ireland.
The review by PricewaterhouseCoopers is understood to be near completion but is unlikely to be made public before the election. Its estimate of demand for private hospitals will depend critically on the assumptions it makes about future government investment in public healthcare.
The VHI takes the view that if its membership is satisfied with the existing service, there is no need for extra supply.
The VHI fears that, should they agree to cover their members for many new private facilities, this will drive up premiums and lead to a drop in membership.