After the general election debate, in my view the co-location policy has emerged without a dent and without damage. That is because its central objective has always been, and remains, to free up publicly funded beds for public patients. The co-location initiative will achieve 1,000 new public beds faster and more cost effectively so there is better access to acute hospital services for all public patients.
Every Government has a mandate and a responsibility to consider and implement new initiatives in the public interest. This Government does and the former Government did also. It would be short-sighted for a Government to refuse to countenance any new idea in the public interest on the grounds it had not been spelled out in black and white in a party manifesto or a programme for Government. This would mean a Government had to close up shop for five years at a time on all new thinking and innovation. New ideas should always be welcome if they can be shown to serve the public interest and fit with the strategic objectives and policies of the Government.
The former Government sought and received a mandate for the 2001 health strategy which spoke of developing a strategic partnership with the private sector for the development of health services. It stated the private sector makes an important contribution to service needs which must be harnessed to best effect for patients and that a strategic partnership with the private sector will be developed in providing services for public patients.
I brought forward the co-location initiative in July 2005 on the basis that it was a new idea, consistent with Government policy, which would serve the public interest by freeing up more acute hospital beds more quickly for public patients. That was the basis on which my colleagues in Government endorsed it from the start and on which we continue to support it. The policy initiative has been brought to the point of implementation by the HSE. I am pleased to see our ideas are working out in practice and our objectives for public patients will be achieved.
In all publicly funded hospitals, private beds sit alongside public beds which are not routinely available to public patients. For many years, this has given rise to unfairness and inequity right in the heart of our publicly funded hospitals. These beds are heavily subsidised by the State, perhaps by as much as 50% of the running cost, yet they are not routinely available to people without health insurance or who cannot pay themselves. The co-location project will mean publicly funded beds in these public hospitals will always be available to all patients in order of medical need. This is a major advance in achieving equity in our public hospitals.
The initiative will free up designated private beds at each site. It will also mean that public beds will no longer be used for fee-paying private patients, as routinely happens. More beds will be freed up than the number of designated private beds because the designated private bed ratio is exceeded by private activity in many hospitals. In Tallaght hospital, it came to 46% of the elective work in 2005. The precise number of freed-up beds will be set out by the HSE when it shortly completes the tender process.
In service terms, this means there will be no cherry-picking in the provision of health services. Co-located facilities will be required to treat all private patients in public hospitals. The only exception will be where the HSE excludes certain activities on national health policy grounds, such as accident and emergency, radiation oncology and organ transplantation. All of us, regardless of whether we have private health insurance, are entitled to be treated in a public hospital as public patients.
The new private hospital beds will also be available for use for public patients, subject to service level agreements being put in place. As part of the capital allowances scheme, the new hospitals will have to offer services at a discount to the HSE. The National Treatment Purchase Fund has opened up access to private hospitals for public patients. I am confident this will also be possible with the new facilities adjacent to public hospitals. For example, if a bed is needed for a public patient awaiting admission at an accident and emergency department and all public hospital beds are full, those beds in a private facility can be used for his or her admission. This will shorten waiting times for admission for public patients.
There will be only one accident and emergency department at each public hospital campus in which every person will be seen in order of medical need. There will be no public and private distinctions and the new facilities will not be allowed to operate parallel accident and emergency departments.
In this, and in other matters, the initiative has built-in concrete protections for the public interest. In financial terms, the health care benefits must justify the costs, but in a way that is better value than under the traditional procurement methods.
A public sector benchmark, PSB, equivalent has been created for each site. The calculations include, for example, the cost of tax allowances and the foregone income earned heretofore by the public hospital from private beds. The National Development Finance Agency, NDFA, is financial adviser to the Department of Health and Children for this co-location project. The NDFA wrote to the Department yesterday to confirm that, in its opinion, the tenders provide value for money relative to the PSB equivalent at the current stage of the procurement process and that the project is in a position to move to the financial close stage.
The precise cost and benefits of each project depends on the financial profile of each of the successful bids. The HSE board is to meet on 5 July to approve the award of successful bids. In general, as regards costs, I can say the following. The capital costs to the State of the new public beds will be the value of the capital allowances used. This is necessarily less than half the actual construction cost, since relief would be claimed at the marginal income tax rate applicable at the time.
There is no validity to any objection that the new facilities will be built to too high a specification, that is, at a level that could not be justified in the public sector. First, the capital allowances scheme applies to only certain construction costs for new hospital facilities — consultants' suites are excluded, for example. Second, any over-specification would count as a negative in the evaluation, since the comparison with the equivalent cost under traditional procurement would show up excessive construction capital allowance costs. Third, the HSE has stipulated certain requirements in relation to the physical appearance of the new facilities, so that they fit with the existing public hospitals.
The capital allowance costs to the State will only come on stream after the new facilities have opened — from about 2011 onwards — and they will be spread over a seven year period. For every €1 million in allowable investment, the gross tax cost to the State would typically be €455,000 at current tax and PRSI rates, spread over seven years, without taking account of tax buoyancy from the activity generated. The actual expected capital allowance costs have been included in the financial evaluations by the HSE and the NDFA and are being submitted to the board of the HSE.
The current cost includes foregone income to the public hospital from private bed charges that will be no longer available. I understand this is under €80 million a year at the six sites. This is far less than the actual running cost of these publicly-funded beds. To offset the loss of this income, the State will receive: leasehold income from the land; a profit share from the operator of the new facilities; and a share of re-financing gains over the lifetime of the project. However, it is wrong to isolate this net cost of achieving new beds, without comparing it to the cost of running similar new beds under traditional procurement.
The average running cost per bed in the six sites is around €350,000 per bed per year. The running cost of 1,000 new, similar acute public beds at these sites, if procured in the traditional way, would be about €350 million. The net annual cost to the State of the new freed-up public beds will therefore be considerably less than the running cost if new public beds were procured in the traditional way.
I would further point out that detailed requirements are in place to ensure that there is integration between the public and private facilities. Some of these will be new for private hospitals. Before co-location, it has not been possible for the public side to make any requirements of private hospitals in regard to some of the following. For example, teaching and training of junior doctors will take place in the new facilities. The new hospitals will have to be capable of admitting patients 24 hours a day, seven days a week, from both accident and emergency departments and direct by GP referral. They will be required to facilitate a research culture that increases research activity and contributes to staff development and retention across both hospitals. They will report on activity to the hospital inpatient inquiry system and they will report to the performance management unit of the HSE.
Some public hospital consultants will be able to work at the new co-located facilities under the planned "Type B" contract, but it is our policy that new management methods will be in place to ensure an appropriate mix of overall activity on the site on the part of public contract holders. I expect these matters will be specified and finalised in the course of resumed contract discussions.
The co-location policy was drawn up as a means of increasing capacity in major public hospitals in innovative partnership with the private sector. It is fully in line with European trends, where public and private sectors are working in innovative ways, according to local conditions. An invitation to tender has been issued for a project at James Connolly Memorial Hospital with a deadline of 6 July for submissions.
I am pleased also that the board of Tallaght Hospital has now joined the boards of St. James's and Beaumont in seeking a tender. I do not believe any of these public interest boards would have done so had they not been convinced of the benefits to patients at their hospital campuses.
I am confident this initiative will command growing public support, beyond the majority already in favour, especially when the new facilities are up and running.