Shortage of Beds in Private Hospitals with Tax-Exempt Charity Status

Question on Tax-Exempt Charity Status & Shortage of Beds of Private Hospitals by Hon KP Chan:

In recent years, a lot of pregnant women and patients from the Mainland have sought medical treatment in private hospitals in Hong Kong, and bed spaces in private hospitals are in serious shortage and their services are close to full capacity; some middle-class people are intent upon using private medical services by taking out medical insurance, but it turns out that they also have to wait for bed spaces. Twelve of the 13 local private hospitals have been established in the name of non-profit-making organisations, and among them, 10 are charitable institutions which are exempted from tax under section 88 of the Inland Revenue Ordinance, and some of them have recently increased their medical service charges substantially by as much as 1.6 times. At present, there is no provision or penalty under the conditions of grant of land to private hospitals by the Government for regulating their operations or restricting them from making hefty profits, and the authorities expect that when there are new private hospitals coming into operation in 2017, the relevant provisions and penalties may be included in the conditions of land grant on a trial basis, and if proved feasible, they may consider amending the legislation to regulate the existing private hospitals as well. In this connection, will the Government inform this Council:

(a)    given that the annual profits for individual non-profit-making private hospitals are as high as $400 million and their fiscal reserves are up to a few billion dollars, how the authorities at present monitor the use of the funds of non-profit-making private hospitals (including whether their profits are used for the development of healthcare services, and whether they are inclined to invest their resources in services that can generate higher profits, thus compromising the quality and quantity of other services); furthermore, the Hospitals, Nursing Homes and Maternity Homes Registration Ordinance which regulates private hospitals in Hong Kong was enacted in 1936 and the last time when major amendments were being made was in 1966, and there is no provision in the Ordinance to regulate the fees and charges, profits as well as financial conditions of private hospitals; last year, the United States endorsed a health reform to strengthen monitoring of non-profit-making hospitals (including a compliance check once every three years) to ensure that their operation mode complies with the conditions for tax exemption status; whether the authorities have any plan to make reference to the practices in the United States to review the tax exemption status of the existing non-profit-making private hospitals, and levy profits tax and land premium based on their profitability;

(b)    apart from inspecting every year whether those private hospitals operating on low-premium land grant offer low-charge beds according to the requirements of the conditions of land grant, how the authorities ensure that these hospitals do not set any threshold for such bed spaces (such as rejecting patients who undergo major operations or are covered by medical insurance), and that such bed spaces are fully utilised; whether the authorities have any plan to impose regulation as soon as possible by way of legislation, so as to improve the low occupancy rate of as low as one quarter of such low-charge beds at present; and

(c)    given that a few private hospitals have initially planned to add about 250 bed spaces in 2013-2014, and the Government has allocated four sites for the development of private hospitals to provide more bed spaces (among which 70% will be reserved for Hong Kong residents), but the four new private hospitals are only expected to come into operation in 2017, in the six years from now until 2017, how the authorities ensure that Hong Kong residents in need of private hospital services may receive priority allocation of private hospital bed spaces; why the authorities do not immediately study regulating the existing private hospitals by introducing legislative amendments?

Reply by the Secretary for Food and Health, Dr York Chow:

Private hospitals are an integral part of the healthcare system in Hong Kong. They provide primary healthcare services and a range of specialist and hospital services for members of the public who could afford and are willing to choose private services. Private hospitals are subject to regulation by the Department of Health (DH) under the Hospitals, Nursing Homes and Maternity Homes Registration Ordinance (Cap 165) (the Ordinance) on matters of accommodation, staffing or equipment. To ensure the provision of quality healthcare services to patients, DH has formulated a Code of Practice for Private Hospitals, Nursing Homes and Maternity Homes (COP) in which the standards of good practices are set out for adoption by private hospitals. In addition, DH conducts routine or unannounced hospital inspections from time to time to monitor the compliance of their operation with the Ordinance and the COP.

My reply to the three parts of the question is as follows:

(a)    At present, there are 12 private hospitals registered in accordance with the Ordinance in Hong Kong. They are required to meet the conditions relating to accommodation, staffing or equipment under the Ordinance. There are no provisions in the Ordinance regulating the financial return or service scope of private hospitals. Private hospitals would decide on their own matters relating to the use of resources and development. According to information provided by private hospitals, three out of the 12 private hospitals expanded their services in 2011, providing in total about 50 additional beds for specialties of obstetric services, paediatrics, medicine and intensive care. Four other private hospitals expanded specialist services including oncology centres, renal dialysis treatment, cardiac catheterisation services and endoscopy services, etc.

Among these 12 existing private hospitals, 10 are charitable institutions which are exempt from tax under the Inland Revenue Ordinance (IRO). According to section 88 of the IRO, any charitable institution or trust of a public character shall be exempt from tax. Tax-exempt charitable bodies must be established solely for charitable purposes recognised by the law.  As required by the Inland Revenue Department (IRD), charitable bodies applying for tax exemption must have a governing instrument which states their objects precisely and clearly. For charitable bodies granted tax exemption, their incomes (including profits derived from their business) and properties may only be used for attainment of their stated objects and any distribution of their incomes and properties amongst their members is strictly prohibited. IRD will review charitable bodies granted tax exemption periodically to see whether their objects are still of a charitable nature and whether their activities are compatible with their stated objects. When carrying out the review, IRD will usually ask the relevant charitable bodies to submit their account statements, annual reports, as well as other relevant documents and information so as to ascertain whether they have carried out any activities which are outside their charitable objects and deviate from any clauses contained in their governing instruments, and whether their business and profits derived therefrom meet the requirements stated under section 88.  IRD will then decide whether their tax exemption status should continue or be revoked, and whether tax should be levied on the profits derived from their business operations.

(b)    According to the COP, private hospitals are required to prepare respective schedules of charges for different categories of hospital beds, including any categories of beds stipulated in the Conditions of Grant of their land, for information and reference by the public.  For provision of clinical services of any specialty, private hospitals are required to have the appropriate accommodation and equipment, and have qualified personnel and sufficient manpower to provide the services in compliance with the law. Hospitals are obliged to explain their admission policy and arrangements clearly to their patients.

(c)    The Government’s policy is to promote and facilitate the development of private hospitals on top of a strong public healthcare system acting as the healthcare safety net for all.  Private hospital development could enhance the overall service capacity and service quality of our healthcare system to cope with increasing demand for healthcare services. It could also ease the imbalance between the public and private healthcare sectors. According to information provided by private hospitals, the majority of their users are holders of Hong Kong identity card based on means of registration when admitted into private hospitals.

The Government has reserved four sites at Wong Chuk Hang, Tseung Kwan O, Tai Po and Lantau respectively for the development of private hospitals. We are formulating the land disposal arrangements for the four sites. To ensure that the services provided by the new hospitals would be of good quality, the Government will formulate a set of special requirements for development of the sites, covering the scope of service such as the types of specialty; and the standard of service such as the number of beds, hospital accreditation and price transparency, etc. Requirement will also be imposed to limit the number of beds used for obstetrics services by the new hospitals. We plan to first dispose of the two sites at Wong Chuk Hang and Tai Po in the first quarter of 2012. The other two sites will be disposed of later in phases.

Apart from the four reserved sites, some private hospitals are also carrying out or planning expansion projects. Subject to compliance of these projects with the relevant statutory and other requirements (e.g. land use), the Government supports the expansion and redevelopment projects of existing private hospitals for enhancement of their services.  We believe that the above private hospital development projects can further increase the service capacity of the private healthcare market as well as the overall healthcare service capacity of Hong Kong, providing more choices for people who could afford and are willing to pay for private healthcare services.

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