News analysis: Hospital reignites public benefit row

Refusal of charitable status to a private care subsidiary has polarised sector opinion. Emilie Filou reports.

Salisbury District Hospital
Salisbury District Hospital

The Charity Commission's long-awaited guidance on public benefit will not be published until later this month. But its recent decision to refuse charitable status to a private healthcare organisation in Salisbury (Third Sector Online, 14 December 2007) has revived prematurely the unresolved debate about the public benefit credentials of fee-paying charities.

Odstock Private Care was set up for its private patients by Salisbury District Hospital in order to avoid a cap on private patient numbers at NHS foundation trusts. But the commission concluded that although Odstock had been set up to relieve sickness - a legitimate charitable purpose - its activities were not exclusively charitable. "The arrangements were to facilitate the practice of private medicine at the hospital, which would benefit medical practitioners, insurance companies and the Foundation Trust," it said in a statement.

The crux of the debate

The commission was also concerned that Odstock's services would not be affordable to people on low incomes. "The evidence was that Odstock would not, at least at present, provide patients on low incomes with exemption from charges," said the statement.

"The scales of charges indicated the tariffs were sizeable. People living in poverty (even the poor of Salisbury) could not afford to pay sums of that order." Odstock had argued that Salisbury was a wealthy area and that residents would be able to afford its services, from which it made a marginal profit.

This notion of low income is the crux of the debate. Providing services for people on low incomes is not specifically referred to in the Charities Act 2006, but case law indicates that a fee-charging charity does qualify as providing public benefit so long as the poor are not wholly excluded from access to its services.

In its draft guidance, issued for consultation last year, the commission used the phrase "people on low incomes" as a modern equivalent of the word 'poor'. Several legal responses took issue with its formulation of the principle.

It remains to be seen what its final version of the guidance will be, but some lawyers think the Odstock decision was a clear indication of the way the commission intends to interpret the case law on fee-charging charities.

"The commission has hung its hat very clearly, and admirably, on the fact that people living in poverty must not be excluded," said Lord Andrew Phillips, the retired charity lawyer and Liberal Democrat peer.

Phillips agrees with the commission's decision, but his main objection to the establishment of Odstock was the fact that private medicine was benefiting, in the sense that consultants were being paid their full fees - something he expects will be picked up by the High Court if Odstock decides to appeal.

The case is likely to have wide repercussions, because many hospitals are considering similar set-ups. Great Ormond Street Hospital, for example, is about to submit plans to open a charity for its international and private patients unit. The difference is that the vast majority of its international patients are referred to them and paid for by foreign governments that don't have the necessary expertise or facilities.

"We are exploring a number of different models, but the fact that the Charity Commission has ruled against one particular model doesn't mean that another application will not succeed," said a statement from the hospital.

Other fee-charging charities, such as care homes and independent schools, will also be looking at the particulars of the case with concern.

Philip Kirkpatrick, a partner at Bates Wells & Braithwaite, is concerned about the commission's decision because it will exclude from charitable status any fee-charging organisation that cannot afford to subsidise some of its beneficiaries, particularly smaller ones, even if they are not making a profit.

One senior barrister argues that the relief of rates and taxes, as provided by private healthcare or private schools, is recognised as a charitable purpose under the 'any other purpose' category in the list of charitable purposes given in the Charities Act 2006, and that Odstock should therefore be recognised as entirely charitable.

Phillips argues that hospitals should set up their private patient work as wholly-owned trading subsidiaries in the same way as other charities do. This could save them the trouble of going through a similar case, but it doesn't give an answer to the question of whether the thousands of charities that charge for their services - through choice or necessity - provide sufficient access to people on low incomes.

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