Doctors Hospital launches legal challenge against government

Financial concessions offered to Health City and Aster MedCity deemed "anticompetitive"

Doctors Hospital

Doctors Hospital is taking legal action against government over what it describes as “vast and unilateral” financial concessions offered to both Health City Cayman Islands and Aster MedCity, a new $350 million hospital planned for West Bay.

Bosses at the hospital claim these concessions have unfairly distorted competition and could ultimately compromise the quality of healthcare in Cayman.

In a press release announcing the legal action, Doctors Hospital states it is seeking a “level playing field” for all.

Dr. Yaron Rado, board chairman at the hospital, said, “We believe in fair and competitive marketplaces.

“No market should be subjected to anticompetitive, monopolistic, and dominating behavior.

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“The power held by these companies affects the Cayman economy, our democracy, and ultimately the health and well-being of our citizens.”

He said the situation was “particularly unfortunate” for many locally-owned businesses that have contributed to the islands for years and did not benefit from equivalent treatment.

The court filing

In a court filing, seen by the Compass, lawyers for the hospital argue a 50-year concessions package – offering waivers on work-permit fees, stamp duty and customs duty – given to Health City in 2010, and now extended for a planned satellite clinic at Camana Bay, is both unfair and unenforceable.

They are also disputing a new deal, announced earlier this year, for another new medical tourism facility – Aster MedCity.

While the agreement for that project includes no work-permit and duty concessions, it does involve a 25-year waiver on customs duty for imported medical equipment.

Those waivers are unenforceable under Cayman Islands law, according to paperwork filed by Doctors Hospital in the Grand Court on Friday.

The facility is seeking leave to apply for judicial review.

The application means a judge will be asked to decide if government has a case to answer.

The legal argument

Doctors Hospital argues that duty waivers contained in contracts with Dr. Devi Shetty’s Narayana Health and DM Healthcare – the respective parent companies of Health City and Aster MedCity – would illegally bind the hands of future governments.

They claim the concessions packages are rendered meaningless and inoperative when read in conjunction with the laws of the land.

They also suggest government’s failure to publish criteria for how it determines who gets concessions and under what circumstances is unlawful.

The gist of their case is that the power to grant waivers from taxation is discretionary and can only be made on a case-by-case basis according to the needs of the day.

Granting a blanket deal that spans half a century, as the government sought to do in the case of Health City, would prevent future governments from exercising that discretion.

“[Government] cannot lawfully contract out of or otherwise fetter the exercise of its statutory discretion to waive (or refuse to waive) customs duty, work permit fees and stamp duty,” the court filing states.

To do so would lock future administrations into giving away hundreds of millions of dollars in revenue – regardless of whether they agreed with the principle or not.

The court application suggests this element of the Health City contract is meaningless because of a clause that states it is subject to the laws of the Cayman Islands, which give the government of the day powers over duty concessions.

Any contractual right to automatic concessions for Health City is therefore non-existent, the lawyers argue.

It adds that in the decade since the agreement was signed, the Cayman Islands government has wrongly treated the arrangements of the contract as binding.

The application makes similar arguments over any extension of the financial concessions package to the new Health City clinic at Camana Bay and the separate deal for Aster MedCity.

Unequal treatment

The court filing goes on to state that Doctors Hospital has been treated less favourably in its own applications for concessions.

The hospital has received some waivers from government over the years, but these have been inconsistent and on less-generous terms.

It was also refused blanket concessions for COVID-19 testing supplies during the pandemic last year.

The court filing states government has not met the requirements of the Constitution to be “rational, proportionate and procedurally fair” because it has failed to publish any criteria over how it decides who gets concessions and on what terms.

Doctors Hospital contends there should be a clear and equitably applied procedure for how the discretion to waive work-permit fees, stamp duty and customs duty is applied.

Government is legally bound, it argues, to publish a policy statement on how it exercises its powers to waive millions of dollars in taxes otherwise owed to the treasury.

“Such a statement is needed to promote consistency and guard against arbitrary decision-making,” it states.

“This is particularly important in the context of statutory discretions which provide relief from taxation and, in substance, amount to state subsidies of private businesses.

“Transparent criteria enable businesses to predict whether a waiver application is likely to be granted, enabling them to plan accordingly.

“Transparent criteria also provide a valuable safeguard against corruption.”

Auditor general’s report

It is not the first time that questions about the fairness of the Health City agreement have been raised.

A 2015 auditor general’s report claimed that government had acted unlawfully in negotiating the deal and had committed to tens of millions of dollars in expenditure without adequately researching the possible costs.

“No information was provided to the Legislative Assembly, even though the agreement committed government to hundreds of millions of dollars in tax, duty and fee concessions and contained obligations for infrastructure upgrading and expenditure,” auditors found.

Health Services Authority Medical Director Dr. Delroy Jefferson later outlined concerns to the Public Accounts Committee that the medical tourism hospital had been given certain concessions that other private sector doctors in Cayman had not.

Jefferson told the committee that, in his view, the duty concessions in the government’s contract with Health City were fine if the facility’s purpose was to provide “medical tourism”, a service which did not exist prior to the hospital’s opening in February 2014.

However, Jefferson noted that the hospital appeared, at least in some cases, to be competing with local doctors for patients.

“There is a fear that it is going to hurt the local providers who have not benefited from the same [duty] concessions,” Jefferson said.

Health City Cayman Islands in East End.
– Photo: Taneos Ramsay

What concessions were Health City offered?

According to the court filing, Health City’s contract includes a waiver of 15-30% on all work-permit fees, exemption from stamp duty on the leasing of any land associated with the East End development and a total exemption from customs duty on the first $800 million of medical equipment and supplies imported to Cayman.

What concessions were offered for the new Health City clinic at Camana Bay?

The court filing cites Premier Alden McLaughlin’s comments at a press conference that “concessions and duty waivers already in place for Health City would apply to the new facility”.

What concessions were offered to Aster MedCity?

The new West Bay hospital did not get stamp duty or work permit concessions but is being offered a 25-year waiver on customs fees for the import of medical equipment, according to remarks attributed to the premier.

What is government’s position on granting concessions?

In announcing the agreement in December on building Aster MedCity, McLaughlin said concessions had to be given to such large-scale operations as Aster or Health City, otherwise they would be unlikely to set up facilities in Cayman.

“No other entity in Cayman, up until now, has made the kind of investment in healthcare that Health City did,” he said, adding that the East End hospital got “an incredible amount of concessions, but arguably, without those concessions, it would never have happened”.

He also said that “Aster has asked for very little in terms of concessions,” and noted the planned facility “is going to have an immense impact on Cayman’s economy”.

The Compass has reached out to the Ministry of Finance seeking clarity on its position regarding concessions and the current status of government’s concessions policy, which had been recommended for implementation in an audit in 2015.

Finance Minister Roy McTaggart has previously stated he hoped to “have this [the policy] finalised and implemented before we demit office, once the [Parliament] is dissolved”.

The Compass is awaiting a response from the ministry.

1 COMMENT

  1. Health City Cayman does an excellent job and are an asset to these islands. We are excited to read they are planning another facility.

    But I don’t think it’s right that new large scale developments, whether hospitals or condominiums, should be granted concessions that give them an unfair advantage over local businesses that have served the community for many years.