She said this rubbished claims by unions that the state planned to privatise the health system. But in a departure from her prepared text, she warned: "If the public sector cannot supply us with the services we require, we must look elsewhere".

Her remarks were warmly received by the audience of 300 investment bankers, insurers, consultants and private healthcare providers eager to cash in on what Gemma Lynch of Ulster Bank called "the hot new sector" for investment in Ireland in her presentation to the conference.

The Tanaiste said she expected the HSE to invite tenders to build up to 10 new co-location hospital centres in the near future, following a direction she issued last summer under Section 10 of the Health Act 2004 to encourage private investment in health as a way of increasing the overall amount of public beds, by freeing up private beds in public hospitals.

She said she wanted to address what she called the "deliberate myth" that this amounts to privatisation. "My response is, when is privatisation not privatisation? When it delivers up to 1,000 new public beds. . . There are 2,500 private beds within our state-funded hospitals.

Effectively there is a private business going on inside each public hospital. The capital cost has been subsidised 100% by the state. The running cost is subsidised about 40%. Public hospitals only get 60% of the cost of the beds."

She said public hospitals already had a two-tier system, and compared it to an airline. "We effectively have been running state-funded hospitals like airplanes with business class, and with the pilots getting a special fee for each business-class customer, whether or not they sit in a business class seat."

Interest in the conference may have been fuelled, ironically, by the very public rejection of an offer of private investment by the consortium led by Noel Smyth to build a children's hospital.

"More than half of the attendees registered in the last couple of days, " said one organiser. "It may have had something to do with the Smyth row."

The idea that the private sector will be better able to solve problems the public health system has found intractable will receive its first real test later this year, when the country's first private A&E ward is launched as part of the Beacon Hill hospital in Sandyford.