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Housing Minister Megan Woods is expected to visit Otago and Southland next week to assess the feasibility of returning New Zealanders spending their mandatory two-week isolation period in the South.
SDHB chief executive Chris Fleming told a board meeting yesterday Dunedin was the preferred first choice in the southern region due to the proximity of health services.
Invercargill would be second choice and Queenstown third.
The decision was based "largely on a health resource basis", Mr Fleming said.
"Accommodation is clearly very available in Queenstown but there is not the same health infrastructure there."
While Queenstown does have Lakes District Hospital, which recently had a $9.3 million upgrade, it does not offer the range of services available in Dunedin or Southland hospitals.
"It is not so much Covid-19 I am worried about, as there will be Covid-positive people on those flights," Mr Fleming said.
"A lot of people will have other complexities and ongoing health problems."
It was important the SDHB played its part if asked to, but he said any decisions about isolation centres being set up in the South would be at least a fortnight away.
"We still have not been asked to, but we do have the resources."
The South was one of the regions most affected by Covid-19, recording 216 cases.
Several regional leaders, most notably Queenstown Lakes Mayor Jim Boult, have expressed disquiet at the possibility of the disease recurring if returning New Zealanders were hosted.
Yesterday, Mr Boult said it made sense for Dunedin and Invercargill to host quarantine cases before Queenstown did, because of their larger, better-equipped hospitals.
"If there was another outbreak in Queenstown, patients would have to be transported to one of those centres anyway," he said.
Lakes District Hospital had limited capacity, and was already under pressure from snow sports injuries.
Minister of Health Chris Hipkins was not ruling Queenstown out of the mix, but said the presence of public health teams would factor into the government’s decision.
"Never say never ... but with the passage of time, it may well be that there are a range of additional facilities that may be pressed into use, including potentially ones in Queenstown."
Invercargill’s mayor, deputy mayor, council and Great South declined or were unavailable for comment last night.
Dunedin Mayor Aaron Hawkins said it was no surprise Dunedin Hospital was the board’s first choice.
"However, the infrastructure required to support isolation is about more than healthcare," he said.
"Any location has to manage in a way which keeps both our returning New Zealanders safe and our wider communities safe and that is a broader conversation."
Mr Hawkins said he had been assured Dr Woods would make no decision about a role for Dunedin in managed isolation until she had visited the city.
Managers of Dunedin hotels said last night they were yet to be approached by the Government about being used as isolation facilities.
Distinction Hotel Dunedin general manager Darren Thurlow said the site would not be involved.
— Additional reporting Guy Williams, Grant Miller, RNZ