Since 2011, the state’s hospitals – including Coledale Hospital – have accepted more than $1.3 million in donations conditioned upon nearby pokie venues successfully applying to operate extra machines.

Some charities have started to reject such funding offers, but the state’s public hospital system continues to support the scheme and is increasingly benefiting from it.

The donations are offered to the hospitals and community organisations under the NSW government's Local Impact Assessment scheme.

This requires venues to demonstrate to the Independent Liquor and Gaming Authority that the "proposed increase in the gaming machine threshold will have an overall positive impact on the local community".

Since June 2014, NSW hospitals have accepted 18 donations amounting to more than $1 million from venues through the LIA process. This compares with five donations to hospitals in the previous three years.

St George Hospital in Kogarah was the most frequent recipient of donations through this process, accepting more than $300,000 as part of seven successful applications by venues to add as many as 16 machines to their gaming rooms. 

The Children's Hospital at Westmead has accepted more than  $120,000 in donations since 2013, flowing from five approved applications. The most recent was a $30,000 donation to the hospital's cancer unit from Dooleys Waterview Club, after the club was given approval in September to purchase 20 extra pokies.

In the pokie-saturated postcode of Fairfield, which is also Sydney's most disadvantaged area, Fairfield Hospital will receive $500,000  – the single largest donation offered to a hospital through this process – should an application by Fairfield Hotel for seven extra machines be approved. 

The pub's application was submitted last month and is still being assessed, but it sparked controversy after Fairfax Media revealed last week that the hospital was one of several organisations poised to benefit from the pub's expansion bid, after it tied $2.6 million in donations to its application. 

Fairfield Council and local charity Community First Step refused to support it. Domestic violence charity White Ribbon reversed its initial acceptance of $50,000 from the pub following the Fairfax Media's inquiries.

Other hospitals which have accepted at least one donation through the LIA scheme include: Liverpool Hospital, Ryde Hospital, Sydney Children's Hospital, Coledale Hospital, Cessnock Hospital, and the Queanbeyan Base Hospital. 

Fairfax Media reached out to several hospitals for comment, but the inquiries were referred to the NSW Health department, which issued a blanket statement defending the donation scheme.

"These donations support activities across hospitals, and make a difference to the health and wellbeing of our patients and their families," a NSW Health spokeswoman said

According to a 2010 Productivity Commission report, problem gamblers account for about 40 per cent of losses on poker machines in Australia.

The LIA scheme is intended to offset the harm of concentrating more machines in communities. However, it is criticised for making cash-strapped charities essential to the expanding profit of pokie venues.

More organisations are now walking away from the process.

For instance, the Salvation Army, which has been a prominent advocate for gambling reform, recently agreed to $52,000 from the Waterworks Hotel in Botany, pending its successful application for an extra four poker machines.

After Fairfax Media inquired about the donation, the Salvation Army said it would no longer accept it.

"The Salvation Army is undertaking an internal review of our processes and would like to sincerely apologise for these oversights," a spokesman said.

"The Salvation Army does not support any conditional donations that utilises our brand and reputation to increase the presence of gambling in our community. It is against Salvation Army policy and is contrary to our organisational values."

St Vincent de Paul Society, which is also outspoken on the harms caused by problem gambling, is in line to receive a combined $140,000 in donations from the Imperial Hotel, in Rooty Hill, and Moko-Heather's Kitchen​​​, in ​​Eastw​ood, after their pokie machine increases were approved by the regulator earlier this year.

However, when contacted by Fairfax Media for this story, the society criticised the LIA process and said it was not "planning on supporting any new LIA submissions".

"The society believes that the gaming machine expansion model should not be linked to funding of local groups, charities or community projects. The contribution attributed through this scheme does not come anywhere near to addressing the magnitude of the issues faced by many members of the community," a spokeswoman said.

Without organisations agreeing to accept these donations, pubs and clubs would be unable to prove the "positive impact" requirement and would likely have their application refused.

Monash University public health professor Charles Livingstone, a critic of the gambling industry, said hospitals and charities that accepted funding through this process were complicit in the harm caused by pokie machines.

"In reality they [the hospitals] are participating in inflicting significant levels of harm on the community, and some of that harm is going to come back and they are going to have to pick up the cost," he said.

 "Any organisation that is genuinely concerned about the wellbeing of the community would not lend themselves to this legitimation practice." 

Under NSW law, when machines are sold between separate venues one in three must be forfeited to the state in a bid to drive down numbers. Since the LIA scheme was introduced in 2009, this has resulted in a 5 per cent reduction –  or about 5200 machines – from stock of more than 100,000 machines statewide.

Despite fewer machines, a record $80 billion was pumped through the state's pokies in 2015-16 – up from $73 billion in 2014-15.