Opening Statement by the Minister for Health, Dr. James Reilly T.D. to the Select Committee on Health and Children on the 2013 Supplementary Health Estimates

12 December 2013

Chairman, members of the Select Committee

I wish to thank the Select Committee for giving me the opportunity to bring this Supplementary Estimate for Vote 39 before it.

The total additional funding being sought for the Health Service Executive is €219 million. However, I am allocating savings of €20 million which have been identified within my Department’s Vote towards the HSE requirement; thus, the net cost to the Exchequer is €199 million. This represents less than 1.6% of the health sector budget for 2013.

This is a considerable achievement for the health services in view of the very challenging environment in which it has operated this year given the increasing demand due to demographic pressures, the need to ensure patient safety is a priority at all times and considering the very challenging targets for service delivery in areas such as waiting times.

From the outset in 2013, the Department of Health and the HSE identified certain risks to the achievement of the very demanding savings targets in the 2013 Service Plan. Some of these risks have materialised, such as

However, as a result of prudent financial management and rigorous cost containment, these risks have been mitigated and offset by savings in other areas, and many of the 2013 targets are expected to be achieved in 2014. In addition, whilst there has been a shortfall in the savings targets, it is important to note that significant savings were achieved, notably in the PCRS with considerable reductions achieved in the cost of drugs and medicines.

I will outline in a few minutes the details of this Estimate and the other measures being taken to address this year’s deficit. But first of all I wish to very briefly bring to the Committee’s attention the significant improvements that have been achieved in the health status of our country’s citizens, and also the reforms which are being initiated to strengthen financial management within the HSE.

Health in Ireland Key Trends

Next week, my Department will publish Health in Ireland Key Trends which aims to provide an overview of health status and the health services during the past ten years. It shows real improvements in outcomes, in particular improvements in mortality and increased life expectancy.

Mortality rates from circulatory system diseases and cancers, for example, have declined by 35% and 11% respectively since 2003. Better health care continues to contribute significantly to better outcomes and gains in life expectancy. Over the past decade, Ireland has achieved a rapid and unprecedented improvement in life expectancy. Life expectancy in Ireland has increased by a full four years since the year 2000 and has been consistently higher than the EU average throughout the last decade.

However, we still face considerable challenges in the coming years. The population continues to grow and to age. Each year an additional 20,000 people are added to the total of those aged over 65 years. To meet these demands in an environment of reduced resources, we must change the way we manage and deliver our services. The data on acute hospitals shows one of the ways in which we are achieving this. 60% of hospital admissions are now for day care treatment, compared with 54% in 2006. This is an example of care which provides both better and less invasive treatment while at the same time increasing volume and efficiency.

New Integrated Financial Management System

The Strategic Framework for Reform of the Health Services “Future Health” identified, as one of the key challenges, the need for an integrated financial management system. My Department is working with the HSE to ensure the development and roll out of a comprehensive financial management system as a matter of priority.

As part of the process of further strengthening the financial management of the HSE, independent expertise was engaged to evaluate the financial performance management system and a Finance Reform Board has been established, chaired by the Director General, including senior HSE management and representatives from my Department and the Department of Public Expenditure and Reform.

Proposals regarding the development and roll out of an integrated financial management system have been endorsed by the Board, with my full support and approval, and the HSE is now finalising a business case for submission to the Department of Public Expenditure and Reform.

2013 Supplementary Estimate

I will now set out the items making up this year’s Supplementary Estimate.

The sector faced very significant financial challenges in 2013. The budget targets set for the HSE this year were extremely demanding.

The deferral of the introduction of legislation to charge private patients in public beds until 1st January 2014 means that the targeted savings of €60m will not be achieved in 2013. The Health (Amendment) Act 2013 was enacted on 24 July 2013, but the Government decided to implement the private in-patient charges from 1 January, 2014 to ensure that the additional revenue is realised on a phased basis. Therefore, no savings will accrue in 2013 as a result of this legislation.

My Department and the HSE are committed to maximising the savings under the Haddington Road Agreement. The main drivers for savings under the agreement are:

Not all of these measures could be fully implemented from 1 July 2013. For example, significant savings are to be achieved through the Graduate Nurse/Midwife Initiative and the Support Staff Intern Scheme, but there is a lead-in time before such savings can be realised given the recruitment process and issues such as garda vetting.

In addition, considerable savings will be made through the effective harnessing of the additional working hours to which staff are committed. The harnessing of these additional working hours requires the reorganisation of services and the redesigning of rosters, and it is taking some time to effect these changes.

Planned savings through the reduction in numbers employed are also somewhat less than targeted in 2013, with a very low rate of retirements in 2013. This is probably due to the fact that a higher than normal number of staff retired in 2012 as staff exited before the end of February 2012 to avail of the grace period. Further reductions in numbers were targeted under an Incentivised Career Break Scheme. 360 staff have been released from a total of 2,700 applications. A large proportion of the applicants were frontline health professionals, e.g. nurses and therapists, and only limited numbers of these staff could be released due to the necessity to ensure that frontline services continued to be provided.

Budget 2013 set a target of €323 million for reduction in expenditure on Community Schemes this year. In addition, the HSE sought a further €60 million in savings. This ambitious target has fallen short due to the timing of the FEMPI regulations and a shortfall in other savings targets. However, it must be acknowledged that the PCRS did achieve considerable savings on the schemes, for which it should be commended.

As regards FEMPI, the legislation originally planned for April, was delayed due to delays in achieving agreement on the Haddington Road Agreement. In July, I announced reductions in fees payable to GPs, pharmacists, ophthalmologists and psychiatrists which will save €70 million in a full year. However, although there will be a shortfall of some €37m in 2013, the balance will come through in 2014.

The 2013 National Service Plan set a target of €30 million savings from the Local Schemes i.e. savings related to the purchase and use of goods in local Integrated Service Areas for supply to eligible persons. However, the nature of expenditure and the low level of potentially discretionary aids and appliances have limited the potential for savings. The HSE is now reviewing the management and provision of aids and appliances through a dedicated project which will manage delivery within resources and maximise efficiencies.

This Government is fully committed to reducing the cost of drugs and medicines for patients and consumers, as set out in the Programme for Government. Changes in recent years have resulted in reductions in the prices of thousands of medicines with price reductions of the order of 30% per item reimbursed being achieved between 2009 and 2013 (the average cost per item reimbursed is now running at 2001/2002 levels).

I can assure the Committee that the 2012 pricing agreements with the Irish Pharmaceutical Healthcare Association (IPHA), which represents the research based pharmaceutical sector, and with the Association of Pharmaceutical Manufacturers in Ireland (APMI), representing the generic industry, are delivering savings as planned.

The combined gross savings from the IPHA and APMI deals will be in excess of €120million in 2013.

Furthermore, the Health (Pricing and Medical Goods) Act 2013, which came into operation on 24th June, provides for the first time a radical change in the way prices are set and will lead to benefits for patients and the State finances. The legislation will promote price competition among suppliers and ensure that lower prices are paid for these medicines resulting in savings for taxpayers and patients.

A deficit of approximately €15m is projected in relation to legal costs associated with Children & Family services. There is a considerable pressure in the area of legal fees in Children and Family Services. These pressures arise in the context of the considerable legal considerations and oversight of the HSE when exercising its powers to intervene in families where children are neglected or abused. In the run up to the creation of the new Child and Family Agency a rigorous review of legal expenditure has been undertaken with an aim to achieve further significant savings and greater efficiencies in the provision of all legal services. Revised procedures have been introduced regarding access to external legal services and good practice in relation to court procedures. However, the area of legal fees in child and family services will continue to present significant financial pressures to be managed by the Board and CEO of the new Agency into the future.

A further €37m is required to meet estimated claims due before year end by the State Claims Agency. The State Claims Agency estimates are based on actuarial modelling provided by an independent firm of actuaries. The original estimate was on the basis that the High Court began to agree to settlements in respect of catastrophic injuries on a Periodic Payment basis, in anticipation of proposed legislation, which is currently being drafted by the Department of Justice and Equality. Periodic payment orders allow for catastrophic injury cases to be settled on the basis of an initial lump sum to deal with upfront costs such as general damages, home alterations, specialist equipment etc and thereafter an annual amount is paid, to meet on-going care costs. However, in the absence of this legislation, the High Court in a number of cases has converted the settlements back to traditional lump sum settlements, where they had previously settled on an interim basis.

It is not possible for the State Claims Agency to predict the approach of individual High Court judges when faced with an application from the Agency to rule on a PPO basis. Some judges are amenable to award a PPO while other judges will not award a PPO in the absence of legislation.

In relation to procurement, significant price based savings have been realised in year, with any shortfall in 2013 targets expected to deliver in 2014. Approximately €18m-€20m of the 2013 procurement target is expected to be delivered in 2013. Significant work is also underway within Procurement to provide a more robust basis for assessment of delivery against procurement targets. This work will further drive the efficiency of the procurement process through 2014.

Savings

As I set out at the beginning of my address to you, my Department has identified savings of €20m. These savings arise within my Department’s directly funded agencies and savings on administration; legal costs; and Hepatitis C Compensation. There is also a saving of €3.5m on my Departments Capital Vote.

Summary

In summary, given the extent of challenges faced by the Executive in 2013, the extra funding being requested through this Supplementary Estimate is reasonable. The Executive has been through a challenging year and faces another tough year ahead. My intention in bringing this Supplementary Estimate is to reduce the incoming deficit for the HSE as it faces into a difficult year in 2014.

Conclusion

In conclusion, I seek the Committee’s approval to the Supplementary Estimates for Vote 39.