James Reilly (Dublin North, Fine Gael) | Oireachtas source

I thank the sub-committee for the opportunity to discuss the situation. I look forward to responding to questions from members and to a discussion on the many challenges facing the health service in 2013.

While I acknowledge that the sub-committee's agenda today is to discuss the 2013 allocations, it is not possible for me to provide any degree of detail on the budgets for the Department of Health and the HSE. Those budgets will be presented next week on the publication of the Estimates. I have just left a Cabinet meeting at which budgetary matters were being discussed and I will be partaking in another such meeting at noon. I will, however, be as open as possible in the circumstances. In particular, I wish to clearly outline the context relating to the challenges for 2013 in order that everybody will be aware of the difficulties we face and what will be our priorities in terms of how we spend money and obtain best value for it on behalf of our citizens.

I will begin by making a number of general observations with regard to the overall challenge to be faced in the area of health. As members are fully aware, the Government is committed to tackling Ireland's very serious deficit problem in accordance with the broad fiscal framework of the EU-IMF memorandum of understanding. Health expenditure accounts for 26% of gross current expenditure. This represents 39% of total tax receipts and 92% of income tax receipts in the current years. The health service budget has had to be reduced by €2.5 billion during the past three years. The number of health service staff has fallen from a peak of 111,000 in 2007 to fewer than 103,000 now. The sector faced significant financial challenges in 2012 and, as members will be aware, it has been necessary to apply for supplementary funding.

The budget targets set for the HSE this year were extremely demanding and subsequently were not achieved. The impact of the retirements that occurred during the grace period posed significant challenges, particularly as some 4,700 people left the sector before the end of February. While one would imagine that this would lead to savings in terms of pay, that is not always the case. Many of those to whom I refer had taken extended leave of some form or a leave of absence and then decided they would leave permanently. Their lump sums had to be paid and there was no immediate gain in the context of our not being obliged to pay wages.

In view of the scale of the challenge the health system will face in 2013 and subsequent years - and as an aid to its preparations for the 2013 Estimates - the Department of Health invited the European Observatory on Health Systems and Policies to prepare a report on the implications for the Irish health system of our current financial pressures. The observatory is an international partnership hosted by the World Health Organization and its report was compiled by a team of international and Irish researchers. The report was published last week and is available on my Department's website. It indicates that while there is scope for further efficiencies in the health system here, savings cannot be achieved within the externally imposed timeframe without visibly damaging patient care. This is unless we address pay and the price of inputs. As stated previously, we are faced with the prospect of either cutting services or the cost of those services. I am determined that the latter will be the case.

Even with substantial efficiencies it is unlikely that the health policy objectives of the programme for Government can be met without an increase in statutory resources, particularly in view of the commitment to expand entitlement to GP services. International evidence shows that efficiencies of 2% to 3% per annum are generally achievable with little disruption to services but that attempts to achieve more rapid efficiencies tend to affect service delivery, usually in a way that is disproportionate to the savings achieved. Targets for reducing health spending should take account of the growth in demand for services driven by demographic change and the sharp increase in medical card coverage. The latter is, of course, a result of the economic difficulties we face. International studies also indicate that it is difficult to achieve lower costs and greater efficiency when structures are subject to radical change. In fact, efficiency tends to decline and it takes approximately three to five years to recover fully.

These findings are very significant in the context of our considerations today because they clearly indicate that while the health service can and will deliver further efficiencies, there is a level beyond which further expenditure reductions can cause real harm. There is no doubt, therefore, that the challenge we will face in the context of resources and timescales in 2013 will be considerable. At the same time we must respond to the unavoidable pressures that will be placed on the system and, in particular, the challenges posed by our demographic growth.

There are three points which illustrate the scale of the challenge we face on the demographic front. First, during the past decade the overall population of Ireland has grown at a much faster rate than that of any other EU country. It is projected to continue to grow, albeit at a reduced rate. Second, the ageing of the population is now occurring at a rapid and accelerating rate. Between the censuses of 2006 and 2011, the number of people over the age of 65 rose by 14%. This will increase to 18% between 2012 and 2017. The highest percentage increases will be in the oldest age group, namely, 85 years and over, where the figure will rise by 21% between 2012 and 2017.