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

Never say "never" and always avoid "always".

I thank the select sub-committee for giving me the opportunity to bring before it this Supplementary Estimate for Vote 39. The total additional funding being sought for the HSE is €360 million. I am allocating a once-off extra Exchequer receipt of €45 million from the Medical Defence Union, MDU and savings of €70 million, which have been identified within my Department's Vote and will contribute towards the HSE requirement. Thus the net cost to the Exchequer is €245 million. Chairman, this represents just 1.8% of the health sector budget for 2012. Given that we are in a time of ever-reducing budgets in the past three years, with a reduction of €2.5 billion, I believe this not to be unreasonable.

This Supplementary Estimate must be seen in the context of the challenges that faced the Health Service Executive this year. As Deputies will be aware, the health sector faced a very significant financial challenge in 2012 and 2013 will be no different. The 2012 national service plan was based on the achievement of cost reductions of €750 million to meet the cost of delivering the maximum level of services possible and commitments in the programme for Government. A range of saving measures were identified in the Estimates to enable the HSE to meet these objectives in the implementation of the plan. The shortfall in the HSE reflects the underlying expenditure difficulties in the acute hospital sector, child welfare and protection services and the demand led scheme. It is worth emphasising that there are demand led schemes in health and a demand led element in our hospital services, which I will identify later.

This Supplementary Estimate together with the savings in my Department's Vote, the extra Exchequer receipt from the MDU and other measures being taken by the HSE should ensure the HSE achieves a balanced Vote at the end of this year. An additional €162 million has been sought to meet deficits in services, specifically in the acute hospital sector and child welfare and protection services. Spending on the primary care reimbursement service - effectively a demand led scheme - is projected to be in the region of €230 million in deficit by the end of the year.

I will outline the details of the Estimate and the other measures being taken to address this year's deficit. First, however, I will outline the reforms which have been initiated to strengthen the financial management system of the HSE. My Department undertook strategic measures during 2012 to address the ongoing financial issues in the HSE. A review of the financial management systems in the HSE was commissioned. Its overall intention was to review the present state of the financial management system in place in the health sector in Ireland in the context of the serious overruns projected, the continuation of a challenging financial environment for the foreseeable future and the radical reforms envisioned in the programme for Government. The review came up with a number of recommendations to strengthen the financial management process in the HSE with particular reference to managing the transition phase that the health sector is currently undergoing. Subsequently PA Consulting were engaged to draw up urgent measures to be put in place to strengthen the HSE's financial management capacity and processes, having regard to the findings and recommendation of the Ogden review. My Department is now working closely with PA Consulting and the HSE on a financial improvement programme for the HSE. We have had many descriptions of the problems in the HSE over the years, but no remedy described and applied to it. That has now changed with the measures being put in place following the PA Consulting report.

The sector faced very significant financial challenges in 2012. The budget targets set for the HSE were extremely demanding and regrettably were not all achieved. The impact of the retirements under the "grace period" posed significant challenges, given that 4,700 people left the sector before the end of February. While cost containment plans were rolled out across the health sector, the continued escalation of expenditure and PCRS has resulted in a projected deficit for the HSE this year.

As 4,700 staff left the HSE, this meant we had to pay out considerably more in lump sum superannuation payments, however it did not mean we got savings across the board as many of these people had already left active service but had never formally retired and now took the opportunity to do so. That had a further negative impact on the HSE budget.

My Department has worked intensively with the main health insurers to agree a system of cash flow and accelerated payment, which will provide a cash flow benefit this year. At any one point in time, some income will be outstanding for the treatment of private patients in public hospitals but reducing the time taken to recover the income outstanding will provide a cash flow benefit to the HSE. This will be achieved in 2012 via the income collection agreement which has been just finalised with the three main insurers.

The income collection agreement will reduce the total level of income outstanding to the HSE by insurers as it involves insurers making accelerated payments based on 70% of the estimated value of claims that have not yet been reported to insurers. The balance of 30% will be paid upon the validation of a fully collated claim from the HSE. The payment relates to treatment that has been already carried out in public hospitals but for which a claim has not yet been raised and therefore it is not an advance payment.

Under this agreement the HSE will have a once-off cashflow benefit of €100 million to €110 million in 2012, which will reduce the level of income outstanding to the HSE and will therefore reduce the projected deficit by a corresponding amount. The money is a once-off payment in respect of private patients who have been already treated in publicly funded hospitals, but where the detailed claims have not yet been received by insurers.

This year, 2012, has seen an increase in expenditure in acute hospital services, above what was originally forecast in the national service plan. There are indications that cost containment measures put in place by the HSE are reducing expenditure, but activity has increased and therefore additional funding is required. Again, there are demographic pressures as our population grows older. This leads to more attendances at accident and emergency departments, as we have seen, and more admissions to hospital. However, it is good that people are living longer. Second, there has been an increase in the number of births, with 75,000 in the past year. This is also good for our country but it places an additional strain on our services. These are truly demand led areas.

The 2012 national service plan set access targets for inpatient and day case treatment whereby no adult should have to wait more than nine months for an inpatient or day case procedure date and no child should have to wait more than 20 weeks for an inpatient or day case procedure date. No patient should have to wait more than 13 weeks or three months for a routine gastrointestinal, GI, endoscopy procedure. I am happy to report that the number of people waiting for more than nine months for treatment has dropped 91% since the beginning of this year, while 70% of hospitals have fully achieved the target of having nobody waiting for more than nine months for treatment. I am also pleased to inform the committee that there have been significant improvements in access to scheduled care, that is, elective surgery for inpatient or day case, since the special delivery unit, SDU, was formed. At the beginning of October, for example, there was a total of 8,250 patients to be treated before 20 December 2012 for the nine month maximum wait time for elective surgery to be met. Of these, as of the end of November, 5,846 patients or 71% had been treated. In paediatrics, 68% of those patients waiting had been treated. Furthermore, 79% of patients waiting for an endoscopy procedure at the beginning of October had been treated by the end of November.

This progress is real and hospital management, staff, the SDU, clinical programmes and the HSE are all to be commended. However, it must be acknowledged that the impact of the retirements under the "grace period" has seen an increase in overtime and agency costs. Thus, additional funding of €162 million is required to address the deficit in acute hospital services. This use of agency and overtime will be much reduced if there is a successful conclusion to the negotiations, being led by Department of Public Expenditure and Reform, on the new Croke Park agreement.

With regard to the primary care reimbursement service, PCRS, the main drivers are the increase in the number of full medical card holders while claims for high tech drugs and medicines continue to increase. The excess of medical cards over what was projected in the HSE service plan arose for two principal reasons - a backlog in applications from 2011 was cleared at the start of this year and there was a higher than anticipated number of applications for new cards. The HSE's 2012 national service plan provided for 1,838,126 medical cards, which reflected a planned-for growth of 105,000 or 6% in eligible persons in the year. The number of persons eligible for a medical card at the end of October 2012 is 1,836,689. This is an increase of 142,626 from 1 January 2012 or an increase of 8%. It represents an excess of 37,626 over planned growth for 2012. It is not possible to forecast precisely the end-year number of medical cards as this will depend on the number of people that apply for a medical card, the number of cards that are successfully renewed and the number of cards that expire during the remaining months of the year. It is clearly also a function of our economy.

To address the deficit in PCRS, an additional sum of €234 million is required. This is clearly demand-led, as is the increase in emergency department attendances and hospital admissions. These are due to an increase in population. Between 2006 and 2011 the population increased by 8.2%. The number of people over 65 years old increased by 14% and the number of people over 85 years of age increased by 22%. This is a good news story, but it has implications for our health services.

The committee will be aware that I recently announced the intensive negotiations with the Irish Pharmaceutical Healthcare Association, IPHA, had reached a successful conclusion with a major new deal on the cost of drugs in the State, with a value in excess of €400 million in the next three years. The new deal, combined with the IPHA agreement reached earlier in the year, means €16 million in drug savings this year with much greater savings to be achieved over the next three years. The cost of new drugs in 2012 is estimated to be approximately €15 million. Examples include the cancer drug, Ipilimumab, and the Hepatitis C drugs, Boceprevir and Teleprevir. It is estimated that the deal will generate savings of up to €116 million gross in 2013.

As I said, my Department has identified savings of €70 million within its budget. These savings arise within my Department's directly funded agencies, savings on legal costs and savings within the National Treatment Purchase Fund. There is also a saving of €7.5 million on my Department's capital Vote. In addition, a once-off extra Exchequer receipt of €45 million from the Medical Defence Union will also offset the amount of supplementary funding required from the Exchequer. This €45 million cash lump sum is in settlement of ongoing legal proceedings that sought to recover money paid by the State on behalf of refused Medical Defence Union, MDU, members. These consultant members of the MDU found themselves in circumstances where they were refused indemnity cover by their medical defence organisation. This dispute has been ongoing since 2004 and it is both timely and in the State's interests that a resolution has been reached.

In summary, given the extent of challenges faced by the executive in 2012, the extra funding being requested through this Supplementary Estimate is relatively small. The executive has been through a challenging year and faces an even tougher year ahead. My intention in bringing forward this Supplementary Estimate, together with the other measures I outlined, is to reduce the incoming deficit for the HSE as it faces into a difficult year in 2013.

In conclusion, I seek the committee's approval to the Supplementary Estimates for Vote 39.