Mr. Tony O'Brien:

Apologies again for the false start. I thank the Chairman and members for the invitation to attend today's meeting to discuss the 2014 appropriation report and the chapters which have been referenced. We have submitted information and documentation to the committee in advance of the meeting. In my opening statement, I will brief members on the following issues, the first of which is the financial outturn for 2014.

The Revised Estimates Volume provided a net Vote Estimate of €11.552 billion for the HSE. On a like-for-like basis, this amounted to an overall reduction in the gross allocation of €272 million. It also included total additional savings targets of €619 million, which were required to be achieved in 2014 to deliver the service commitments within the funding available. In order to maintain existing levels of service, continue to improve patient safety and deliver priority service initiatives within the funding available, significant budget and expenditure reductions were required. The 2014 national service plan identified the financial risks associated with these reductions and highlighted in particular the scale of the pay and pay-related savings targets being imposed on the system.

While many of the efficiency and cost-containment measures delivered substantial savings over the course of the year, it was not possible to realise the required amounts in full. A net Supplementary Estimate of €680 million was passed by the Dáil in December 2014 relating to expenditure pressures, including €390 million for statutory and voluntary services, primarily in the acute hospital sector, €165 million for the primary care reimbursement scheme, PCRS, and other demand led schemes, €55 million for the State Claims Agency, €50 million for patient and miscellaneous receipts and €20 million for statutory pension lump sums.

In the period 2008 to 2014, €406 million was allocated to the HSE in net Supplementary Estimates in respect of areas within its direct control. This equates to 0.49% of the €82.829 billion total original net Vote over the same period. Some €640 million in Supplementary Estimates was allocated to the HSE in respect of the PCRS, to include medical cards, general practitioner fees, drugs and other demand-led schemes, the dental treatment services scheme, etc., which equates to 0.77% of the €82.829 billion total original net Vote over the period. Some €1,632 million in Supplementary Estimates was allocated to the HSE in respect of Exchequer-related and other items outside the control of the HSE, which equates to 1.97% of the total.

With regard to prompt payments, in the conclusion to Chapter 19 of the Comptroller and Auditor General's report, Compliance with Prompt Payment Legislation in the Health Sector, the Comptroller and Auditor General drew attention to a number of issues and made a number of recommendations. The HSE acknowledges these conclusions and the related recommendations and continues to implement actions to address them. The HSE wishes to acknowledge that it is fully committed to further improvements in respect of prompt payment, particularly with regard to the liquidity position of the small and medium enterprise, SME, sector. Almost half of the payments to vendors in 2014 were for sums of less than €5,000, with only 10% of suppliers receiving payments of €100,000 or more. It is important to acknowledge the complexity of the work of the HSE in context of payment of its suppliers. The HSE processes almost 2 million invoices annually to 20,000 suppliers through eight major payment centres using multiple financial payment systems. Despite these challenges, the HSE in 2014 incurred prompt payment interest of less than 0.01% or €300,000, based on non-pay expenditure of €4.1 billion representing almost 2 million invoices processed.

HSE areas that have single systems and locations for the processing of invoices can pay vendors on time and, therefore, do not incur prompt payment interest charges. Specific examples of this relate to the fair deal and primary care reimbursement schemes where no interest charges arise on a spend of €2.8 billion. Average payment terms based on analysis of data from our regions that have single systems show that we pay on average within 28 days. The HSE compares well against other European Union countries as the EU average is currently 36 days. Further, only 11 of the 26 EU member countries pay within 30-day directive terms.

Health business services, HBS, is currently reviewing 45-day payment areas to bring these into line with 30-day payment terms across the HSE. The HBS team is also engaging with various representative bodies such as the Small Firms Association, IBEC and Chambers Ireland on a regular basis to acknowledge and identify issues for suppliers. To date, the feedback from these groups indicates that their members are generally satisfied with payment of invoices and prompt payment interest on same. Thus far, we have not yet been able to secure a meeting with ISME. The HSE is engaging with the Departments of Health and Jobs, Enterprise and Innovation with regard to the payment of the prompt payment compensation of €9 million which has been accrued in 2014 for the period from March 2013 to December 2014.

On tax compliance, the HSE is the largest employer in the State, with a staff of more than 100,000 and an average annual tax bill of in the region of €1.6 billion. As part of its commitment to continued improvements in internal controls and compliance, the HSE performed a detailed internal review of its tax heads for the years 2011, 2012 and 2013 in order to identify areas of risk in tax compliance. The HSE worked within the Revenue's co-operative compliance programme to submit a formal unprompted qualifying disclosure of all identified underpayment of taxes. As a result of this process, the HSE and Revenue Commissioners agreed a full and final payment of underpaid taxes, including penalties and interest of €22.4 million, which was formally accepted by Revenue in August 2015. This payment amounts to less than 0.05% of the overall budget of the HSE for the years 2011 to 2013, inclusive. Further, it amounts to around 0.6% of the overall taxes paid in these three years. More important, this payment has not impacted on the delivery of services.

As a result of this tax review, the HSE set up a tax department which is currently being resourced and developed. Further, the HSE is currently in an agreed process of finalising its internal tax review of 2014 with Revenue. It is expected that this review will conclude in November of this year. As the tax review of financial years 2011 through 2012 was not completed and submitted to Revenue until December 2014, the HSE is aware that there may be broadly similar issues arising in 2014 and the expectation is that improvements will start to be reflected in financial year 2015 and will continue into 2016 and beyond.

The Comptroller and Auditor General, in Chapter 20 of his report, Management of Private Patient Income in the Health Sector,made recommendations which the HSE acknowledges. The HSE will actively work to put in place processes and practices to support these recommendations. The report highlights specifically the delay the HSE is subject to in receiving private patient income from the main private health insurers. Currently, the HSE is developing a memorandum of understanding, MOU, with the main private health insurers in the Irish market to address outstanding debt issues by negotiating improved payment terms and cash collection for the HSE. These MOU negotiations commenced in July 2014, initially with the VHI. Since then, negotiations have been expanded to include Laya, Aviva and GloHealth. All MOU negotiations are at various stages with all four private insurers.

Chapter 20 also contains recommendations relating to integrated claims processing. Currently, the HSE is utilising the Claimsure claims processing system across 47 of the 48 acute hospitals. Further, Claimsure can process almost 99% of private insurance claims where the HSE has a direct payment agreement with a private insurer or occupational health scheme such as the ESB, the Prison Officers Medical Aid Society, POMAS, etc. Claimsure also manages any statutory levy from private insurers where private insured patients opt to be treated publicly.

In terms of high-tech drugs and medicines, aggregate spending on medicines under the general medical services, GMS, scheme, direct payment scheme, DPS, and long-term illness scheme has reduced since 2009, despite the growth in numbers with eligibility and the introduction of more expensive new medicines such as new oral anticoagulants, for example. This is due to a sustained and ongoing programme of price reductions and guidance to prescribers regarding preferred products. The exception to this pattern is expenditure on high-tech medicines, which increased from €315 million in 2009 to €485 million in 2014 as a consequence of the introduction of highly expensive new medicines and the increased use of existing high-tech medicines.

In the future the expectation is that new medicines will, in the main, be in the high-tech area. Such medicines are generally only prescribed or initiated in hospital and would include items such as anti-rejection drugs to transplant patients, medicines used in conjunction with chemotherapy or hormonal therapy and medicines for conditions such as cystic fibrosis, multiple sclerosis and hepatitis C, etc. The medicines are purchased by the Health Service Executive and supplied through community pharmacies, for which pharmacists are paid a patient care fee. The cost of the medicines and fees are paid for by the primary care reimbursement service.

The challenge in this area – as in many others - is to ensure that the correct balance is struck between controlling costs on the one hand and ensuring, where possible, that Irish patients have access to new drug therapies as soon as possible after they are developed. The Comptroller and Auditor General's report on the issue is therefore timely and will assist the HSE in managing this growing area of expenditure.