Mr. Colm Desmond:

I welcome the opportunity to address the joint committee on the forecast outturn for 2018 for Vote 38 - Health. For 2018, the Government approved gross expenditure of €15.332 billion for the health services - €14.839 billion for current funding and €493 million for capital funding - representing a 4.9% increase on the original Vote allocation for 2017. The improving economy has enabled the health service to achieve much-needed budget increases in each of the past three years. We are very aware that there are areas where further improvements are required, and the Department will continue to work with the HSE to optimise service provision within the constraints of available funding. Demographic pressures, including a rise in chronic diseases and an ageing population, mean that we face challenges into the future in implementing our strategic responses to these developments while continuing to focus on effective management of resources to ensure that services are delivered in line with the national service plan and within budget. Not only has our population over the ages of 65 and 85 increased significantly, but due to the continuous improvements in health delivery more people are also living longer with more illnesses, requiring increased ongoing support from the health system.

In considering the drivers of expenditure in any given year, it is important to recognise the interdependencies that exist. For example, a policy goal seeking to improve client safety, underpinned by improved regulation, can be delivered through a range of interventions which may drive a requirement for increased staffing and new roles. Almost 1,100 designated centres in disability services need to be registered by the Health Information and Quality Authority, HIQA. In addition, 790 individuals were identified nationally in 2017 as requiring an immediate service response in terms of residential placement. Notably, death or incapacity of the main carer was the main driver, accounting for 29.5% of these requirements. In the case of drug spending, the main drivers are new high-tech drugs expenditure in areas such as cystic fibrosis, rheumatology and cancer and increased spend on drugs under the long-term illness scheme for conditions such as diabetes, cystic fibrosis and epilepsy.

It is important to note that a number of service areas are purely demand-driven, and spending can exceed the budgeted allocation, where forecast assumptions on demand levels differ from those experienced. Health is one of the few public services which has its pension costs reflected in its Vote. Changes to pension rates and the fact that pensioners are living longer have resulted in a significant increase in the share of the health Vote attributable to pensions. Similarly, the inclusion of the costs associated with the State Claims Agency has an impact on the health Vote annually. While an assessment is undertaken each year, it can be difficult to forecast. The increasing cost of settlements is determined by the court system and is a matter which does not fall not within the remit of the health sector.

The nature of the health services is such that the normal budget management levers available to other sectors, such as reduction of services, are simply not available to the HSE in some areas. The winter of 2018 was very difficult for our health services. During February, there was a 7.7% increase in attendances and a 5% increase in emergency department, ED, admissions compared to February 2017. This growth in demand is well ahead of population growth and reflects international evidence that emergency department demand is driven by more than demographic factors. This increased demand was further exacerbated in March by the impact of Storm Emma and the associated severe weather experienced across the country. Other external factors, such as the actions of the private health insurers, are also driving the need for additional funding.

Regarding the financial position and the 2018 outturn, while it is still too early to forecast accurately the year-end position, significant deficits are emerging, driven in large part by the issues referred to above. I refer, for example, to: a private patient income shortfall of around €100 million, arising from the campaign by the insurers to dissuade their policyholders from using their insurance when admitted through an ED; a higher level of State Claims Agency payouts than budgeted for, approximately €50 million; a primary care reimbursement service driven by costs and demand for drugs, especially high-tech and long-term illness, in the range of €95 million; a higher level of spend on national reform projects, in the range of €40 million; a higher level of spend on service areas, acute and social care, in the range of €220 million; and non-achievement of tranche 3 of the value improvement programme, in the range of €150 million.

The overspend in the service areas is driven by a number of factors, including the non-achievement of value improvement programme, VIP, targets, higher levels and higher complexity of demand, costs associated with meeting national standards and emergency placements beyond the level funded. Based on spending this year to date, it is clear that there will be an overrun in 2018. In that context, the announcement by the Minister for Public Expenditure and Reform, Deputy Donohoe, that he intends to allocate an additional €700 million to the health service in 2018 by way of a Supplementary Estimate is most welcome, particularly bearing in mind that it has been possible to carry this additionality into the base for 2019.

In drafting the capital plan for the period 2018 to 2022, the HSE identified a deficit in construction capital funding for 2018 of €109 million. During 2018 extensive measures to actively manage the capital budget have been applied. This has involved balancing, as much as practicable, the fulfilment of contractual commitments, delivery of projects and managing equipment and infrastructural risk issues such that capital expenditure remains within profile. Following this extensive engagement and management of issues, capital spending to September 2018 remains within profile. Nevertheless, there are limits to which such a level of funding shortfall in the year can be managed. As the end of the year approaches and following implementation of the measures I have outlined in the past 12 months, the projected year-end deficit has been managed down, with no further viable options available to meet this gap. However, the Minister for Public Expenditure and Reform has approved a further €20 million to be allocated to bridge a proportion of this gap in 2018 as part of the overall Supplementary Estimate amount.

Despite welcome increases over recent years, a financial challenge remains as we deal with a larger and older population, more acute health and social care requirements, increased demand for new and existing drugs and the rising costs of health technology. The costs of payments under the State Claims Agency are also rising, adding to the overall cost of health above the operational costs funded to meet the health demands of a growing and ageing population. The HSE is reporting significant overruns in the year to date and the Department continues to work closely with it to identify measures to reduce the projected deficit through mitigating actions, without impacting service levels. It is now anticipated that the bulk of VIP 1 savings for the year will be achieved in 2018, as well as a small amount of savings under VIP 2.

We must maintain our focus on improving the way services are organised and delivered, and on reducing costs, in order to maximise the ability of the health service to respond to growing needs. It is essential that those managing and delivering the service demonstrate good practice by delivering the best possible healthcare within the limits of resources that have been made available by Government each year.