Mr. Seamus McCarthy:

The appropriation account for Vote 38 - Health before the committee relates to 2017. The audit of the 2018 appropriation account is ongoing. The Department's gross expenditure for that year was approximately €14.8 billion. The majority of that, €14.6 billion, was paid to the HSE, spread across 17 subheads in the appropriation account. Supplementary spending provisions were made during 2017 in respect of seven of the HSE subheads, totalling €195 million. Receipts to the Vote in 2017 totalled €459 million, almost the same as in 2016. Those receipts comprised mainly €278 million received from the UK under a bilateral agreement on reimbursement for treatment provided under EU regulations, and receipts of just over €167 million from the proceeds of excise duties on tobacco products. The surplus liable for surrender to the Exchequer at end 2017 was just under €2.4 million.

I turn to the HSE financial statements, which relate to the calendar year 2018. They are prepared on an accruals basis. Unusually, they include both a revenue or recurrent income and expenditure account, and a separate capital income and expenditure account. The law provides for the Minister for Health to specify the accounting standards and framework to be applied by the HSE in the preparation of its financial statements. The basis for the framework applied is financial reporting standard, FRS, 102, but the Minister has formally directed that a number of exceptions to that standard should be applied. Such directions have been duly applied since the HSE was established in 2005, and those applying in 2018 are listed in note 1 to the financial statements.

I have drawn attention in my audit report to a new direction of the Minister for the 2018 financial statements, in relation to accounting for a liability arising from a legal settlement with medical consultants agreed during 2018. At the end of 2018, the liability is estimated to be around €198 million. In accordance with the accounting standards specified by the Minister, the HSE has not recognised this liability in its financial statements. Because the HSE had made a provision in 2008 of €68 million in expectation of a pay-out on foot of the consultants' claim, that had to be reversed in the 2018 financial statements.

My audit opinion was not modified in respect of this matter because the financial statements conform to the standards statutorily specified. However, I have drawn attention to the ministerial direction, because it represents a substantial change in the HSE's accounting practice that might not otherwise be readily identified by users of the financial statements, in particular for the period 2018 to 2020, during which the settlement payments will be made.

The HSE's recurrent income in 2018 was just over €16 billion, which is an increase of approximately €932 million, or 6.2% on 2017. The majority of that, €15.2 billion, is Exchequer funding from the Department of Health's vote. The remaining income comprises retained superannuation and pension levy deductions from staff salaries, totalling just under €420 million, and patient fee income of approximately €406 million. Recurrent expenditure by the HSE in 2018 was €16.1 billion, representing an increase of approximately €877 million, or 5.8% on 2017. As shown in figure 1, which is now on the screen, the majority of this spend was across four main areas in 2018.

At the end of 2018, the HSE reported a net operating deficit of just over €85 million. In accordance with the Health Act 2004, the deficit has been carried forward and will be met from the funding provided from the Department of Health's vote for 2019.

My report on the audit also draws attention to a continuing material level of HSE non-compliance with procurement rules. I have repeatedly reported on, and drawn attention to, the matter. While the HSE acknowledges the problem, it is still not in a position to quantify the value of its expenditure on goods and services where public procurement procedures were not complied with.

Each year, we examine samples of procurements at a number of HSE locations to test whether there has been an appropriate competitive process. For the past five years, the estimated percentage of non-compliant procurement found in the sample has fluctuated between 14% and 49% by value. Because there is not a single procurement database in the HSE, the results are specific to procurement practice at the sampled locations, and cannot be extrapolated to the HSE as a whole. I need here to make a correction to the record. In my audit report for the 2018 financial statements, I refer to the audit sample testing at five locations indicating a level of procurement non-compliance of 30% by value. In preparing for this meeting, my team discovered a calculation error. The correct non-compliance rate for the 2018 sample was, in fact, 23% by value. However, I am satisfied that this does not alter the conclusion I drew in my report. I regret that a figure that was materially incorrect was given in the report. Our long-standing policy in such circumstances is always to correct the record of Dáil Éireann at the earliest available opportunity.

I will turn now to chapter 16. As Members will be aware, public hospitals treat both public and private patients. Although the bulk of the HSE's income is from voted funds, it depends on receiving significant fee income related to treatment of private patients. On the other hand, to ensure equitable access by individuals to hospital services, the HSE seeks to limit private treatment activity in acute public hospitals to 20%. Medical consultants' contracts provide for them to carry out varying levels of private activity.

Chapter 16 considers how the HSE controls the level of private activity in public hospitals, and assesses how the HSE measures performance in that regard at the national level, in individual hospitals and for medical consultants. Measurement of public and private activity in acute hospitals is based on the hospital inpatient enquiry, HIPE, system, which monitors inpatient and day case activity only. Emergency department and outpatient attendances are not within the scope of the measurement. As a result, the measure is not well defined. In addition, many public acute hospitals and individual consultants may have limited control over their private activity levels. For example, the majority of patients admitted as inpatients to many hospitals enter from the emergency department, or are maternity admissions, and elective admissions must be treated in order of clinical priority.

The percentage of public inpatient activity carried out varies significantly from hospital to hospital, as indicated in figures 16.4 and 16.5 in the chapter. However, it is difficult to draw meaningful conclusions from that, since public and private activity targets have not been set at an individual hospital level.

Varying rates of health insurance among catchment populations may be a significant factor in that regard. There are significant variations in the conditions of employment applying to medical consultants in respect of the private activity they undertake. Contracts allows for rates from zero to 30%. However, the HSE was unable to provide outturn data in this regard because it does not monitor or collate information about private treatment levels at an individual consultant level.

The overall conclusion of the chapter is that there are significant weaknesses in the performance measures used by the HSE to monitor public private activity levels within the acute hospitals system.