Mr. Paul Reid:

I thank the Chairman and members for the invitation to attend the meeting to discuss the HSE's annual report and financial statements for 2018 and chapter 16 of the Comptroller and Auditor General's report for 2017. As the Chairman stated, I took up post six weeks ago. As this is my first meeting with the committee in this role, I take the opportunity to state that I look forward to working with members and providing assistance to the committee in its important work. The senior management colleagues joining me today are Ms Anne O'Connor, deputy director general of operations; Mr. Stephen Mulvany, chief financial officer; Mr. Joe Ryan, national director of national services; and Ms Mairéad Dolan, assistant chief financial officer.

We have submitted information and documentation to the committee in advance of this meeting and I will therefore confine my opening remarks to the following issues.

The first is the financial outturn for 2018. The HSE's annual financial statements record a final audited revenue income and expenditure deficit of €85.1 million. Further detail is set out in the finance briefing paper provided to the committee in advance of this meeting, including around the movement in provisions and how this figure can be related to the final HSE published quarterly performance report for 2018. The 2018 final position is arrived at after dealing with the €140 million first charge for 2017 and after receipt of a Supplementary Estimate of €625 million, the application of which has also been detailed. The annual financial statement also records a €16 million surplus on the capital account, which will be available to progress capital projects in 2019.

The most significant areas of financial pressure reflected in the year-end position relate to the pensions and demand-led areas, including the primary care reimbursement service. Costs in these areas are generally driven by policy, legislative entitlements and demographic factors and, as such, they are not amenable to normal financial management controls. Separately, our operational service areas experienced significant difficulty in reducing costs to meet savings targets, controlling staffing levels and responding to demand within budget. Disability services were the area of greatest financial pressure within community services. This pressure largely related to the costs of providing residential care to people with an intellectual disability, with the evolving needs of existing clients as they age and the demand for new places exceeding our funded capacity. We also experienced similar pressures within our acute hospital services where activity was ahead of planned and funded levels, with a very high proportion of total activity arriving via our accident and emergency departments.

With respect to financial management for 2019, the HSE's first priority for implementing its 2019 national service plan, NSP, is to maximise the safety of the services it can deliver within the available budget. Thereafter the priority, consistent with the Sláintecare programme, is to deliver on the activity, access, improvement and other targets set out in the NSP, albeit this must be done within the affordable staffing level and without exceeding the overall budget. Delivering these priorities will require a significantly enhanced focus on financial management. This includes better controls on the management of agency, overtime and overall staffing levels and pay costs. Senior managers will be supported and held to account in this regard. The HSE’s financial position for the year to date until March 2019 shows a revenue deficit of €82.7 million, which represents 2.2% of the available budget. Of this, €44.8 million is in respect of greater than expected expenditure on operational service areas, which includes €17.6 million on community services, mostly in respect of services for people with a disability, and €28.4 million in respect of acute hospital services.

In cases where deficits appear in operational service areas, the relevant national director, community healthcare organisation chief officer or hospital group chief executive has been directed to identify and put in place additional measures to enable delivery of an overall financial break-even by year end. This has been supported by a series of additional interim controls around agency, overtime and staffing, although all 2018 and 2019 developments approved and funded by the Department of Health are proceeding.

There is also a deficit of €38 million in pensions and demand-led areas. Options to limit deficits in these areas are being explored, albeit they are primarily driven by legislation, policy and demographic factors and, as mentioned, are therefore not generally amenable to normal management control efforts. It is noted that if the effect of the 2018 first charge were to be reflected in the March results above, it would increase the overall March year to date variance by €20.5 million to €103.2 million, the change being predominantly within the pensions and demand-led areas. The overall 2018 annual financial statement process came to an end on 13 May and the full first charge will be reflected in the monthly accounts from May onwards. The necessary focus on delivering financial break-even reflects the HSE's legal obligation. It will also benefit service users, patients and their families as it is consistent with the need to build trust and confidence in the organisation. This is necessary so that additional investment in our public health and social care services over and above the cost of standing still can be secured over the next five to ten years. This will facilitate the vision set out in the Sláintecare report to be realised.

The next matter is procurement. The scale and complexity of the HSE's overall procurement activity are such that it will take a sustained effort and continuing investment over a number of years in order to ensure high levels of compliance and this is a key focus for the HSE. The HSE incurs procurable expenditure in excess of €2.2 billion annually. The HSE continues to progress a transformational programme of reform of its procurement function to improve compliance with public procurement regulations and increase the usage of contracts awarded by the HSE and the Office of Government Procurement. It has been highlighted and acknowledged at previous meetings of the Committee of Public Accounts that it will take a number of years to fully address procurement compliance issues. Health business services, HBS, procurement has been engaged in a major transformational change programme and the HBS strategy for 2017 to 2019 continues this strategic and operational transformation of health sector procurement. With regard to procurement reform and, in particular, non-health procurable expenditure, the HBS function works closely with the Office of Government Procurement. This collaborative effort with the OGP is achieving value for money and contributing to an increase in overall procurement compliance and the development of the overall procurement reform program.

With regard to chapter 16 of the Comptroller and Auditor General Report for 2017, the HSE is undertaking extensive work in embedding the consultant contract compliance framework. The framework seeks to support improved reporting, monitoring and overall consultant contract compliance. The elements of compliance with public-private mix will be reported on a monthly basis and compliance with work plan and off-site practice will be reported on an annual basis. In line with the performance and accountability framework, monthly performance meetings are held within existing structures and a key element includes improving consultant contract compliance. Actions to address the areas of individual consultant non-compliance in terms of hours worked, off-site practice and public-private mix are progressed at local level. A programme of internal audit has commenced and a number of hospitals are being scheduled, with Cappagh National Orthopaedic Hospital being the first, followed by Tallaght University Hospital and Naas General Hospital. Further sites will be scheduled for audit in the coming weeks. Overall summary rates of compliance for public-private mix are below the limit of 20% for private practice. The percentage for acute hospitals inpatients is 12.5% and it is 14.5% for day cases.

With regard to outsourcing home support services, voluntary organisations have been engaged with and contributed significantly to the provision and ongoing development of the health and social care services in Ireland over many generations. The term "voluntary" is often used when referring to section 38 and section 39 agencies. Sections 38 and 39 of the Health Act 2004 legally underpin the provision of services by non-statutory providers on behalf of the HSE - section 38 - and the provision of services similar or ancillary to a service that the HSE may provide - section 39. The HSE has a continuing reliance on voluntary agencies to deliver services across the domains of acute care, social care, mental health and primary care supports and services. The HSE funds approximately 2,279 organisations, including 16 large voluntary hospitals via a contract or service arrangement process that is legally binding. This also includes funding for many smaller organisations such as local meals on wheels groups, which provide services through unpaid volunteers.

The HSE acknowledges that voluntary organisations largely funded by the State need to operate within defined policy and regulatory frameworks, including HIQA, charities regulation and company law, as well as public pay policy. We also have a responsibility to optimise value for money and to ensure that health resources are maximised to benefit the citizen. In line with Sláintecare, health service reform also includes voluntary organisations funded by the HSE. Voluntary agencies that provide home support services have made significant progress in reforming their services. These organisations are significant partners in the provision of home support, particularly in the greater Dublin area and the mid west. These voluntary agencies have transitioned from a position where they were supported by the HSE through block grant arrangements to the current tender model of service provision. This reform has improved the quality of home support, providing a model of service delivery that is more responsive to demand and more consistent across community healthcare organisations. Streamlining of home support services has resulted in a single application and assessment process. There is also clearer financial and activity reporting, which provides for greater accountability and transparency.