Mr. John Connaghan:

I will introduce the senior management members with me today. They are Mr. Stephen Mulvany, Mr. Liam Woods and Ms Mairéad Dolan. We have submitted information and documentation to the committee in advance of the meeting and I will therefore confine my opening remarks to a number of issues, the first of which is the financial outturn for 2017. A Revised Estimate for health was approved and notified by letter of determination of 29 December 2017. The HSE received once-off revenue funding of €208.3 million to cover winter initiatives, State Claims Agency increased costs, the shortfall of acute hospital private patient income and central pay awards. The HSE’s annual financial statements for 2017 record a combined revenue and capital deficit of €131.5 million. Within this there is a capital surplus of €8.3 million and a revenue deficit of €139.9 million. The total 2017 revenue deficit when deficits in section 38-funded providers are taken account of is €165.9 million.

The most significant area of deficit in 2017 relates to the acute hospital division which was €139.7 million. The majority of this deficit - €73 million - is attributable to income shortfalls and associated bad debt costs primarily related to hospital private maintenance charges. In addition, there are cost overruns of 0.4% equivalent to €13.4 million on pay and €54 million or 3% related to non-pay of which the majority - €44 million - relate to clinical non-pay. A significant driver of these cost overruns is the provision of additional activity in response to service demand, the complexity of that activity and the growing age and related needs of hospital inpatients. As evidenced within the health service capacity review 2018, Ireland reported the second highest occupancy rate of those countries reporting to the OECD. This indicates a hospital system that is operating under considerable stress and which is short of the necessary capacity.

Social care services reported a deficit of €24.5 million. A significant element of the deficit in this area relates to the costs of providing residential care to people with an intellectual disability, including the provision of emergency placements which continue to be a significant pressure in 2018. Individual placements can cost up to €0.5 million. The costs of compliance with HIQA residential standards in the intellectual disability sector has also been a contributory factor in the deficit.

To put the HSE’s financial performance in context, if we look back over the ten years from 2008 to 2017, there has been 0.68% or €838 million in net Supplementary Estimates provided to the HSE in respect of areas directly related to service pressures and financial performance challenges. The balance of supplementary funding over this period has been in respect of Exchequer-related or technical items outside of the HSE’s control. That is equivalent to 1.56% or €1.9 billion. It includes the PCRS at €0.791 million or 0.64%, whose costs are largely driven by policy, legislation and related demographic and societal factors not amenable to normal financial management.

I will turn now to matters of exception reported on by the Comptroller and Auditor General in respect of 2017.

In the Comptroller and Auditor General's audit certificate which accompanies the annual financial statement the Comptroller and Auditor General has drawn attention to concerns about the monitoring and oversight arrangements for grants to outside agencies, non-competitive procurement issues and also noted that the HSE had not received sanction from the Minister for Health for the capital surplus brought forward from 2016. The HSE acknowledges these matters of concern and is progressing medium to long-term plans required to bring about improvements as follows.

I shall turn first to the issue of non-compliant procurement. The HSE incurs procurable expenditure in excess of €2.2 billion annually. Given the scale and complexity of the HSE’s overall procurement activity, it has been highlighted and acknowledged at previous meetings of the Committee of Public Accounts and by my predecessor that it will take a sustained effort over a number of years to ensure high levels of compliance. This is a key focus for the HSE. The HSE, through its health business services, HBS, procurement function, continues to progress a transformational programme of reform of its procurement arrangements to improve compliance with public procurement regulations, increase the usage of contracts, put frameworks in place by it and liaise with the Office of Government Procurement. The HBS procurement function works closely with the Office of Government Procurement. There have been a number of successful tender outcomes, particularly in the utilities category such as electricity, fuel oil, gas, telecommunications and vehicles. We also know that there is a considerable amount of work ahead in cleaning, security and professional services. This collaborative effort is achieving value for money and contributing to an increase in overall procurement compliance and the development of the overall procurement reform programme.

The HSE is implementing a number of initiatives which are organised around three key themes: supporting infrastructure; sourcing and compliance. Further detail of the steps being taken to address the issue of non-compliant procurement are published in the statement of internal control within the 2017 annual financial statements.

On the monitoring and oversight of grants to outside agencies, the HSE has consistently acknowledged the positive role the voluntary sector plays in the development and delivery of health and personal social services. The HSE is also acutely aware of the need for the appropriate level of oversight of the grants provided for outside agencies. In 2017 just under €4.1 billion of the HSE’s total expenditure was related to grants to more than 2,000 outside agencies. The agencies range from the large voluntary hospitals and disability organisations to small local community-based agencies.

The HSE’s governance framework is consistent with the management and accountability requirements for grants provided from Exchequer funding as set out in the Department of Public Expenditure and Reform's Circular 13/2014. Weaknesses in the monitoring and oversight of grants to outside agencies have previously been identified. The HSE continues to take the necessary actions to address these weaknesses. The national compliance unit which was established in 2014 supports the development of improved grant oversight by community healthcare organisations, CHOs, and hospital groups which have delegated responsibility for the management of the relationship with outside agencies at operational level.

Improved oversight has raised the level of compliance by grant funded agencies. An example of the actions already taken is the external review of governance arrangements for section 38 providers which is under way. The purpose of these reviews is to confirm that appropriate governance arrangements are in place and aligned with those set out in the annual compliance statements provided by section 38 agencies for the HSE. The main compliance issues identified in the review process relate to procurement, HR legacy issues and a need, in some instances, to establish an appropriate internal audit function. It is expected that the external reviews commissioned will be completed by October. Agencies will provide status reports on the progress made in addressing issues and such issues will be included in local operational oversight. The HSE is committed to implementing a five year rolling programme that will prioritise section 38 agencies not reviewed in the current programme. It will be extended to include the larger section 39 agencies. Further details of the steps being taken to address the issue of weaknesses are published in the statement of internal control within the 2017 annual financial statements.

It would be remiss of me not to look ahead and consider the role of healthcare transformation and how we employ the HSE's assets and resources. As is the case in many developed health systems, we face the challenge of growing user expectations, unmet need and core infrastructural deficits. For many years we have been aware of the need for a shift in health service delivery in order to move from the more traditional focus of treatment and cure to that of prevention and treatment, when required. The current arrangements for service delivery in Ireland are characterised by an over-reliance on more costly, hospital-based care, with continuing opportunities to deliver care more appropriately in primary and community settings. There are challenges in responding effectively to the planned, unplanned and emergency needs of patients in hospitals.

Similar pressures are faced by services in primary and community services, including services for people with disabilities and people who need mental health support, with demand outstripping supply in many areas. In addition, there is a growing need to maintain or replace our current infrastructure and equipment. I am pleased to note that I am a personal supporter of the Sláintecare report which signals a new direction of travel in relation to eligibility, delivery and the funding of health and social care in Ireland into the future. We are implementing a range of programmes to prepare the ground for longer term transformation in line with Sláintecare. There are tens of thousands of dedicated staff working in health services, changing practices, improving care for patients, advocating for and driving service improvements day in and day out. Staff and management working locally are providing leadership and support for nationally supported initiatives, with the aim of reforming services and seeking to deliver higher value care. A number of transformational programmes are continuing in 2018, with a particular focus on four key themes, the first of which is improving population health and well-being by keeping people well and reducing the incidence of ill health and supporting people to live as independently as possible. The second theme is delivering care closer to home, with the intent of meeting the vast majority of the population’s healthcare needs in more local settings, with institutional and hospital-based care being reserved for only those individuals who require complex, specialised, emergency care and even then only for the shortest time possible. The third theme is the development of specialist hospital care networks by progressing numerous workstreams in our national clinical and integrated care programmes. The fourth theme is the improvement of quality, safety and value by building support for effective care that is delivered according to best evidence of what is clinically effective in improving health outcomes by reducing variations in how care is delivered and developing skills and capacity for quality improvement in healthcare delivery settings. In addition, we are developing structures and reconfiguring teams within the HSE to strengthen our approach to population need assessment, demographic analysis and the utilisation of service design in order to develop more equitable and effective resource allocation models, particularly for primary and community services. This goes hand in hand with Mr. Breslin's statement on geo-alignments and local devolved responsibility.

Ireland’s public health service was designed for a time when we had a different demographic profile. Today the expectations surrounding clinical governance and standards have never been higher. The population, however, is older. Modelling forecasts tell us that the number of people aged over 65 years will increase by nearly 110,000 in the next five years. The fact that people are living longer is great news, but a large proportion of this older age group now live with two or more chronic conditions which make many of them more vulnerable and frail. This has a consequential impact on resources. In that context, the imminent publication of the Department of Health’s Sláintecare implementation plan provides a powerful opportunity to create much needed strategic certainty for the health and social care delivery system in Ireland. We are committed to working with the Government and the Department to do this and implement the Sláintecare plan.