James Reilly (Dublin North, Fine Gael)

I am very pleased to have this opportunity to address the House on the 2012 health Estimates. The gross current budget for the health sector in 2012 is €13.644 billion. When account is taken of additional private health insurance income of €79 million, this is equivalent to a net reduction of €183 million compared with the 2011 allocation of €13.748 billion. However, additional funding of €310 million is required to meet unavoidable cost increases, superannuation, demand-led schemes and the fair deal. A further €50 million is required in 2012 to implement priority programme for Government commitments in mental health and primary care. Therefore, the total savings required in 2012 to deliver on the cash savings target, meet the unavoidable costs and the programme for Government commitment is €543 million but as everybody knows, that is not the full story.

The HSE is carrying an underlying deficit into 2012 which, as of today, looks like it will be approximately €149 million. The health service will also have to cover other unavoidable costs within its lower allocation, such as increments, general non-pay inflation, the EU directive on agency workers and the VAT increase. The service will also have to cope with the increase in health and social care needs arising next year from population growth, ageing and increased disease incidence.

The combination of these factors and the reduction in the health service numbers recently approved by Government will result in reductions in services in 2012 and beyond. The extent and nature of the impact on services will fall to be addressed in preparing the HSE's national service plan for 2012. All programmes will come under scrutiny as a result of the reduction in expenditure announced yesterday.

The nature and range of the savings measures taken in recent years means that it has become increasingly necessary to focus on the way services are organised and delivered. This is entirely appropriate and in keeping with the focus in the programme for Government on reforming the way health services are funded and delivered to achieve greater productivity and more cost effective services.

The national service plan will be submitted to me before Christmas, after which I have 21 days within which to approve the plan or direct that it be amended. It is my intention, however, that this process will be concluded by the end of the year. My Department and the HSE are working collaboratively to develop the plan in the context of the comprehensive review of expenditure, the programme for Government reform agenda and commitments for mental health and primary care.

The plan will also take account of unavoidable cost increases and the saving measures agreed by Government and will indicate at a high level how these will impact on the various service care areas. The savings measures agreed by the Government include further reductions in numbers employed, in the volume of overtime, in premium payments and in agency working; an increase of €12 in the drugs payment scheme monthly threshold; various measures to reduce drug costs, including the negotiation of a new agreement next year with the pharmaceutical manufacturing companies and the introduction of reference pricing and generic substitution; the introduction of legislation next year to allow public hospitals to raise charges in respect of all private patients even if they are not in a designated private bed - if they choose to go public to the consultant, they will be treated as public patients in the public hospital but if they chose to go private to the consultant, they will be charged as private patients of the hospital; extra efficiency targets for disability, mental health and child care services; and savings in my Department's budget.

I wish to correct a typographical error which appeared in the documents circulated yesterday and on Monday. In regard to the employment control framework - pay cost containment, the putative cost put in for a full year was €219 million when it should have read €179 million. One will see the figure of €219 million appears again under the issue of demand-led schemes. The figures at the end are correct and there is no miscalculation. There was a typographical error in the Department for which my Secretary General offers his apologies.

I wish to acknowledge the great commitment of staff in the health service to serving the public and the part they have played in maintaining service delivery in the face of major reductions in budgets and staff numbers. None the less, as part of the Government's strategy to control public expenditure, we must further reduce health service staff numbers and pay costs. The sectoral target for 2012 encompassing the HSE, the providers it funds, the other statutory health agencies and my Department is approximately 103,800. Within this number, numbers in the HSE and the service providers it funds must be brought down to approximately 102,000. This represents a reduction of 2,000 on current actual numbers as the service is already well under its current employment ceiling.

The health sector has already made considerable progress in doing more with less and in providing various flexibilities in line with the Croke Park agreement. However, the reductions in funding for 2012 will pose major challenges and will require an acceleration of the reform programme. In particular, action will be needed in the areas of rostering, skill mix, redeployment, reductions in agency working and implementation of HSE clinical programmes which are widely acknowledged to be resulting in service improvement and cost savings. The Government has also decided that the pay bill for overtime allowances and premium pay must be the subject of particular attention. In 2012, the health sector must reduce its pay allocation for overtime by 10% and spending on allowances and premium payments by 5%.

Although not all of the numbers reduction will have a consequent superannuation cost, there is no doubt that there is likely to be a higher than average pension and lump sum cost next year due to the arrangements whereby public servants can retire on the salary rates applicable prior to the pay reductions once they retire before the end of February next. It is understood from early data from the HSE that in the region of 1,200 people have applied to retire on or before 29 February 2012, although this is based on data which have to be validated and confirmed. Furthermore, it is open to people to withdraw their application up to the end of February. Indeed, the number could increase over the next two to three months as additional employees give notice of their intention to retire in advance of the end of the grace period. Given the uncertainty around numbers, additional funding of €97 million has been ring-fenced for lump sum payments next year.

The challenge for the health service in 2012, therefore, is not only to reduce staff numbers and associated pay costs but to continue to adapt to minimise the impact of the reductions on services to the public. The public service agreement is pivotal in this regard.

Given the pressure on the State finances, it is also necessary to take further measures to reduce costs in 2012. This includes increasing the monthly threshold for the drugs payment scheme from €120 to €132 per month with effect from 1 January 2012. This scheme ensures that individuals or families do not have to pay more than the monthly threshold on approved prescribed drugs, medicines and certain appliances. The estimated saving to the Exchequer of this measure is around €12 million.

A number of measures have been taken in recent years to reduce the price of drugs and it is essential we take further steps to reduce costs if we are to continue to afford reimbursement of new medicines coming on stream, many of which will have a significant budgetary impact.

In January of this year, members of the Irish Pharmaceutical Healthcare Association, IPHA, agreed a series of measures to deliver sayings on drug expenditure of €200 million in 2012. As a result, the prices of more than 1,000 medicines have been reduced since January of this year. Further discussions will take place with IPHA aimed at reductions in the price of patent protected drugs in 2012.

Reductions in the price of generic medicines were implemented in August 2011 following discussions with the Association of Pharmaceutical Manufacturers in Ireland. Further reductions are expected following the introduction of reference pricing and generic substitution in 2012.

The Government approved the general scheme of the health pricing and supply of medicines Bill at the end of September. This legislation will be published in 2012 and will introduce a system of reference pricing and generic substitution for drugs prescribed under the General Medical Services scheme and community drugs schemes. These reforms will promote price competition among suppliers and will ensure that over time, lower pries are paid for these medicines, resulting in significant savings for taxpayers and patients. We will also take initiatives in regard to over-prescribing to identify at GP and hospital level where there are issues in respect of particular drugs and where cost efficiencies can be achieved.

It is also intended to increase income by €143 million next year through a combination of increased charges for private patients, improved collection of income and changes to legislation to allow for the charging of all private patients irrespective of whether they occupy a private bed but only if they choose to go privately to the consultant. This represents a loss of income to the public hospital system and provides a significant subsidy to private insurance companies. I intend to introduce legislation next year to allow public hospitals to raise charges in respect of all private patients in public hospitals. While I acknowledge the new regime will have a significant impact on private health insurance premiums, it must be accepted that the new arrangements would provide much needed extra income for the public hospitals. The new system is fair and in keeping with the changes required along the road to universal health insurance. Removing the subsidy to private patients will help to protect services for public patients. The increase in the existing daily charges levied on private patients only requires secondary legislation and, therefore, will come into force on 1 January 2012. The increase is likely to be of the order of less than 4%.

I intend to move from the current method by which we charge private health insurers for hospital services. Instead of a per diem or daily charge, we will move to a system of charging per procedure. This will allow for a much clearer accounting system and should help the insurers to drive down the cost of care. I am most unhappy that the costs relating to private health insurance are not being addressed aggressively enough, but I assure the House that I intend to ensure costs decrease. There will be a renegotiation by VHI with hospitals early next year. There will also be a renegotiation of consultants' remuneration by insurers, particularly VHI. I would like it if procedures that could be carried out in primary care settings, particularly in some of the new primary care centres, would not attract the same consultant fees as apply when carried out in hospitals, where side room fees are also charged.

It is worth remembering that, while VHI may have 60% of privately insured patients on its books, it has 80% of the muscle in negotiations, as it carries 80% of the costs. I require it to use that muscle and more imagination to force costs down. I have asked my Department and VHI to engage with the actuarial experts Milliman to carry out a new review aimed at cutting costs in private health insurance. Milliman produced a report on this field last year, but the new report will identify methods for achieving the multimillion euro savings Milliman's original report claimed were possible. Combined, these initiatives should reduce greatly the cost to insurers and, thus, the insured and minimise any increase in premia. In the light of this, I see little to support the recent claims by some insurers regarding the need for a 50% hike in premia or anything remotely like it.

Efficiency targets have been set for the disability, mental health, children and family directorates. These targets will, undoubtedly, prove challenging, as the services will also need to make provision for savings in employment and procurement costs. While we have set demanding savings targets in respect of the General Medical Services, GMS, and community drugs schemes, it remains necessary to provide some additional funding in 2012. This subhead will need to meet the cost of the ever increasing volume of items being prescribed and dispensed and the extra costs arising from the entry of new products into the market. There is already pressure to approve a number of new and expensive products that are becoming available.

Some €55 million is being made available for the fair deal scheme. However, 2,600 people are being looked after in long-term residential care at a cost of €1 billion, while 10,000 people can be looked after through other initiatives in their homes, which is where they prefer to be, for €125 million. We will need to examine how to balance these sums.

I am pleased that the programme for Government provides €15 million for the extension of the medical card scheme to those with long-term illnesses. This will allow more people access, particularly those with chronic illnesses, to free general practitioner, GP, care, which is far more cost effective and convenient for patients. We must move away from the current approach, whereby we treat episodic illnesses in hospitals in which service provision is expensive, to one in which chronic illness care is delivered in the community, whereby we can monitor and help to keep people well and avoid the outbreaks of illness that cause them so much pain and anguish and cost the taxpayer so much money.

Unfortunately, I must defer the removal of the 50 cent prescription charge which was one of my goals when entering office. The difficult budgetary position means it is not possible at this time, given that it raises €27 million annually.

My Department will continue to work closely with the HSE on addressing people's needs and meeting our allocated Vote. In this regard, a supplementary budget of €148 million has been sought from and approved by the Exchequer. This amount comprises €58 million to cover the shortfall in funding provided earlier this year in respect of the 2010 voluntary exit scheme and €90 million towards easing service pressures, of which €40 million is being provided by my Department.

Reform of the health service will save us money, that is, ensuring more patients are treated more quickly. I have been greatly encouraged by the co-operation of hospital staff with the special delivery unit in implementing some of the early necessary reforms. The year ahead not only represents a significant challenge but also an opportunity to change the way we work in order that we can deliver the health care we all desire for citizens.

See this speech in context