Address by the Minister for Health Dr. James Reilly T.D. to the Select Committee on Health Estimate for 2011


Chairman, I am pleased to have the opportunity to address the Select Committee today on the Revised Estimates for 2011 for my Department Vote 39 and Vote 40 for the Health Service Executive. Following the establishment of the new Department of Children and Youth Affairs, Minister Fitzgerald will address you in relation that Department and the previous Office for the Minister for Children and Youth Affairs Vote 41.

Today’s meeting is the first of two committee meetings this week focusing on the work of Health and Children. On Thursday there will also be a meeting of the Health Joint Oireachtas Committee. Both Minister Fitzgerald and I will be very happy on Thursday to deal with any outstanding issues which cannot be addressed at today’s select committee.

Before looking at the estimates in detail, I would like to make a few general observations about the overall budgetary situation facing health. As the members of the committee are fully aware, this Government is committed to tackling Ireland’s very serious deficit problem, in accordance with the broad fiscal framework of the EU/IMF bailout deal. As both the Taoiseach and Tanaiste have made clear, this will require the Government to take many hard decisions over the next few years. No Department, and this includes both Health and Children, can be exempted from this process.

As members will also be aware, the recent performance report from the HSE for May shows an over-run of €195 million, or €170 million after adjustments. In his letter of 17 June to Cathal Magee, CEO of the HSE, the Secretary General emphasised that the HSE must meets its budget targets, and that this will result in “difficult decisions” being made by hospitals and local services. The Secretary General also stressed that individual hospitals and services must be ready to explain and defend decisions.

However, let me clear about one thing. While all hospitals, including the smaller ones, will have to take difficult decisions to stay on budget – including the temporary closure or reduction of some services – there will be no hospital closures, either as part of reconfiguration or as part of budgetary measures. I am fully committed to ensuring that smaller hospitals have a strong and secure future. It is, of course, vital that they are safe and this work must continue. However, it is also vital that smaller hospitals are allowed to do more work in areas where they are best suited. The debate over smaller hospitals has been dominated for far too long by what they cannot do. We need to move the debate on and focus on those things that they can do safely and efficiently. This will require the transfer of certain procedures and programmes from larger to smaller hospitals, an issue which I will be happy to return to at the Joint Committee meeting on Thursday.

The extent of the financial crisis facing Ireland, and the challenges which this poses for health in particular at a time of growing demand, means that the Government must press ahead with major health sector reform. Only in this way can we deal with the lack of equity in the health system, and the very significant waiting lists. The Government is determined to create a single-tier healthcare system in Ireland. We also determined to change the way in which the system is financed even before the introduction of UHI. The current system of allocating block grants to hospitals is simply not working. We must move to a sophisticated “money follows the patient” system, which pays hospitals and doctors on the basis of what they do, while also putting in measures which ensure that budgetary discipline is maintained.

The establishment of the Special Delivery Unit (SDU) is a core element of the Government’s plan to radically reform the health system and make it more efficient. The SDU will work to unblock access to acute services by improving the flow of patients through the system and by streamlining waiting lists, including referrals from GPs. The SDU will also focus on reducing trolley waits in Emergency Departments and will develop a range of initiatives to ensure that our hospitals can cope better with the increased demand for Emergency Department services next winter and in the years to come.

But before looking at these issues in more detail, I would like to directly address the estimates for health.

Health Spending

The Revised Estimate for 2011 for the Health Group of Votes excluding the Department of Children and Youth Affairs which Minister Fitzgerald will discuss with you, provides for gross expenditure of €14.142 billion for health services. Of this amount, some €13.748 billion is for current funding and €394 million for capital funding. Comparisons with previous years Estimates are complicated by the transfer of functions between the Department of Health, Children and Youth affairs and Community, Equality and Gaeltacht Affairs. However, it is important to note that significant reductions were applied to the Estimates for 2011. A reduction of some €26m was applied to the Department’s Vote, with reductions of nearly €1 billion applying to the HSE.

In relation to the Executive, the main areas of savings are as follows:
Demand Led Schemes (drug costs and professional fees) 449
Moratorium Savings 93
Other procurement and non-core pay cost savings 221
Administrative and other savings in Votes 39 and Vote 41 38
Exit Package 123
Other technical adjustments 111

Within the overall expenditure reduction, some additional funding was provided to address unavoidable cost pressures and key policy objectives. The main cost pressures are €115m for an estimated 120,000 additional medical cards, €57m for additional superannuation costs and €36m for the State Claims Agency. It also provides some additional funding for the following key priority services, namely, €14m for Older People (Fair Deal €6m and Home care packages €8m), €10m for Disability, €10m for Cancer Services, €9m for Child Protection/Ryan Report and €1m for Suicide Prevention measures.

The above savings and additional allocations have been incorporated in the HSE Service Plan which was approved on 21st December 2010 and are recognised in these Revised Estimates before the Committee today.

Vote 39 – Department of Health

The funding for Vote 39 provides for gross expenditure of €348 million. Following the establishment of the Department of Children and Youth Affairs, and the transfer of certain functions, funding of some €14 million transferred from my Department to the new Department. This comprised six and a half million in administrative budgets costs, which my Department previously administered on behalf of the Office of the Minister for Children and Youth affairs, €6 million in relation to agencies which now are under the aegis of the new Department, and one and a half million to cover legal costs and lottery grant applications.

In addition, my Department took over responsibility for the Drugs Initiative following the transfer of the functions of the former Department of Community, Equality and Gaeltacht Affairs in relation to the National Drugs Strategy to the Department of Health on 1 May 2011.

The Government is committed to addressing problem drug use in a comprehensive way. Our overall strategic objective is to tackle the harm caused to individuals and society through a concerted focus on the five pillars of supply reduction, prevention, treatment, rehabilitation and research. €33.7m has been allocated to the Drugs Initiative this year in order to further the aims of the National Drugs Strategy. The majority of this expenditure is allocated to Local and Regional Drugs Task Forces, with the Drugs Initiative also funding the work of the National Advisory Committee on Drugs.

This allocation is only part of a much bigger expenditure programme on drugs services by the other bodies involved in tackling problem drug use. I am monitoring progress achieved across the Strategy through the Oversight Forum on Drugs and am determined that we will make real headway during the term of office of this Government.

Notwithstanding these transfers of functions, the Vote of the Department of Health was significantly reduced in 2011. All health agencies funded by my Department were required to achieve further savings this year of at least 5%, with the Department’s Administrative budget being reduced in line with the moratorium on recruitment and the provision for legal costs and statutory enquiries also being reduced. In the case of the Department’s Administrative budget, once account is taken of all transfers, the reduction in the provision is some 11% less than the provision in the 2010 Budget.

Vote 40 – Health Service Executive

The gross provision for the HSE is €13.794 billion comprising an exchequer contribution of €12.312 billion plus Appropriations-in-Aid of €1.482 billion. Up to 2010, receipts from Health Contributions amounting to approximately €2 billion were attributable to the Health Vote; however, following the introduction of the Universal Social Charge this year, these receipts no longer fall to be assigned to Health.

In setting the Estimate for the HSE, tough decisions were taken in the context of the need to take corrective action in relation to public spending. The reduction in gross current funding for the HSE is €727m on the 2010 provision. The underlying reduction is somewhat greater because of the need to provide for a number of key policy priorities and a projected increase in the number of medical cards. The health service must, of necessity, contribute to the expenditure reductions required in 2011, but the Government’s objective has always been to ensure that these reductions are achieved in a way that secures the best possible outcomes for those in receipt of services, with a particular focus on protecting services for the most vulnerable. To protect services, we need to reduce costs and improve productivity.

One of the areas where costs were increasing exponentially was in the area of drugs and medicines. Public expenditure on drugs provided to patients under the GMS and other community drugs schemes has increased significantly over the past decade in Ireland. The year on year increase in spending on medicines is amongst the highest in Europe. In 1998 we spent just under €400 million. By 2010 our annual expenditure on drugs had increased to just under €2 billion.

There are a number of factors driving this increase. The number of items prescribed has increased in the past decade from 32 million items to 68 million items; Doctors are prescribing newer, more expensive products; and, greater numbers of people are eligible for medical cards.

GMS and Drugs/Medicines

My Department and the HSE have taken a number of actions to control expenditure on drugs. Savings are being achieved through ongoing off-patent price cuts agreed with pharmaceutical manufacturers; the pricing mechanism for new products has been changed; and we now have a review mechanism which takes account of price reductions in other countries. However, further efforts are required to control drug expenditure.

Last month I signed new regulations under the FEMPI Act to give effect to a reduction in the wholesale mark-up rate from 10% to 8% on most drugs and a reduction in the retail mark-up on non-drug items from 50% to 20%. Savings from these measures have been estimated at €14.3 million for 2011 and €34.4 million on a full year basis.

The Irish Pharmaceutical Healthcare Association (IPHA) has agreed to a range of measures to deliver savings of €200m in the State’s drugs bill this year. Measures include price reductions and efficiency savings.

My Department is also finalising draft Heads of a Bill to provide for the introduction of a system of reference pricing and generic substitution. This will allow pharmacists to substitute lower cost generic medicines when branded products are prescribed. The HSE will set the reference price for groups of medicines designated as interchangeable / generic equivalents.

Further savings of €44 million will be achieved this year as a result of reductions in a range of fees and allowances paid to GPs.

However the cost of generics themselves must be addressed and this will yield even greater savings.

I will be carrying out a review of the operation, effectiveness and impact of the various FEMPI regulations in accordance with the Financial Emergency Measures in the Public Interest Act 2009 later in the year. This will involve full consultation with stakeholders.

In setting savings measures, my priority and that of the Government is to sustain services to patients and to match key health priorities with available funding. Notwithstanding this, it is clear that the financial challenges underpinning the HSE’s delivery of its National Service Plan continue to be very substantial. My Department and the HSE are working closely to manage those challenges in this difficult economic climate.

Fair Deal

As I’m sure you are all aware, a decision to suspend approvals under the Nursing Homes Support Scheme Act 2009 (Fair Deal) was made by the HSE in May causing considerable worry for old people and their families. I immediately requested a full examination of the funding situation and the sustainability of the scheme going forward, which was completed jointly by the Department and the HSE on 3rd June, 2011.

Fair Deal is a system of financial support for individuals who require long-term nursing home care and applies to people entering public and private nursing home care. The scheme is available to anyone assessed as needing long-term nursing home care. Under the scheme, individuals make a contribution to the cost of their nursing home care based on their means. Subject to the availability of resources, the HSE meets the full balance of cost over and above the individual’s contribution in public or private nursing homes approved for the purpose of the scheme.

The examination of the funding situation highlighted a number of factors giving rise to the funding difficulties. These include an increase in the average length of stay for nursing home patients, with a resultant higher net demand for nursing home places. An increase in nursing home costs was also a factor, as was the practice of providing ancillary services, such as physiotherapy, occupational therapy, speech and language therapy and drugs services in some care settings, which should have been accounted for in other budgets and not the Fair Deal budget.

I am pleased to inform you that the processing of approvals for financial support under the Nursing Homes Support Scheme re-commenced the week beginning 13th June. In June almost 500 applications were approved (in chronological order). By 6 July a further 504 approvals had issued.

My key focus is to ensure that those who require nursing home care will be able to access it and, to this end, the Department estimates that almost 24,000 people will be receiving financial support by the end of 2011. In order to fund this increase, and to offset the other pressures on the budget that I have referred to, I identified a range of savings and income sources, one of which is a potential saving of up to €30 million in non-service related spending.

I have also taken a number of measures to help ensure the sustainability of the scheme. I have instructed the NTPF, who have statutory responsibility for negotiating prices with private and voluntary homes, to renegotiate prices with a view to achieving price decreases. I have asked the HSE to put in more rigorous governance and reporting measures. I also asked the HSE to undertake a clinical audit of the appropriateness of care and admission to nursing homes. I have informed the HSE that only agreed cost components for long term residential care can be charged to the budget and finally I have asked them to look at creating efficiencies in the cost of delivery of public beds These measures should ensure that the scheme continues in a fair transparent and sustainable basis.

Employment Control Framework

Clearly, there is a need to ensue that in delivering services to a higher quality they are also delivered in the most cost effective and efficient manner. Given that approximately 70% of costs relate to the employment of staff, this will continue to be a focus in 2011. The numbers employed in the publicly funded health service have already fallen, some 1,600 of which is as a result of the voluntary exit schemes approved by the previous Government. I believe further savings in payroll costs can be achieved through reductions in the volume of overtime and agency staff. The challenge to management and staff alike will be to make maximum use of the Croke Park Agreement to ensure services can continue to be provided with less staff and lower payroll costs. The Employment Control Framework for the Health Sector, including the moratorium, is necessary to meet the Government’s fiscal targets, and this year’s Estimates prove for a reduction of €93m in savings this year from the application of the moratorium.

Much progress has been made in relation to reducing employment numbers. Employment at May 2011 stood at 105,410 wholetime equivalents. This represents a reduction of 6% since the introduction of the moratorium on recruitment at the end of March 2009. At the same time the Framework provides the flexibility to the HSE to grow numbers in certain exempted grades. The HSE can also make other exceptional appointments to maintain essential services and meet priority service change and reconfiguration requirements. Nevertheless, the overall target reduction in numbers must be met and this will undoubtedly pose a significant challenge.

The shortage of NCHDs in Ireland is not related to funding, any recruitment embargo, moratorium or reorganisation of hospitals but to an inability to attract enough doctors to work in our hospitals. Much of Europe, including the United Kingdom, is encountering the same problems. The substantial decrease reflects a trend that has been evident for some time, with the HSE and the voluntary hospitals having encountered increasing difficulties over the past two years in filling posts.

Since 2009, the HSE has progressively moved to address the growing shortages through a range of innovations. These include the centralisation of recruitment, the development of additional training posts and the offer of two-year contracts for those taking up service posts.

The HSE coped with an ongoing vacancy level of about 150 over the past 2 years. Services during that time were maintained in many places by the use of locums, amended rosters, cross cover and redeployment. We now have a significant number of doctors from India and Pakistan arriving in the country. They will in a position to fill vacancies as they become registered. It is envisaged that 30 of these doctors will be registered within a few weeks and a further 60 soon after. This would leave us in a favourable position compared with the past 18 months, though certain specialties including emergency medicine continue to pose difficulties.

Smaller hospitals

There has been much in the news recently in relation to the reconfiguration of our smaller hospitals. In this regard, I am on record many times as saying that I won’t stand over unsafe services. The changes that we are implementing, though difficult, must be implemented to ensure that the best possible outcome for patients.

That said, this is not the death knell for smaller hospitals. In fact, I have repeatedly emphasised the extremely important role they have to play in services for their local community. I believe that smaller hospitals can and should provide as wide as possible a range of services, close to the local community. They should be the corner stone of locally based services, and should have strong links both to the local community based services, and to the larger hospitals in their region.

The services they provide should include a range of diagnostics and an expanded proportion of elective day surgery and elective medical procedures. These should transfer from the larger hospitals, freeing these facilities up for more complex work.

I intend to prepare a framework for the development of smaller hospitals, which will set out how they will develop to reach their full true potential. This will specify what services are transferring to them, from the larger hospitals. Too often we have focused on what we are taking away rather than what we can add to services there.

All of this will be done with full regard to the safety issues highlighted by HIQA, in its reports on Ennis and Mallow Hospitals. When implemented, smaller hospitals will have vibrant role, doing more work – not less – and meeting as many as possible of the needs of their local community.

Universal Health Insurance

As Minister for Health, I am committed to major reform of the health system. My objective is to ensure access to healthcare on the basis of need, not income. I firmly believe that this can only be achieved by establishing a single tier health system, supported by universal health insurance for the whole population of Ireland.

There are various important initiatives across the health sector that will need to be undertaken in advance of and to pave the way for the introduction of universal health insurance.

Work on key aspects has already commenced. For example, I announced the establishment of the Special Delivery Unit (SDU), headed up by Dr Martin Connor, at the beginning of June. This Unit will tackle hospital system inefficiencies and work towards reducing hospital waiting times and waiting lists. In addition, the resources of the National Treatment Purchase Fund (NTPF) will be refocused to align with the work of the SDU, and to allow for progressive improvement in the performance of the nation’s hospitals.

A fundamental element in the reform process involves significant strengthening of primary care services to deliver universal primary care with the removal of cost as a barrier to access for patients. This commitment will be achieved on a phased basis to allow for the recruitment of additional doctors, nurses and other primary care professionals.

Reform of the funding system for hospital care is also necessary. This will involve the introduction of a purchaser / provider split, whereby hospitals will be established as independent, not for profit trusts. It will also involve a more transparent and efficient “Money Follows the Patient” funding mechanism which will incentivise acute hospitals to treat more patients. Such incentive is absent from the current system of block grant funding allocations. It will, of course, be necessary to build in safeguards for ‘quality’ and ensure that payment mechanisms support and reinforce quality standards.

As soon as all the necessary building blocks such as strengthened primary care and `money-follows-the-patient` funding have been put in place, the health sector will be ready for the introduction of a new universal health insurance system. This system will give patients a choice of insurer and will guarantee that every citizen has equal access to a comprehensive range of curative services, including both primary and hospital care.

The magnitude of reform envisaged is such that careful planning and sequencing are vital. I can confirm that the Government has given approval for an Implementation Group on Universal Health Insurance. I am currently finalising details of the Implementation Group and I will announce these in due course.

Performance Evaluation

Performance Evaluation is a cornerstone to the improvement and more efficient delivery of services. I am committed to further developing the measurement of performance within the health system. Significant progress has been made in the HSE Service Plan 2011 in terms of incorporating more explicit links between funding, staffing and services and the development of an improved set of activity measures, performance indicators and deliverables in key service areas, which are matched with timescales. The HSE reports monthly to my Department on the performance of the health system against the agreed targets. The improvements in the National Service Plan forms a framework for achieving greater clarity at an individual service unit level within the HSE on performance expectations regarding service delivery, staffing levels and funding.

In order to deliver the level of services it is committing to, the HSE will be reconfiguring many of its front line services. This is in keeping with the overall strategic direction set out in the HSE Corporate Plan 2008-2011 includes:

Conversion of inpatient work to day case work
A focus on reducing patient length of stay in acute hospitals
Reduction of in-patient bed numbers and associated costs and
The provision of more services in community settings, thus reducing dependency on inpatient beds.

The HSE has operational responsibility to determine the number and type of staff required to deliver particular services. The financial constraints applying mean that there must be flexibility to deploy services to areas of greatest service need.

Capital Funding

Department of Health Capital

The capital funding allocation for my Department of €16.018 million will be used to provide capital grants to directly funded agencies and support the development of the Department’s internal ICT infra-structure.

Some of the directly funded health agencies to be funded will include the Health Research Board, the National Cancer Registry and Health Information and Quality Authority The development of health research and its application within the health system is an essential element in developing a much improved health system.

HSE Capital Funding

Capital investment in the health sector has brought about a significant improvement in the standard of facilities across all care programmes but very significantly in facilities which support services for older people. Government policy aims to maximise the health and social well-being of the population. The primary focus is the promotion and protection of the health of the whole population, within particular emphasis in reducing health inequalities.

The capital construction allocation for the Health Service Executive in 2011 is €352.25 million, which includes of €15m to be funded from the proceeds of disposals of surplus assets. While this reduction in its capital allocation poses significant challenges for the HSE’s in formulating its capital programme, a number of major projects are currently underway, including construction at the Mater Adult hospital, which will provide 120 beds, 36 ICU and HDU beds, a new A and E with 12 observation beds and OPD, 12 theatres, radiology department. Phase 2 at St Vincent’s University Hospital will provide a new clinical building including 100 single en-suite rooms and accommodation for cystic fibrosis services, and the A and E departments at Kerry General and at Waterford are underway.

There are a number of mental health infrastructure projects underway, including acute mental health departments at Beaumont and Limerick. It is expected that the acute mental health department in Letterkenny General Hospital will be completed this year.

The HSE will provide €39m over the period 2011-2014 to refurbish and upgrade existing residential accommodation for older people. Residential accommodation which requires the least investment will be refurbished first in order to provide the greatest number of compliant beds for the available funding. Furthermore, the detailed design of the St James’s Centre of Excellence in Ageing is underway. Atlantic Philanthropies will provide €16.4m; Exchequer funding is estimated at €31.7m. Total estimated cost is €48.1m. Construction is expected to begin in 2012


Chairman, the health services have had a lot of investment of taxpayers money but there hasn’t been the improvements that the people have a right to expect. This Government fully intends to correct this even in these difficult economic times. Our reform agenda while ambitious will be delivered. Health must lead the way in creating a fairer and more equal society.

To conclude, I thank the Committee for its attention and I commend the estimates for the Health group of Votes to the Committee. I will of course be glad to supply any further information or clarification that Members may request.