Health Budget and Expenditure Management: Discussion

I remind members and witnesses to turn off their mobile phones. Overruns in health expenditure have become a key issue and exercised the committee during its pre-budget discussion earlier this year. In July 2018, the prospect of significant overruns in the health budget was flagged to the committee and became a key theme raised with the Minister for Finance at our summer meeting and in our interim report which was published in July. Following budget 2019, the Irish Fiscal Advisory Council and the Parliamentary Budgetary Office highlighted expenditure management in the health service as a key fiscal risk. The role of our committee is to monitor fiscal and budgetary risks and make recommendations on how budget scrutiny can be improved. As such, we requested the attendance of officials from the Department of Health and the Department of Public Expenditure and Reform to discuss our difficulties in scrutinising the health Vote and its impact on broader fiscal and budgetary policy. I welcome to the committee today Mr. Colm Desmond, Assistant Secretary of the Department of Health, and acknowledge his agreement to attend at short notice to accommodate the committee's request. I note that the committee had invited the Department of Public Expenditure and Reform to contribute to the meeting but it declined the invitation. This is something the committee finds regrettable and unacceptable. The committee noted the lack of engagement by the Department and agreed to follow it up with the Minister for Finance and Public Expenditure and Reform at the earliest opportunity. We have now done that.

I draw the attention of Mr. Desmond to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.

Mr. Desmond provided a statement on the issues before us to the Joint Committee on Health a few weeks ago. I invite him to make a number of points to us before we discuss the matter further with him.

Mr. Colm Desmond

I apologise for the late submission of my opening statement which was due to work circumstances generally. I welcome this opportunity to address the committee on budgetary control and oversight of health expenditure. The committee has noted its concern at the level of persistent Supplementary Estimates in respect of the health Vote and commented on budgetary planning in this regard. In any given year, the Government has a finite amount of money for allocation in the budget and has many competing priorities. During the fiscal crisis, as with most areas of public spending, significant restrictions in health funding were experienced. Including in 2014, the budget provided for health was less than that provided in the previous years with significant targeted savings through pay reductions and efficiency.

The first modest increase in the health Vote for a number of years came in 2015 but this was insufficient given the erosion of base funding during the financial emergency. The once-off Supplementary Estimate that year was required to meet ongoing running costs in the sector, new initiatives commenced during the year and some demand-led services. Thus, while 2016 saw a further budgetary increase, the majority of the funding merely met the existing costs within the system, along with pay rate increases. In recognition of the difficulties facing the system, the Minister for Public Expenditure and Reform approved a further €500 million for health in the Revised Estimates Volume and this sum remained in the base for 2017. This allowed for services for older people to be maintained at the previous year's levels, which accounted for €30 million, met shortfalls in the State Claims Agency and PCRS in the amount of €200 million. It further provided for a winter initiative at €40 million that year. Additional funding of €450 million was provided in the 2017 budget, along with a further supplementary estimate of €195 million. Of the original funding, 39% was required for pay rate and pension costs with a further 6% supporting the State Claims Agency. In relation to the Supplementary Estimate that year, 38% or €75 million related to the acceleration of the restoration of pay under the Lansdowne Road Agreement, with a further 25% or €50 million required for the State Claims Agency.

For 2018, the Government approved gross expenditure of €15.332 billion for the health services, €14.839 billion for current funding and €493 million for capital funding, representing a 4.9% increase on the original Vote budget for 2017. For 2018, 45% of the additional funding provided in the budget was required for pay restoration, resulting in very modest increase for services and the consequent need for a further Supplementary Estimate. When account is taken of pay restoration, costs associated with the State Claims Agency and other demand-led areas, there is a reason for the level of increased expenditure year on year. Furthermore, the nature of the health services is such that the normal budget management levers available to other sectors, such as reduction of services, are simply not available to us and consequently, overruns can and do occur. External factors, such as the actions of private health insurers, can also drive the need for additional funding. In his recent presentation of the 2018 Supplementary Estimate to the Select Committee on Health, the Minister of State, Deputy Jim Daly, welcomed the significant additional funding for the health sector in 2018 of €655 million, of which €625 million is towards overspends in current expenditure in various areas of the HSE. The Minister of State acknowledged that while the amount of the Supplementary Estimate was significant, it represents less than 4.3% of overall health expenditure in 2018. The Minister of State also noted that, despite the significant increases of recent years, the issue of health funding remains a major challenge, not just in Ireland but internationally. Dealing with a growing and aging population, more acute health and social care requirements, increased demand for new and existing drugs, and the rising cost of health technology will continue to post a financial challenge into the future.

The annual health budget is set within the parameters set out by the Government in its approach to planning for the annual budget. The improving economy has enabled the health service to achieve much needed budget increases in each of the last three years. It is also clear that there are areas where further improvements are required and the Department will continue to work with the HSE to optimise service provision within the constraints of available funding. Extensive planning and performance management processes are in place in relation to budget management and health sector planning. The HSE publishes performance profiles on a quarterly basis and separate management data reports for each month. There is a monthly performance management cycle both within the HSE, under its performance accountability framework and between the Department of Health and the HSE. The HSE's performance and accountability framework operates under a national performance oversight group which has delegated authority from the Director General to scrutinise the performance of the health service provider organisations, in particular hospital groups, community healthcare organisations, the national ambulance service, primary care reimbursement service and other national services, to assess performance against the national service plan.

Despite welcome increases in the health budget over recent years, a financial challenge remains as we deal with a larger and older population with more acute health and social care requirements, increased demand for new and existing drugs and the rising costs of health technology. The costs of payments under the State Claims Agency are also rising, adding to the overall cost of health above the operational costs funded to meet the health demands of a growing and aging population. These challenges reinforce the need for good budgetary management and control, a focus on improving the way in which services are organised and delivered and on reducing costs, all of which aim to maximise the ability of the health service to respond to growing needs.

The first Deputy to indicate was Deputy Jonathan O'Brien.

Is it likely that we will need another Supplementary Estimate this year?

Mr. Colm Desmond

The Supplementary Estimate is what has been provided by the Minister for Public Expenditure and Reform and welcomed by the Minister for Finance. We are monitoring very carefully the evolution of expenditure this year and are hopeful we will be able to manage within that.

Mr. Colm Desmond

That is our objective.

We got a breakdown of the Supplementary Estimate and where it is being spent. Most of it is going to the HSE regions and other health agencies. The breakdown was pretty detailed. It states that this was not to fund any additional activity but to maintain current levels. If this is the case, if any of the additional allocation is due to an increase in unexpected demand, what performance indicators are being put in place in terms of outputs? I imagine that demand in an acute hospital setting has knock-on effects throughout the system. When the officials are calculating the figure for the Supplementary Estimate, do they take into account likely increases that may result in increased funding into one setting? If it goes into an acute hospital setting, would it not likely also increase the number of inpatient and day case discharges?

Mr. Colm Desmond

The evolution of acute spending, which is essentially what the Deputy is referring to, is monitored throughout the year. It is certainly one of those areas, among others of which the Deputy will be aware, that have tended to overrun. It is, therefore, considered both in its detailed components, as the Deputy has described, and in its overall composite form. It is interrogated by the HSE centrally as part of the performance framework that I have described, and by the Department in its engagement with the HSE on whether a Supplementary Estimate should be sought. It is on that basis that the performance indicators do indicate, when the service plan is established at the beginning of the year, what the likely evolution of spending will be. However, it is not always the case that the various components of the acute sector, for example, can remain within that area, due to particular circumstances. The winter issues and Storm Emma, for example, had a significant impact on the acute sector this year.

Mr. Desmond tells us there is monthly monitoring of the budgets. However, up to a week before the budget, we could not get an answer from the Ministers for Health or Public Expenditure and Reform on what the likely Supplementary Estimate would be. Is there a reason they do not know?

Mr. Colm Desmond

It is the nature of the process that there is a certain lag in the reporting. Reporting cannot be simultaneous because of the scale of what is required in terms of compiling information from a diverse system such as the hospital system. However, the Department and the HSE were aware and signalled relatively early in the year that there were pressures emerging. From that point of view, I imagine the issue was more that a specific figure may not have been available at that point.

That is why I asked if we are going to need an additional Supplementary Estimate. It is very hard to have confidence even in the Supplementary Estimate that was passed as to whether it is going to be enough, considering there is such a lag. Surely there is a better way of pinning this stuff down.

Mr. Colm Desmond

In fairness, when the Supplementary Estimate is agreed with the Minister for Public Expenditure and Reform and his officials, it is based on the estimate of what we feel will be required for the year in full. It is not an exact science but it is at least the best estimate at that point in time. The objective will be to remain within that estimate as much as possible.

Where are now in respect of that?

Mr. Colm Desmond

We have a Supplementary Estimate for the amount I mentioned - €625 million in respect of current, and that has a number of components, including the acute sector. It would be our objective to manage within that. It is not entirely an exact science but it is the range within which the HSE should come at the end of the year.

I welcome Mr. Desmond and thank him for his opening statement. Could he set out how the process works in setting the budget for the Department of Health and particularly the HSE? We have to go to the origin of this issue of Supplementary Estimates in the Department of Health, which arises frequently. The HSE makes a request of the Department of Health, which engages with the Department of Public Expenditure and Reform. At the end of the process when the figure is set at a certain amount, can there still be a significant difference?

Mr. Colm Desmond

The Minister for Public Expenditure and Reform sets out the approach he is taking to budgetary parameters overall in the late spring or summer period. That gives an indication to all Departments of the scope for managing within the existing allocation and planning for the year ahead. Planning for the budgetary allocation is guided by that from the beginning. The HSE is invited to submit its bids and the Department and the HSE then engage in the late spring and summer period in a detailed manner, to interrogate the application by the HSE in all its different components right across all the sectors, including workforce, pensions, pay and so on. Having interrogated the HSE thoroughly, the Department of Health will then engage with the Department of Public Expenditure and Reform. HSE officials are available to and participate on the detail with Department of Public Expenditure and Reform officials in respect of determining the basis upon which the demand stands. They will usually arrive at a quantum, which is agreed to be the requirement for the health sector, or at least what the health sector, through the Minister and his officials, seeks from the Minister for Public Expenditure and Reform. As with all Departments, demand is invariably greater than what is available from the global amount available to the Minister for Public Expenditure and Reform under his budgetary parameters. It is, therefore, a question of discussion and negotiation in the period leading up to the budget as to how the Department's budget is allocated for the year.

Is it fair to say in the case of health that it is "lastminute.com"? It comes down to the dying days of budget preparation. I have some small insight into that by virtue of the confidence and supply agreement. Health always seems to be the last piece of the jigsaw. There is extremely late contact between the Departments of Health and Public Expenditure and Reform and the HSE in settling on the final figure.

Mr. Colm Desmond

I agree to the extent that it is a significant budget, one of the largest in government. It is a challenging budget for everyone to settle, not least for the Ministers for Health and Public Expenditure and Reform. I can reassure the Deputy that the engagement commences early on, takes place in parallel with all other Departments' engagements with Department of Public Expenditure and Reform officials, and is very detailed. It is a significant range of programme areas and by its nature requires a fair degree of interrogation. This year, it was well known that we had an emerging overrun which was significant. That added to the level of detail that had to be engaged with.

The reason I am probing into how the budget is set in the first place is to seek to establish how predictable it was that there would be a significant overrun. Did the HSE through its request in spring-summer 2017 and right up to the eve of the budget in 2017 predict that it would need €600 million to €700 million extra, even on a standstill basis? There has to be a reason this keeps happening in one Department. How predictable was it? Looking ahead to 2019, is it again the case that there is a large gulf between what the HSE is saying it needs to provide health services and what it has been given in the budget?

Mr. Colm Desmond

In respect of 2019, the HSE will shortly formally submit its service plan to the Minister. That will form the basis of the HSE's view on how it will spend the allocation that has provided by the Government. In respect of 2018, we engage in regular monthly monitoring and performance support with the HSE right from the beginning of the year, as I described in my opening statement.

It stands to reason that we would monitor and take account of the evolution of the major spending areas in the HSE. That is the process we have and it would signal to us that there are areas where there are pressure points. Some of them are performance-related and some are outside our control, such as State claims and other such areas.

I accept that. To put it another way, what is the gap between what the HSE asks for and what it ultimately receives in its budget? I am trying to establish how predictable all of this is and whether it is going to happen year on year until we somehow manage to get the two to marry.

Mr. Colm Desmond

The budget is set each year based on what is available and is agreed by the Minister for Public Expenditure and Reform for the Minister for Health. The 2018 budget was agreed in budget 2018 a year ago, and the health sector is required to manage within that. Regrettably, that did not prove to be the case and that has been a feature in recent years, but for the varying reasons I set out in my statement. It is a feature of an area that is under a fair degree of demographic pressure, although that is not a reason to fail to interrogate the reasons for that type of pressure. It is also an area where there are other factors, such as pressure in disability, older persons and other areas that the Deputy will be aware of, which are clear from the demand throughout the health service.

I have two more questions. One relates to the accounting and reporting dimensions of this. With regard to the Exchequer returns, the fiscal monitor for the end of September shows that the overrun in health is approximately €300 million yet the Supplementary Estimate at the end of the full year is €655 million. How is it that three quarters of the way through the year the reported deficit in health was approximately €300 million, yet it ended up at more than double that figure for the full year, which only had three months left? Somebody said to me that it was because the figures reported every month in the fiscal monitor or Exchequer returns are cash-based whereas in health bills are building up that are not yet paid. Can Mr. Desmond outline exactly how that works? We were hearing about a Supplementary Estimate of hundreds of millions of euro but when I cross-checked that with the Exchequer returns, I did not see the same scale, yet that is where it ended up.

Mr. Colm Desmond

The HSE operates on an income and expenditure basis but some components are not reported through the evolution of the major programme budgets. There is, therefore, also be a time lag, which I described, in that what is reported in September may well have been slightly earlier. There may have been a degree of delay in that. It might be more useful if I could provide a more detailed paper on the different components of how that accountability and reporting operate. I can provide that to the Deputy. It was certainly a time lag in the programme areas.

From the point of view of budgetary control and management and from the point of view of this committee in its work throughout the year, at the end of September - those figures are published at the beginning of October - we saw an overrun on the current side of €301 million and yet the overrun came in at €625 million.

Mr. Colm Desmond

That is the Supplementary Estimate.

The explanation Mr. Desmond has given for it is the income and expenditure manner in which the HSE manages its money and the time lag for the recognition of some expenditure, but from the point of view of this committee the information published every month is useless when trying to track health expenditure because it was so wide of the mark.

Mr. Colm Desmond

There are some components such as State Claims Agency expenditure, the income issue around private health insurance and the like that are more difficult to predict at that stage in the year. They certainly have a bearing on it. I agree that it would be more satisfactory if a more composite collection of data was reported at that point.

I have a final question on future projections. In how many areas is the Department of Health now predicting future health expenditure?

Mr. Colm Desmond

The Department through it research function and the HSE would project as far as possible in terms of demographic trends but, in effect, we operate a cash-based system year on year. It is probably reasonable to say that we would project three years ahead on the main programmes in line with the general accepted approach for all Government expenditure.

The budget documentation published by the Department of Finance sets out projections for five years to the end of 2023, including expenditure projections. Presumably the Department of Health has fed into that.

Mr. Colm Desmond

Yes.

I refer to the point made by the Irish Fiscal Advisory Council about how credible and realistic the expenditure projections are, particularly in health. As practising politicians, we are all aware of the pressures of the demographic changes that are happening and the consequent impact on nursing home care, care for the elderly, disability services and so forth. There are extreme pressures. Thankfully, people are living longer but that is having a direct impact. To what extent are the figures the Department has for the next three to five-year horizon realistic and based on proper assessment of the demands that are known to exist over that time?

Mr. Colm Desmond

It is desirable that they should be. They are set firmly for the area of capital spending under the national development plan up to 2022, with 2023 to be firmed up. There is quite an amount of planning ahead under the ten year plan. Current expenditure is a little more difficult to project. On the other hand, it also must take account of what is realistically available to us over the next period of time. It would certainly be a factor when we look ahead over the period the Deputy mentioned.

I thank Mr. Desmond for his public service and for attending this meeting. He outlined in his presentation a number of interventions designed to assist the Department with budget management and health sector planning, including management data reports, performance profiles, performance accountability framework, a national performance oversight group and so forth. When somebody discovers that the budget for something is short and more money is required, who ultimately makes the decision to spend that money in the full knowledge that Department's budget will overrun?

Mr. Colm Desmond

The Department would not allow any overspending outside of what takes place without it being agreed that it is a demand-led area where it is difficult to refuse demand. For example, one cannot refuse demand in the primary care reimbursement service of the GMS, reimbursement for certain high-tech drugs and, as happened with the adverse weather last year, increased demand for emergency departments or other acute hospital beds. All of these matters confer an entitlement on the health service user. They would be flagged as they begin to emerge during the performance reporting process and there would be interrogation of the basis for it, how real it was-----

Is that after the fact?

Mr. Colm Desmond

It is as the information becomes available.

However, as the information becomes available, the money has been spent.

Mr. Colm Desmond

The HSE must meet certain demands which the individual service user or person is entitled to avail of and that will have an effect on whether the funding is made available to that particular service or organisation in the HSE.

That is not always the case in respect of home care packages.

Mr. Colm Desmond

The HSE manages the budget it has for home care packages as best it can to meet the demand, but it certainly has a challenge with regard to the overall budget within which it must operate and the genuine entitlement of people to them. It is required to manage that as best it can throughout the year. If pressure begins to emerge it inevitably will manifest itself in the process described here.

Pardon my chuckling but Mr. Desmond is distinguishing between items such as primary care and home care packages. I am asking who makes that call in the Department of Health. Who decides that the Department must exceed the budget for home care packages because there is critical demand for them?

They not only save the State a considerable amount of money but there is an acute need for them, and that can be clearly demonstrated. Mr. Desmond mentioned that this would be scrutinised live. However, in primary care and other areas the money is spent before it comes before the review committee, which means the committee examines them after the fact.

Mr. Colm Desmond

I would not make the distinction as strongly as it may have come across. It is a very broad range of services provided across a very large budget every year. Therefore, pressures will inevitably begin to emerge in a number of points during the year. The HSE will indicate to the corresponding Department officials if it believes there are pressures emerging and that would become more definitive through the performance supporting process that I described. There will be interrogation by the Department of the HSE and by HSE senior management of the different programme areas within the Health Service Executive, which cover a vast range of services, as to the basis upon which a particular budget is under pressure. I would not like the Deputy to take the view that one area is treated more preferentially to another because we have not gone into the detail of each particular area to that extent.

Thank God for that. Who makes the decision?

Mr. Colm Desmond

In certain areas it is simply a question that entitlement drives the demand and the demand drives the cost. Such areas include primary care, the general medical services, GMS, scheme, budgetary issues and reimbursement. In other areas where persons are entitled to a service, there is a budget to be managed but there is also a point, I imagine, where it becomes challenging for the HSE to-----

I accept all that but the decision on approving that entitlement must come across somebody's desk.

Mr. Colm Desmond

It certainly comes across a manager's desk at the appropriate level but it would be difficult for me to say specifically where and at what level-----

Who gives the manager the approval?

Mr. Colm Desmond

Each individual directorate in the HSE has the responsibility for monitoring the spend in their areas throughout the year. If it is a case that pressure comes on a particular budget, the issue will be elevated through the process I described and there would be a fairly-----

To where would it be elevated?

Mr. Colm Desmond

It would be elevated to the more national level.

What would that be?

Mr. Colm Desmond

It would be at the national directorate level in the HSE in terms of the-----

It makes the decision.

Mr. Colm Desmond

Yes, the detail of the matter would have to put to the executive directly but that is where a decision would be taken.

There is no executive in place.

Mr. Colm Desmond

I mean if they were present here today.

Mr. Desmond made the point that the health sector is particularly complex. The education sector is pretty complex, as is social protection given the range of schemes involved and the variations that occur all the time. I imagine it would be hard to predict the social protection budget at the beginning of the year in terms of the number of people who will be in receipt of disability benefit and the number who will leave or join the live register. Then there is the plethora of schemes that only few in this House really understand. Despite this, the Department of Employment Affairs and Social Protection does not experience the level of overruns that occur in the health sector.

Mr. Colm Desmond

There are Supplementary Estimates in the education and social protection budgets.

They are very modest.

Mr. Colm Desmond

In any event-----

Mr. Desmond would acknowledge that.

Mr. Colm Desmond

I would have to quote statistics on that and perhaps that would not be fair, but they can be significant amounts of money in the overall-----

They are nothing like those in the health sector.

Mr. Colm Desmond

I can give some information but perhaps it is not appropriate to do so.

Mr. Colm Desmond

In that respect, the overruns in the Departments have been in the range of around 1% to 3%. Social protection is lower, as the Deputy said, and health has been higher, relatively.

That is my point. These are complex Departments with complex budgets and challenges. Mr. Desmond has acknowledged that the overruns in those Departments are not as significant as in the health sector, so we will park that. What is it about health that makes the overruns in that Department so large? I am asking that as a public representative. To follow on from what my colleagues have said, there is a consistent overrun. What accounts for that in health?

Mr. Colm Desmond

The health sector has a large range of interconnected services which perhaps make it more challenging to manage across.

Can Mr. Desmond back that statement up with evidence? I will accept it if he can do so. Is the health budget more challenging and complex than the budgets that have to be managed in the Departments of Education and Skills and Employment Affairs and Social Protection or is Mr. Desmond surmising that?

Mr. Colm Desmond

The services given their nature are complex. In fairness, I would not comment on the other Departments.

No, but Mr. Desmond is suggesting that the complexity of these services makes the budget a little more challenging than, say, in education and social protection. That is my point.

Mr. Colm Desmond

It does to the extent that we have a number of intersecting areas. Apart from the acute area, there is primary care and community care and in the latter there is a lack of capacity. Therefore, there is a great deal of pressure on the acute area. All of these have individual budgeted areas and all these budgeted areas are managed within those component areas. That brings a degree of complexity that we consider to be very challenging right across the health sector. Perhaps that is a factor compared with the other Departments the Deputy mentioned but, in fairness, I could not comment on those Departments.

However, Mr. Desmond did comment on them when he said the Department of Health has more complex challenges than other Departments. I have brought him back to the point where he does not know that for sure and is surmising that it may be the case.

I thank the Chairman for the latitude I have been given. We would have always thought that the big supplementary budgets for health are caused by a drain in one particular area, for example, the drugs scheme, hospital beds or primary care, but the drilling down that the Parliamentary Budget Office has done suggests that the Supplementary Estimate required this year is spread pretty evenly across the entire health system. It is about 5% across health and there is no big chunk of additional funding being provided to one area as opposed to other areas. What does that tell us?

Mr. Colm Desmond

It tells us that there is a significant demand in a large number of service areas, some more than others. Disability is a good example, as is the acute area which I mentioned. It shows there are some areas that are outside our control, such as the State Claims Agency and others that are listed in the Supplementary Estimate.

No, the figure is 5% right across the system. There is not a particular spike, as I understand it, in the allocation to the State Claims agency. There is an average of 5% right across the whole sector.

Mr. Colm Desmond

When the Deputy says "right across", I should clarify that the Supplementary Estimate is spread across all the service areas.

The increase is spread right across..

Mr. Colm Desmond

I might clarify that by providing the Deputy with some information on the detail of the Supplementary Estimate but it may not be as evenly spread as that. We have identified some areas of the budget, such as the mental health budget of close to €900 million this year and has not needed additional funding. However, the disability area, home care packages, the acute area and corporate in the HSE have required additional funding. There are, however, other areas that have not required it. Perhaps I have not fully understood the Deputy's point but the additional requirement is spread widely across the health sector but not that widely, if I could put it like that.

It would be great if Mr. Desmond could forward that information to us. I thank him for coming in today. I appreciate it.

I very much appreciate the presentation. To set it in a slightly longer context - I made this point earlier in our discussion on another issue - if we take a 15 to 20-year perspective, the health budget in 2000, including both private and public health spend, was about €6.4 billion. It is hard to believe the scale of the jump but it had increased in 2007 to €15.7 billion. In 2013, which is when Mr. Desmond's analysis started, even though, as he said, there had been a significant curtailment of the budget arising from pay and other restrictions, health expenditure stood at €18.4 billion. The Estimate for this year indicates the health budget will be the guts of €21 billion if we include the Revised Estimate at the end of the year. In terms of the correlation between spending and outcome, we were not starting from a low base when Mr. Desmond started his analysis in 2013, but from a base which had dramatically increased in the previous ten or 15 years. There had been a very large increase in spending. It was not as if spending had reverted to the 2000 level or anything close to that. It is important to point that out because this committee is concerned about the effective spending of public funds.

One could say that all the problems arose because there was a contraction in the 2013 budget, for pay rates and services. However that contraction was in the context of significant increases in the budgets of the previous ten to 15 years. Does Mr. Desmond understand the point I am trying to make? Does he think that timeline has any relevance? How did we survive in the year 2000 on a budget of €6.5 billion?

Mr. Colm Desmond

I do not have the figures for a budget that combines public and private resources. The figures I quoted in my opening statement are the public spending figures. In the years prior to 2013, I think there had been tight budgets in the years immediately up to that year, because the fiscal changes had begun to hit in 2010 and 2011.

I agree with the Deputy that it is a significant increase during a period of time, but it may well be that the cost of services are a factor and we would have to look at international comparative figures to see whether we were particularly out of sync in that regard.

That is very true. I was looking briefly at the statistics in terms of a drawing a comparison on spending per capita between Ireland and the OECD. Spending per capita is the best way to draw comparisons because spending as a percentage of GDP is a distorted figure because of the nature of Ireland's GDP. When one looks at spending per capita, my understanding is that we are one third above the OECD average and seventh highest in the OECD at €4,706 per annum. Is that a fair assessment of where we are placed on the international comparators?

Mr. Colm Desmond

At the Joint Committee on Health on 24 October, during a discussion on the health budget we had clarified that the OECD has placed us fifth in terms of the EU 28 in per capita terms.

That is still very high up in the rankings.

Mr. Colm Desmond

The interpretation can vary. Within that there can be quite significant variations in how spending is measured compared to other countries. There is the perennial issue of whether spending on social care should be included. We are including social care, whereas it may not be within the health sector in other societies. Also there is the question of whether that is a factor. There are within that particular areas which are difficult, such as the number of doctors per population which is considerably lower in Ireland and the number of beds per population is lower yet we have a significant acute budget. There are issues in terms of the emergency department and other pressures that may be contributing.

This might assist the policy makers because if, as Mr. Desmond states, we have the fifth highest spend in Europe, which is a very high level of spending per capita, given the wealth of other member states and if it is in the teeth of an environment where we have very low numbers of doctors, where one would have expected that we would have the fifth highest number of doctors. While Mr. Desmond cites that we are being challenged by demographics in terms of an increasing population, the reality is that in comparison with other European countries, we have a much younger population profile, which should see us having a much lower health spend, the bulk of health spending comes in the latter years and therefore countries which we are comparing ourselves against have a much higher percentage. Given our very low number of doctors per capita, our very high spend and our very low youth age per capita, the figures would point one to question why we have a policy problem in how we are spending our money.

Mr. Colm Desmond

We have a shift towards an aging population and we are seeing the pressure coming through in the general medical schemes, the home helps and the older person's budgets. I agree there are issues in respect of the analysis but it is a comparison that is difficult to judge and bears a good deal more research.

There is a general overall demographic increase due to population increase. We are seeing the aging population beginning to have an impact on the overall budget and it will not decrease. We are also seeing very high occupancy within the hospital system and upwards of 94% occupancy compared to 77% in other European member states. We have significant pressure there due to the lack of appropriate community and primary care services which might relieve that. There are a number of factors that might complicate the analysis.

One would expect that the reaction to that would be a significant increase in the capital expenditure but that is not where the spending in the Revised Estimate has been, by and large. Mr. Desmond mentioned the State claims, demographics and so. If we needed to introduce a Supplementary Estimate because we were increasing our capital expenditure to address some of what are undoubted critical shortfalls in our system, one would say we were on the right path, but if we are just plugging the gap and not actually seeing capital expenditure kick in, that raises concerns.

Mr. Colm Desmond

It would, but in fact capital is significant because the range in the past ten years is that we have spent a total of approximately €4 billion to €5 billion. In the next ten years, and the process has started with the national development plan, we have €10.9 billion to spend. We have a lot of planning to do to get into place for the second half of the national development plan. The capital element is entirely recognised as something that needs significant attention and the Department of Health and the HSE are gearing up for that.

I agree with Deputy Ryan that the capital infrastructure investment has not been at the level it should have been in recent years.

I thank all the members. However, due to other commitments some of the members could not remain.

I have some questions and comments. I begin by thanking Mr. Desmond for coming before us and showing respect for the work of our committee unlike the officials from the Department of Public Expenditure and Reform.

In October 2018, the Government announced a new budget oversight group to be established which will include officials from the aforementioned Department of Public Expenditure and Reform, who think therefore they should not come before our committee, which is interesting because they will be involved in the budget oversight group, as well as the Department of Health and the Health Service Executive. The purpose of the new body is to monitor and control health spending and staffing within budget allocation.

I wish to put a number of points to Mr. Desmond, which tie directly into the 2018 national service plan. There was a financial challenge of €347 million at the beginning of 2018. How much of the savings were achieved to address the financial challenge and to what extent is the Supplementary Estimate for 2018 a result of not meeting that financial challenge? Mr. Desmond mentioned the work plan for 2019; will there be a financial challenge in 2019? If there is, and allowing for the historic inability to meet that challenge over many years, is the Department effectively conceding that any mention of a financial challenge in that 2019 plan is effectively the announcement of what will crystallise as a Supplementary Estimate for 2019?

Mr. Colm Desmond

We cannot foresee what way 2019 will evolve in that regard, but we are awaiting the formal submission of the HSE's national service plan, which the Minister will then consider.

When is that due?

Mr. Colm Desmond

Imminently.

Imminently being days or weeks?

Mr. Colm Desmond

It is the intention that it should be published before the end of the year, so certainly it is urgent and is in process.

Is there a financial challenge in it?

Mr. Colm Desmond

The budget that was achieved includes the benefit of the Supplementary Estimate and has gone into the base for 2019 plus the additional funding provided by the Minister for Public Expenditure and Reform and therefore the Minister for Health, Deputy Harris has welcomed that as a very significant allocation for the health sector and the HSE is framing its service plan in that context. That is the position we are in at this point.

It is very significant and it has gone into the base, so therefore it would be very worrying to see at the outset of the year any potential that would link to the possibility of an overrun.

Let me return to a point raised by a colleague earlier. Where does the overrun come from? Deputy Lahart was referring to the 5%. Having looked at the figures, the one most remarkable, consistent strategic management by the Department is its ability to overrun in the various sections of the budget to exactly the same amount. The overrun in HSE Dublin and mid-Leinster is 5%; HSE Dublin North East is 5%; HSE South is 5%; HSE West is 5%; grants to health bodies is 5% and building and equipment is 5%; and, there is a blip in what is a small subhead on the payments to State Claims Agency, which is 17%.

It seems to indicate a consistent disregard of trying to reach target with 5% overruns on every one of those areas.

Mr. Colm Desmond

Without looking at the detail of those, there is no doubt that, as I explained in the opening statement, given the base from which they were starting, budgets were challenged for many years. With the demographic demand that started to appear roughly in parallel, it led to the view that coming close to meeting the budget was considered acceptable performance. That is obviously not acceptable in any circumstance. With significantly increased resources we believe these need to be managed within the overall allocation. The Fiscal Advisory Council considers that a hard budget constraint, for example. We need to continue to consider how such resources can be managed more effectively. If the trend is there, the trend merits examination. That is part of the performance and accountability process and the financial examination process I described. The Chairman has reasonably identified that issue, which will be a key issue for the HSE in 2019.

It certainly is a key issue. I appreciate it may sometimes be unfair to take one line from an opening statement, but I have a real problem with it. Mr Desmond said: “Furthermore, the nature of the health services is such that the normal budget management levers available to other sectors, such as reduction of services, are simply not available to us and consequently, overruns can and do occur.” People from other Departments would probably like to be able to use such a line. It seems the health services can manage within a budget if they choose to. With such a consistent overrun across so many areas, it strikes me that the operating practice was just to manage the fact that there would be an overrun. The normal type of operational management structures were not in place.

In the context of the Department of Health versus other Departments, it had differences of 1%, 2%, 4% or whatever. Let us consider the heavy hitters. The health area had an overrun of €655 million. The next biggest heavy hitting Department is the Department of Employment Affairs and Social Protection with an overrun of €139 million. That Department’s budget is €10.62 billion; the budget for the Department of Health is €14.871 billion. There is a major difference there. The overrun for the Department of Education and Skills is €181 million. While one can juggle around on 1%, 4% or whatever, it is a very substantial overrun.

It seems to occur due to a complete lack of ability to control or predict expenditure accurately. In the early part of the year the expenditure overrun seems to be relatively modest. It then seems to go out of control in the latter part of the year. If that only happened once, one might believe that something just went wrong there, but it happens almost every year. In some of the tables I saw almost the exact same pattern of lack of control in four consecutive years. Surely somebody is capable of making the decision to redo how that expenditure is dealt with.

Mr. Colm Desmond

I could not disagree with the Chairman. It is of serious concern for the health sector. It is a complex sector with very mixed quality of data available and very mixed quality of financial and other systems to assist us in our job. All of these issues contribute to ascertaining where the funds are actually spent and in the manner in which they are spent. It varies considerably across the services. The structures to monitor expenditure and to keep it under control are far from being perfect. Nobody would disagree that the matter requires serious consideration.

I explained earlier that we need to move to continuous monitoring to a greater extent. That would actually yield us the information and the control that we need as soon as it manifests itself. We hope having integrated care organisations in a more decentralised structure will mean that management will be more accountable. That can only be of benefit to us. It will mean that financial problems should be addressed rather than being passed up with someone saying: "Here is another thing that we can't deal with. You'll have to deal with it." We hope giving that degree of scope to local organisations in an integrated structure will assist in the level of responsibility and, in fairness, the level of capacity that would be accorded to managing budgets there.

The Chairman also mentioned -----

Is Mr. Desmond confident that that level of management of expertise should now be there, particularly dealing with the increased budget that is now allocated?

Mr. Colm Desmond

We would certainly encourage that the level of monitoring and control should be at the most appropriate level. It certainly should facilitate the best budgetary management we can get. It is a journey, in fairness. We would hope it is part of a widescale financial reform within the HSE.

I am glad to hear that. I borrow an analogy that is used about speed limits in this country. They are supposed to be guidance as to where one should stop and not a target to aim for, because if one aims for the target, one will overshoot. Without that mindset change irrespective of how big the health budget becomes, the existing management structure will end up overrunning by 5% because it is almost inherent in how things have been done to date. I hope that change in thinking permeates right down to the delivery of the service.

I am conscious of the time and I need to draw proceedings to a conclusion. I thank Mr. Desmond for the time he has given the committee and for the answers he gave to all the members. It has been a very informative exchange.

The select committee adjourned at 5.38 p.m. sine die.