Dáil Éireann debate -
Wednesday, 18 Nov 1998

Vol. 496 No. 7

Written Answers. - Health Care Costs.

Breeda Moynihan-Cronin

Question:

71 Mrs. B. Moynihan-Cronin asked the Minister for Health and Children the estimated rate of medical inflation during 1998; the likely rate in 1999; the steps, if any, he will take to control or reduce this in 1999; and if he will make a statement on the matter. [23934/98]

Minister for Health and Children (Mr. Cowen)

The term "medical inflation" is often used quite loosely and is sometimes taken to include increases in cost not solely driven by changes in price. For example, the cost of certain services may increase due to the adoption of more costly technology but this technology may have been introduced to facilitate improvements in patient outcomes and/or increased activity levels. Therefore, when analysing the increase in healthcare costs over a number of years it is difficult to disentangle costs associated with increased activity and improvements in quality from price inflation per se. Problems in measuring medical inflation are experienced in all health systems due to the fact that the healthcare market is very different from other markets since public provision and subsidisation mean that prices tend not to reflect actual costs. These measurement difficulties mean that, unfortunately, in response to the Deputy's question there is no reliable estimate of medical inflation in the Irish public health care system for 1998 or 1999. Nevertheless, the evidence that is available would suggest that, both here and internationally, inflation within the health sector is higher than the average rate of price increase in the wider economy. This would be particularly the case in relation to acute hospital services and drug schemes where the influence of technology is most pronounced. For example, the increase in the acute hospital sector over the period 1993 to 1998 was 46 per cent while the increase in the consumer price index over the same period is just 12.5 per cent. This increase for the acute hospital sector would include increases in activity, quality and increase in pay and non-pay costs.

It is my Department's understanding that the Central Statistics Office in calculating the consumer price index takes account of increases in the price of medical care and drugs purchased privately. However, the relationship between these price increases and price inflation in the public system is not straightforward and this would have to be examined in detail before any inferences could be drawn from this source about medical inflation in the public system. Notwithstanding the foregoing, it is the case that when formulating allocations to publicly funded health agencies provision is made for cost increases. In relation to pay my Department provides for cost increases by taking account of awards due under national pay agreements. A non-pay inflation factor is applied to non-pay budgets based on the standard non-pay inflation assumption used by the Department of Finance in agreeing Estimates with all Departments. This non-pay inflation assumption is based on a forecast of the likely annual increase in the consumer price index. In addition, provision is made for particular cost increases such as increases in the cost of drugs under the community drug schemes and the GMS or agreed developments in acute hospitals such as the introduction of particularly expensive drug therapies or technologies. Allocation methodologies continue to be kept under review and medical inflation and other associated factors are receiving consideration by my Department in the context of the development of multi-annual budgeting.

Finally, there are a number of strategies used to control medical inflation. The most important strategy is the central role given to service planning under the accountability legislation. Service planning requires agencies to thoroughly examine their operations to ensure that they meet the highest standards of efficiency and effectiveness. Proposed expenditure in the coming year should be evaluated by reference to the likely benefit in terms of health and social gain. The role of service planning in controlling medical inflation is complemented by other initiatives taken by my Department, for example, in relation to materials management and value for money and the negotiation of agreements on pricing and supply of drugs with the pharmaceutical industry.