I thank the Chairman and members for the invitation to attend to discuss the 2012 annual report and Appropriation Accounts for Vote 39 and chapters 21 and 22. We submitted a range of information and documentation to the committee in advance of the meeting. I will, therefore, confine my opening remarks to a number of specific issues.
On the issue of financial performance, it is important to reiterate that each year in developing its approach to the annual service plan the Health Service Executive sets out the likely cost of running the services for the upcoming year and specifies foreseeable risks likely to increase costs in that year. It must be noted that the HSE does not control the process which leads to the final allocation of its budget. The amount allocated for HSE expenditure is decided, among other things, against a backdrop of national budgetary objectives and prevailing macroeconomic conditions. The final Estimate provision allocated to the HSE is, in effect, determined outside it following the conclusion of the Estimates process.
HSE net expenditure fell by €931 million or 6.8% between 2009 and 2012, with a further reduction in 2013, bringing the cumulative five year reduction to €1.066 billion or 7.8%. Despite considerable media and other commentary regarding HSE budget overruns, in the six years from 2008 to 2013, during which the HSE received €71.277 billion in a total net Vote, it received a net Supplementary Estimate of under €2 billion. Of this figure, €1.37 billion or 69% is related to Exchequer and other items not within the control of the HSE. A further €475 million or 35% is related to medical cards, drugs and other demand-led services provided by the Primary Care Reimbursement Service, PCRS. The remaining figure of €144 million or 10% is related to core service areas within the HSE's direct control and represents 0.2% of the aggregate net Vote for the period.
Members will be aware that expenditure in acute hospitals increased by €52 million or 1.3% between 2012 and 2013. It is important to note, however, that net expenditure in acute hospitals has fallen considerably in cumulative terms, by €515 million or 11.6% in the five year period 2009 to 2013. Despite this decline in expenditure, combined inpatient, day case and births activity has increased by around 15%, bed days used have reduced by around 10% and emergency department presentations have increased by approximately 6%. As outlined in written submissions for the most recent completed finance year, 2013, separate from Exchequer related and other items outside the control of the HSE, the position is that it delivered a €25 million surplus. This figure is made up of deficits on core services, primarily hospitals, and surpluses on capital and other services. In addition, there was a deficit of €96 million in PCRS expenditure, namely, medical cards, general practitioner fees, drugs and other demand-led schemes, for example, the dental treatment service scheme. This indicates a combined €71 million deficit in the areas within HSE control and the PCRS, which equates to 0.6% of the net original Vote.
I emphasise that there is full clarity on the components of the cost overrun in the Primary Care Reimbursement Service for 2012. This includes the residual €90 million referenced in the chapter. Line by line detail in this regard has been provided for the Comptroller and Auditor General. Accordingly, it is important to stress that there is no unexplained expenditure. All public funds were appropriately accounted for and the Health Service Executive has provided a full analysis of expenditure for the Comptroller and Auditor General in respect of 2012 and all previous years.
As the Secretary General noted, the finance reform programme is a key element of overall system reform in the health service. Following detailed work in recent months involving a wide range of health service staff involved in finance related activity, a new operating model for finance has been designed and agreed. A business case has been developed and submitted to the Department of Health for approval to procure a new integrated financial management system for the health service. Implementing a new financial operating model will provide the opportunity to transform the financial management of the health system and support the delivery of key elements of the reform agenda of Future Health, including introducing hospital groups and the money follows the patient principle. I consider this programme to be the single most important non-clinical priority of the health service for this year.
On section 38 agencies, members will be aware from the update provided in early March that work has been ongoing with all section 38 service providers to assist them in reaching compliance with Government pay policy. An internal review panel, comprising nominated members of the leadership team, has concluded the process of reviewing the business cases made for the continued payment of allowances. The panel's report has been furnished to the committee.
Agencies have been advised that it is their responsibility as the direct employer to implement the recommendations made. A period of up to three months to 1 July has been provided to allow each agency to make the necessary arrangements to cease the payment of all unapproved remuneration and ensure appropriate risk mitigation measures are put in place to deal with issues as they arise. On the completion of the compliance process, a final report, detailed by agency, will be provided for the committee in early July, at which time it is expected that all agencies will have demonstrated full compliance with Government pay policy.
I advise the committee that the interim administrator to the Central Remedial Clinic, Mr. John Cregan, has completed his work and I have received a report from him which I am considering. Once I have fully considered the findings and recommendations made in the report, I intend to issue it to the committee. It is hoped this will happen early next week. At this juncture, however, I can advise the committee that a new board has been appointed to govern the clinic and that a new chief executive officer has been appointed to manage the day-to-day affairs of the Central Remedial Clinic. Furthermore, service arrangement obligations have been met and there are no apparent obstacles to the Health Service Executive and the Central Remedial Clinic entering into similar arrangements for the foreseeable future. In addition, the CRC has sound financial systems in place. I thank Mr. Cregan for his work as interim administrator. I am certain that the new governance arrangements that have been put in place will secure and renew what is a very important service for the clients and their families.
With regard to section 39 agencies, as members are aware, these agencies are distinctly different from section 38 agencies as they are not directly bound by the Department of Health's consolidated salary scales. Notwithstanding this, it is important that all agencies in receipt of public funding have due regard to overall Government pay policy. The Health Service Executive's director of human resources wrote to the chief executive officers of the section 39 funded agencies on 10 December 2013 stressing the importance of each such organisation having due regard to overall Government pay policy in respect of the remuneration of their senior managers.
Since the introduction of the national standard governance framework for the non-statutory sector, the HSE has required all agencies covered by a service arrangement, both section 38 and section 39 agencies, to complete a template setting out details of the remuneration arrangements for senior managers who are defined as grade VIII and above or equivalents.
The exercise in respect of section 39 agencies has been undertaken in two phases. Phase 1 looked at the not-for-profit agencies which receive in excess of €5 million annually in grant assistance, of which there are 23, while phase 2 looked at those agencies which receive between €3 million and €5 million in grant assistance annually, of which there are 16. While this work is at an advanced stage, a number of the organisations in question have recently forwarded additional updated information on the pay arrangements, etc., that apply and which, I understand, have been provided for the committee. This information is being validated against the original information provided for the HSE and any necessary change will be incorporated in the HSE's final report on the validation exercise. The report, when finalised, will be available to the committee.
On the issue of medical cards, members will be aware of the Government's decision to develop an enhanced policy framework for medical card eligibility to take account of medical conditions, in addition to the undue hardship test. The HSE has established an expert panel to examine the range of conditions that should be brought into consideration. It acknowledges that this process may include the development of a new legislative framework for the operation of the medical cards scheme. While the task set for the expert group is an extremely complex one, it has been requested to furnish a report to me by September.
In the meantime, the HSE has suspended reviews for existing medical cards that had been granted on a discretionary basis and no further reviews of such cards will commence pending the outcome of the process to develop a new policy framework. Urgent measures are also being examined to provide for people with severe medical conditions who have recently lost medical cards. All other medical card reviews continue.
That concludes my opening statement.
