Health spending and recruitment must be controlled

Minister for Finance and Public Expenditure Paschal Donohoe has warned that health spending will have to be controlled and the rate of recruitment of new staff, running at between 350-400 a month, cannot be sustained indefinitely. Maureen Browne reports.

The Minister was speaking at the publication of the Mid-Year Expenditure Report (MYER) for 2018.

The Report, along with the National Economic Dialogue and the Summer Economic Statement (SES), is an integral part of the reformed budget process.

The Report reviews the Government’s expenditure position at the end of June 2018 and considers the potential impact on the full year position.

The report said that gross voted current expenditure by health for the end-of June was €7,634 million. This was €168 million, or 2.3 per cent above profile, and an increase of €606 million, or 8.6 per cent, on the outturn for the end of-June 2017.

Staffing levels in the health sector increased by approximately 42,900 or 63 per cent over the period 1997 to 2017.

The budgeted year-on-year increase in current expenditure for health was 3½ per cent.

The report said the annual amount spent by Government on healthcare provision had increased substantially over the last 20 years. In 1998, the Government spent nearly €4.2 billion on Health, in 2018 just over €15.3 billion had been allocated to health expenditure.

“The increase in Health expenditure over the last 20 years could be categorised into three phases. In the period from 1998 to 2009, health spending increased significantly. This was followed by a period of spending contraction in the years of consolidation, largely the result of central pay agreements and the recruitment moratorium. Health expenditure had risen annually since the end of 2013.”

It said it was difficult to compare health expenditure across the last 20 years on a like-for-like basis, due to a number of significant changes that had taken place. These changes included the transfer of some functions to the Departments of Employment and Social Affairs and the Department of Children and Youth Affairs and the movement of approximately €1 billion of HSE own income off the Vote. Controlling for these changes, it was clear that the Government spend on health had increased substantially since 1997.

That year, the Government spent just over €3.6 billion on Health. By 2017 that figure had more than quadrupled to €15.6 billion. “Investment in healthcare provision has become an increasing priority within overall Government spending over the past two decades. In 1998 Health spending accounted for 20 per cent of Voted Government expenditure. In contrast this proportion has increased to 25 per cent in 2018.”

The report said a range of factors had played a role in driving change in the scale of health expenditure over the past 20 years.

Firstly, the demographic profile of Ireland was markedly different today compared to 20 years ago. Indeed, the overall population expanded by roughly 1.2 million or 30 per cent in this 20 year period. Such a large increase demanded increased levels of resources and impacted on the increase in Exchequer funding being allocated to Health.

Irish life expectancy at birth had improved from 76.1 years in 1997 to 81.5 years in 2015.

Against this, the age profile of the State remained young. Ireland’s older population (those aged over 65) was significantly lower than the EU average at 12.7 per cent of the population in Ireland compared with the 17.5 per cent EU average. This disparity should enable Ireland to spend a lower proportion of resources on health compared to other European States but expenditure in Ireland remained comparatively high.

“A further indictor of expenditure growth is the large increase in health staff numbers. Indeed, staffing levels in the health sector increased by approximately 42,900 or 63 per cent over the period 1997 to 2017. Staffing levels over the last 20 years can be broken into three different cohorts: Pre-consolidation, staffing levels increased considerably by 43,611 FTEs or 64 per cent to reach a peak in 2007 of just over 108,000, adjusted for transfer of functions. This was followed by staffing levels being reduced incrementally to roughly 97,000 FTEs in 2014. Since 2014 there has been a significant increase in recruitment levels with HSE staff numbers rising by 15 per cent.
Another key driver in Health expenditure over the last 20 years was the increasing cost of pharmaceuticals, particularly so in recent years. This cost had fluctuated over the period 2012 to 2017 as expenditure on some schemes decreased from 2012 to 2014 as a consequence of the introduction of a number of measures tightening eligibility and reducing supplier fees before increasing in recent years. From 2014 to 2016, pharmaceutical costs were on a similar upward trajectory to overall health expenditure before the finalisation of the agreement with The Irish Pharmaceutical Healthcare Association.

Turning to outcomes, the report said that as health expenditure had increased over the past two decades, Irish health outcomes had also improved. This was best illustrated by the growth in life expectancy that had occurred over the last 20 years. Irish life expectancy at birth had improved from 76.1 years in 1997 to 81.5 years in 2015.

The rate in 1997 was roughly a year and a half less than the average for the rest of the EU15 of 77.7 years. In contrast in 2015 Ireland’s life expectancy at birth was almost the same as the EU15 average.

“This growth in life expectancy demonstrates that the investment by the Government into the healthcare system has translated into tangible benefits for Irish society. However, given the amount spent on healthcare each year and Ireland’s relatively young population, it may be the case that our standing in outcome indicators should be much better. Indeed, in a number of measures there is scope for Ireland to improve outcomes. For example, based on hospital discharge rates, activity in Irish hospitals is below the OECD average and while the five year survival rates in Ireland for all cancers is improving, we are still below the OECD average in terms of breast cancer five year net survival; 82 per cent compared with 85 per cent.

We are still below the OECD average in terms of breast cancer five year net survival; 82 per cent compared with 85 per cent.

Looking to the future, the report said that improving health outcomes combined with technical advancements and changes in the population demographic profile would influence health spend in the future. Based on recent analysis carried out by the Central Statistics Office, the population of the State was projected to continue to increase out to 2051. The upper range of projections placed the potential population as high as 6.69 million in 2051. Further to this, the age profile of Ireland was also set to continue to alter, with the proportion of the population aged over 65 continuing to increase.

The two demographic factors of an increasing population and an aging society would require more resources from the State, to cover both pay and non-pay costs, to ensure that patient outcomes continued to improve going forward. In assessing this requirement for additional resources, one must take into consideration that there was currently no consensus on the extent to which population ageing necessarily resulted in proportionally higher health expenditure. Therefore, as life expectancy continued to increase, the cost associated with this demographic change would need to be continuously evaluated to ensure the best value for the taxpayer. With regard to pay costs, pay bill pressures would occur going forward as successor pay deals to the Public Service Stability Agreement were established.

Against this, there were also downward expenditure pressures in the health sector. For example, numbers in receipt of medical card provision might decline, as the labour market improved, and further savings on pharmaceuticals would arise from the 2016 agreement with the Irish Pharmaceutical Healthcare Association. Both of these factors would come under pressure as new pharmaceuticals were introduced, and in the event that medical card cover was expanded.