Soaring health deficit causing alarm within Government

By the last week in June, officials in the Department of Public Expenditure were worried and wanted answers. The latest health spending figures had just come in and alarm bells were ringing.

"Given the significant overspend this month, we need an explanation as soon as possible," one email sent by officials in the Department of Public Expenditure to the Department of Health insisted.

At that point, the Health Service Executive had reported a financial deficit of €200-€300 million. However, the projections were to get far worse.

The same day as the June figures were submitted, Taoiseach Leo Varadkar spoke at the National Economic Dialogue in Dublin Castle and warned the Government would not be "throwing money" at problem areas.

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He said the €15 billion health budget, one of the highest levels of expenditure on health per person anywhere in the world, was “hard to justify” given Ireland’s relatively young population.

By this point, the increasing health overrun was hampering the ambitious plans of the Minister for Health Simon Harris to overhaul the health service under the Sláintecare reform programme.

In late July, Varadkar warned that an 8.6 per cent increase in health spending this year meant it would be harder to find resources to fund Sláintecare, the 10-year plan drawn up by an all-party Oireachtas committee to reform health services.

However over the summer the financial position in the HSE did not improve.

Worst-case scenario

Last Wednesday the Minister for Public Expenditure Paschal Donohoe advised the Cabinet that the deficit could be €600 million and could hit the budgetary plans of Ministers.

However internally within the HSE the calculations were even worse. Highly placed sources said the view now was the overrun this year could be between €750 million and a worst-case scenario of €1.1 billion.

Spending in the hospital sector as well as on demand-led schemes are understood to account for a significant portion of the projected deficit.

However, there are a number of other important components. In the main these relate to actions taken by health insurance companies which health officials believe are undermining income-generation targets of the HSE.

Department of Health officials in briefing material for department secretary general Jim Breslin in July said the HSE was continuing to report a deterioration in the level of private patient income and pointed the finger squarely at health insurance companies.

“In the course of 2017 and continuing in 2018, private health insurers have engaged in a number of practices that have negatively impacted on private in-patient income generation and collection in the public hospital system.”

In essence, health officials maintained there were two prongs to this initiative.

First, they claimed that insurers were seeking to limit their exposure to charges run up by subscribers to the time the patient signed a private insurance patient form rather than from the date of admission to hospital.

“Insurers have instigated a lookback of all claims since the introduction of the private insurance patient form in 2014 and in cases where the private insurance patient form was signed at a later date than the date of admission, they are clawing back the monies paid for the portion of the patient stay prior to the signing of the form.”

Legal advice

The Department of Health said this practice had been combined with a campaign by insurers aimed at discouraging people who were admitted through a hospital emergency department from using their private health cover. Health officials said the insurers were urging subscribers in such cases to consider remaining as public patients.

The Department of Health has secured legal advice on potential action to combat these actions by insurers. This could include changes to existing legislation.

In addition, the current budgetary projections include a €140 million carryover of a deficit generated by the HSE last year.

Section 10(b) of the Health Service Executive (Financial Matters) Act 2013 provides that if the health authority spends more in one year than officially allocated by the Minister, the excess shall be charged to its income and expenditure account for the following year.

However, the Department of Health told the HSE late last year not to take account of this charge when drawing up its service plan for 2018. The department wanted to wait until the audited accounts were known.

The department now argues that the 2017 deficit and the subsequent first charge for this year at €140 million was higher than it would have expected based on talks it had at the time with the HSE. The department said the HSE’s financial position deteriorated significantly from the level anticipated with additional expenditure being recorded.

Bad debts

It also took issue with the way the HSE distributed supplementary funding provided by the Government at the end of 2017. The Department of Health highlighted in particular the €40 million in bad debts recorded by the HSE.

Ironically, the HSE deficit is close to the level of €881 million forecast by its former director general Tony O’Brien in a controversial letter to the Department of Health late last year.

O’Brien also indicated there were strong doubts that value-for-money savings targets of €346 million – which were a key element in holding together the health budget in 2018 – would be realised in full.

The Irish Times also revealed earlier this year that the Department of Health had clashed with the HSE about how its service plan – detailing how its €15 billion annual budget would be spent – was to be presented to the public.

The HSE wanted to emphasise, in the published plan, concerns that it did not have enough money for services in 2018, while the department objected to such “negativity” and instead wanted it to highlight positive issues such as new developments which were to be funded.

The savings targets underpinning the 2018 budget have not materialised as envisaged so far, although the Department of Health hopes they will have greater effect later in the year.

The likely outcome now is that the Government will have to provide a very large supplementary estimate for the health service towards the end of the year. However, unless there is a change in legislation, the overrun will become a first charge on the 2019 budget.

The HSE last year drew up a service plan in which this charge was not considered. The structures of the HSE are changing and a new independent chair will be appointed shortly. Whether he or she would accept such a similar arrangement remains to be seen.