HSE alerted Department of Health to drift on crisis policy

ANALYSIS:Responsibility for key elements underpinning the HSE's service plan reforms lies with the Department of Health

THE HEALTH Service Executive’s budget has been veering off track since the start of the year. However, official correspondence indicates senior HSE management believed there was a sense of drift in the Department of Health in determining policy for tackling the crisis.

Under existing structures, Minister for Health James Reilly and the department are responsible for policy. The HSE operationally manages the health service. The HSE receives the budget – this year about €13.7 billion – and has to draw up a service plan setting out what it will deliver in term of services for this money.

Key elements underpinning the service plan this year were provisions to cut the cost of drugs and introduce legislation to generate additional money from health insurers. The impetus in both of these areas was to come from the department.

The HSE’s finances were also placed under greater strain when more staff than expected left before pension changes came into effect in February. This meant more money had to be paid out in retirement lump sums.

As early as March 2nd, with the budget already €52 million in deficit, the then chief executive of the HSE, Cathal Magee, wrote to the department’s then secretary general, Michael Scanlan, stressing the need to move on measures to increase income from insurers and on a deal with the pharmaceutical industry on drug price cuts.

In late March, Scanlan replied that the promised legislation on health insurance would deliver only about half the income- generation target of €143 million. He said the HSE needed to examine its existing mechanisms for collecting income as by February there was an €11 million shortfall. He also said the deal with the pharmaceutical industry was not the only way envisaged to deliver the drug cost savings.

In April, Magee appeared to suggest health insurers were stalling on payments to the HSE. He also suggested an additional €68 million would be needed to fund the retirement costs.

“Early guidance is now required from the department and the Minister to HSE on funding the projected overruns and service impacts of further unavoidable cost containment measures,” he wrote.

On May 8th, Magee wrote to the new secretary general of the department, Ambrose McLoughlin, stating: “If the HSE is to break even within its current resource, hospitals will need to quickly reduce levels of activity and any delay in implementing demand-led scheme savings and income legislation will require to be compensated for by policy change or further cost reduction. I would appreciate the guidance of the department in terms of addressing these matters as the cost containment measures in place in the HSE are stringent and further cuts will impact significantly upon services.”

On May 14th, McLoughlin replied that a high-level group of officials would draw up proposals for consideration by the HSE board and the Minister in due course. On May 29th, McLoughlin said an independent review of the financial performance management system would be undertaken.

On June 7th, Magee stated that key risks emerging – the retirement costs, the failure to introduce legislation on charges for health insurers and the deal with the pharmaceutical companies – were primarily those flagged in the service plan. He said these “had been named in discussions with the Department of Health through the second half of 2011”.

On June 26th, Magee noted that work was under way in the department to develop a way forward on finances to the end of the year. However, he said this process had been ongoing since March “with no outcome to date”.

“Meanwhile, the financial situation continues to deteriorate and the time-line for correction is now rapidly diminishing.”

On June 27th, McLoughlin said the Government was working to find a resolution.

“In the meantime, I would remind you that, as CEO, you have responsibility and accountability for delivering the national service plan as approved by the Minister,” he wrote.

He concluded by saying the department was doing everything it could, in consultation with the Government, “to resolve the policy issues for which we carry responsibility”.

“I expect that you, in turn, as CEO are intensifying your efforts to fulfil your responsibility regarding the delivery of the service plan.”