The hole in the HSE’s pocket

The serious financial overrun in the Health Service Executive poses significant problems, not just for the health service but for the Government’s overall budgetary arithmetic.

Assessing the HSE’s financial position at any one time and determining where it is heading can be very difficult given the often opaque nature of the level of data made publicly available.

The HSE’s monthly performance reports give some details about its financial position. However, these documents tend to be several weeks out of date and are by no means comprehensive.

For example, while Ministers are given specific financial projections for the health service based on current trends, these are not provided to the public. References to corrective actions being planned are rarely spelled out in a way that would facilitate an assessment of whether they are likely to be achievable.

None of this is accidental.

Last summer The Irish Times revealed an official letter to the Department of Health from the HSE, in which its director general, Tony O'Brien, suggested a "significant streamlining" of the often embarrassing information it published about waiting lists and financial overruns in the health service.

As part of this, he asked the department’s secretary general, Ambrose McLoughlin, which information the department wanted included in monthly performance reports, which are published online, and which information should be sent directly to the department.

Based on the available figures, it is clear the HSE is facing a significant deficit in its hospital sector, will have to deal with overspending in its demand-led schemes and, at the same time, is not generating the levels of cash savings anticipated under the Haddington Road agreement on pay and productivity.

That the HSE is facing serious financial difficulties is not particularly unexpected.

And while medical-card holders gain from last week’s announcement that the Government will no longer review discretionary cards, other health service users will ultimately have to pay for it. More than €600 million is being taken from the health budget this year, on top of €4 billion in cuts and savings made in recent years.

Spend more

The only way to ease the pressure on the service and provide more entitlements is to spend more. And that, because it would need higher taxes, is politically impossible.

The body language of senior health figures after the announcement of the budget last autumn signalled they feared there was insufficient money available.

At the same time it is clear the Department of Public Expenditure and Reform believes that the HSE is simply not making the best use of the saving mechanisms set out in Haddington Road.

After the publication of the HSE's service plan for 2014, The Irish Times reported that there was a hole of €108 million in the health budget that was originally intended to be filled by money produced from unspecified pay savings

This was in addition to a separate target of €290 million in other pay savings under Haddington Road.

However, it was never fully clear how this €108 million was to be realised and it was evident, from the start, that senior health officials were sceptical about it.

A consultant's report, commissioned by the health service, forecast in April that these savings could not be reached and finally, a fortnight ago, Minister for Health James Reilly formally killed off the initiative and said it was unattainable.

New proposals

Apart from this €108 million, the HSE has also been experiencing difficulties in realising in full the €290 million earmarked under Haddington Road.

The consultant’s report forecast that only €212 million would be generated although management has now put forward new proposals such as changing staffing ratios in the disability and elderly care sectors, from the 60:40 nurse-support staff ratio to 40:60 in a bid to bridge the gap.

The Haddington Road deal was seen as crucial in allowing the HSE to live within its budget this year. Under the accord, thousands of staff were obliged to work longer hours. Nearly five million gross additional hours were to be provided under the deal and, in theory, these could be used to scale back on the hiring of more expensive staff from employment agencies as well as to make up for a shortfall in staffing due to the large number of departures in recent years.

However, the HSE told the Government last month that not all of these additional hours could be converted into cash savings. About 2.9 million of the additional hours were being used to deliver increased productivity such as more flexible working practices, extended opening hours and expansion of services. It said work was being undertaken to determine “whether any of these productivity gains can be refocused to ensure an appropriate balance between releasing cash and productivity”.

Some senior managers have also maintained that while additional hours were being worked by staff, these were not always being configured in a manner which would reduce the requirement for agency staff. In some areas, particularly in relation to doctors, the bill for agency personnel has gone up, not down.

Success in realising savings under Haddington Road is seen as crucial given that in the first quarter the HSE ran up a deficit of more than €80 million, which is about €50 million more than for the same period last year. More than €63 million of the deficit in the first quarter was generated in the acute hospital sector.

Stiff warning

Last week this newspaper reported that the national director of the acute hospital sector, Dr Tony O’Connell, had sent a stiff warning to managers about the need to improve cost control.

When O’Connell was writing his letter, he undoubtedly had sight of later figures, for April. On the basis of his stern comments, these must have presumably shown a deterioration over the March returns.

O’Connell said: “Hospitals are running at unsustainable levels and are trending at 6 per cent above allocation and 2 per cent above 2013 levels, despite the significant enablers within the Haddington Road agreement to reduce pay and pay-related costs.”

Even with tighter spending controls in the months ahead, it seems certain that the HSE is going to have to receive further supplementary funding before the end of the year. Despite the Government warning every year that there will be no supplementary estimates provided, this is now a common feature. Last year €200 million had to be provided.

However, the danger is that the greater the overspend in health this year, the more any tax buoyancy will be eaten up, thus reducing the scope for tax cuts or other giveaways in the budget in October.