Economics Editor Marc Coleman dissects the problems facing the health service, as Budget Day nears
Ireland's health service is sick and remains so in spite of rocketing health expenditure since the late 1990s. Long waiting lists, needless patient deaths and poor hygiene are just some of the symptoms. Doctors of a different kind - doctors of economics and accounting - have been drafted in to diagnose the disease and prescribe a cure.
But their good advice has usually been ignored in favour of the politician's preferred self-remedy. Spending on the sector rose by about €1 billion this year and next Thursday's estimates of public expenditure are likely to confirm a similar increase for next year. The cost of compensation for nursing home charges will slap another €1 billion on top of that. But like the 18th century solution of bleeding the patient, the more you use it, the worse the patient gets.
What the Irish health service is really suffering from is not underfunding, but a bad bout of Baumol's disease. This is the name given by economist William Baumol to a recurring disorder - also known as benchmarking syndrome - that affects the public service around the world.
The disease is contagious and proceeds in several stages: higher productivity leads to economic growth in the private sector of the economy. This puts more work pressure on less-productive organs of the public sector.
Income circulation in the private sector starts to rapidly exceed that in the public sector. Public sector staff are overcome with feelings of demotivation, while their unions experience acute palpitations. Politicians then experience intense cravings for increased spending, especially near election time.
The right response to this ailment is to first engage in surgery that raises productivity, and then commit resources. The Brennan and Hanly reports have prescribed the surgery needed for greater efficiency and productivity in the sector. But politicians are averse to blood and only one half of the cure - a massive transfusion of public funds - has been prescribed. The sad result is a form of institutional constipation; a large flow of resources flowing into the system, but very few results flowing out.
The Brennan report (after doctor of accounting Niamh Brennan) provides evidence of the syndrome. Between 1997 and 2002 public health spending rose by 125 per cent and staffing levels rose by 45 per cent. But inpatient discharges rose by just 4 per cent while the number of inpatient beds rose by just 3 per cent.
As well as highlighting waste in the system, the Brennan report went on to outline reforms that would improve its efficiency. It was opposed by those who have a strong interest in the sector remaining as it is. Many still maintain that spending on health in Ireland is too low. The argument has often been made that if Ireland's health spending is divided by gross domestic product (GDP), the result compares poorly with Germany, France or Sweden.
This is a spurious use of statistics. The first is that Ireland's GDP inflated by about 20 per cent due to the phenomenon of repatriated profits of multinational activity. These do not contribute to the tax revenues that must fund the health service. A more appropriate denominator for health spending is gross national product (GNP). It reflects income owned by Irish residents, rather than income generated within the state. It is therefore a more reliable measure of the tax base that we can use to fund our health system. Whereas in most countries GDP is equal to GNP, in Ireland it is one-fifth higher and this seriously distorts many statistics that are based on GDP. The second flaw is that Ireland's population is among the youngest in the OECD. Health spending is particularly sensitive to the burdens of an ageing population.
The table, to the right, compares key metrics to contrast Ireland's overall health performance with that of the free market US and interventionist France. Ireland's share of health spending as a share of GNP is only about 1 per cent lower than that of France which, according to the UN, has the best standard of healthcare in the world.
The older age profile of France's population and the fact that the French are looking at ways of reducing their healthcare expenditure, shows that our overall level of health spending is not deficient. Neither are we deficient in terms of nursing staff of which we have more per 1,000 of the population than any other OECD country, and twice as many as in France, the country adjudged to have the best healthcare system in the world.
It's not how much we spend, but how we spend it, that matters. For instance, the number of acute beds per 1,000 of population in Ireland is only half of that in France despite similar shares of health spending as a percentage of GDP.
There are three dimensions to this problem. The first is a distribution of resources that is dysfunctional, both in regional terms and in terms of insufficient resources being provided to primary care. The second relates to the management of resources and staff within hospitals, and the Department of Health. The third issue relates to the way in which the public and private elements of the health service interact with each other.
The first problem - dysfunctional resource allocation - is not all the fault of the health service. Ireland has a unique spatial distribution of population. Coupled with the sensitivity of Government policy to localised political pressure that is inherent in our electoral system, this has led to the policy of having a hospital at every street corner.
The Fitzgerald report of the 1970s and the Hanly report in the 1990s identified this problem and urged a greater centralisation of services at regional level. But political resistance, which resulted in the election of independent TDs running on health platforms, put paid to this and local lobbyists strongly defend the persistent existence of services at local level that have no medical or economic rationale.
The tragic death of Patrick Joseph Walsh last month would seem to indicate the need for hospitals around every corner. In reality, the failing was a lack of beds. In Australia some of the catchment areas for healthcare provision are as big as France, but proper use of technology and competent regional health policy management means that tragedies of this nature don't happen there.
Another failing of the service is dealt with in the Prospectus report 2001 Primary Care Strategy. It points out that the burden on hospitals could be greatly reduced by increased recourse to GPs. The fact that GP services have to date not been covered by private insurance policies may be one obstacle. An absence of availability and co-ordination among GPs in local areas may be another.
Managerial issues also confront the service. There is a lack of information on the costs of individual patients and of the running of hospitals which hampers efficient allocation of funds.
The case mix approach is a good remedy for this. It breaks down hospital operations into categories of patient treatment by how costly they are. Hospitals engaged in more costly activities can have their desirabled budgets increased accordingly, and vice-versa.
At present the system has limited application in determining desired budgets and in compensating hospitals that are efficient and charging those that are inefficient. The full application should be pursued.
The final issue is a thorny one and relates to the balance between public and private elements of the system. At present, hospital consultants are paid by the State but can work in the private sector as well. The fact that the number of hours undertaken in public work is not fully monitored creates a strong incentive for them to work in the more lucrative private beds.
The unavailability of consultants is a serious bottleneck in many areas of the public health service. Arguably their contracts should either preclude them from private sector work orat least the hours they work should be thoroughly monitored.
A further issue here is that beds in public hospitals are made available for private use, but the private users are not fully charged for this use. The result is a socially regressive system of healthcare where, perversely, the rich pay less for healthcare than the poor and the taxpayer - who is taxed to fund those who cannot fund themselves - ends up subsidising private care. The Budget may see the announcement of increased charging for private use of public beds.
Most of the problems facing the health service boil down to a lack of linkage and control between resources used and targeted outputs. The creation of a single national health board is just the start of badly needed precision surgery. The scalpel needs to remain in use for several years to come. The next round of benchmarking pay awards could be used as a local anaesthetic for any squeamish patients.