Where is evidence that we are over-spending on health?

It is a widely held belief in many policy circles that Ireland overspends on health and there are large inefficiencies within the system. Yet what is the evidence for these claims?

The answer is complicated by many factors, including the age structure of the population, its geographic spread (many health centres and hospitals in more dispersed populations cost more in per capita terms), the complex interplay between public and private sectors, and what gets counted as health according to international statistical rules.

Changes in the accounting methods used, for example, have seen a great deal of spending formerly classified under social protection incorporated into health expenditure estimates under the new system of health accounts from OECD/Eurostat, increasing reported spending.

Moreover, what ultimately matters is health outcomes rather than spending itself. These outcomes are influenced by diet, lifestyle, education information, medical staff numbers and even economic inequality. However, resources clearly do matter, and the availability of highly qualified and experienced staff as well as timely access to screening, diagnosis and intervention does save lives and improve health outcomes.

On a relatively simple comparison of total spending (public and private) relative to GDP (the total available income in a country) the Republic of Ireland is not much different from similar EU countries.

Curiously, commentators who claim that Ireland overspends on health choose to focus, for this purpose alone, on spending as a percentage of gross national income instead of GDP. This is in spite of the fact that all of income counted in GDP is taxable and therefore relevant to public spending (that taxable profits are repatriated is a choice of enterprises just as the intentional targeting of direct inward investment by means of low corporate taxes is a domestic choice).

Differences

There are significant differences between countries when it comes to the share of private spending. The Republic is one of those countries where a combination of private health insurance payments, “out-of-pocket” health spending and GP costs make up a significant amount of overall expenditure.

The breakdown of spending by health function may point to areas that could be reformed. Specifically, Ireland appears to be an outlier in terms of expenditure on “pharmaceuticals and medical non-durables” and what the OECD/Eurostat classify as “day rehabilitative and curative care”. The latter category is defined as “services delivered to formally admitted patients in a medical facility for treatment for the purpose of treating an ailment or improving healthy functioning with the intention of discharging the patient the same day”.

While these comparisons may be imprecise due to definitional differences between countries, they are broadly indicative. The cost of medications has been described by one commentator as similar to the Third Secret of Fatima. Why are prescription charges in Dundalk between double and treble the cost of prescription charges for the same medications in Newry?

The European Commission, in a recent report, noted that "authorities seem reluctant to activate their pricing powers gained under the Health (Pricing and Supply of Medical Goods) Act" . While some progress has been made curtailing costs, tough choices may be necessary in relation to monopoly suppliers.

The area of “day curative rehabilitative care” listed above is significant because the Republic suffers from a lack of investment in primary community care. Far too many people end up in hospital for too long because of a lack of “step-down” or community-care facilities where health needs are best provided.

Why is spending on “day curative rehabilitative care” relatively high in the here? Could more investment in primary healthcare make a difference? This is only part of the picture but an important one.

Other areas of possible cost-reduction include streamlining of services and a greater role for health professionals in driving innovation.

There is no evidence that spending on administration is higher here than in other countries. Administration absorbs around 3 per cent of public spending and is close to the EU average.

Dramatic cuts

While efficiencies and savings are possible we need to be mindful that the health service has endured dramatic cuts over the years of austerity to a point where key services have broken down.

Many priority areas such as mental health services, preventative and community care as well as school dental services remain underfunded.

This has costs elsewhere within the system as well as in the long-run. Fiscal austerity has proven hugely costly to us today and for a future generation.

More spending on preventive care (where we spend less than other similar countries) as well as mental health services and community healthcare will require more money. We need to invest more in health but we need to spend more wisely.

A move towards a universal health service based on need rather than ability to pay could free up consultant resources and refocus on key areas of need. The elimination of the two-tier system may not simply make for a more equitable service – it may also reduce spending. Health spending should be seen as an investment in the wellbeing of all of Ireland's citizens. Paul Goldrick-Kelly is an economist with the Nevin Economic Research Institute and Tom Healy is the director of NERI