Paul Mulholland compares healthcare expenditure in Ireland with other European countries and examines the difficulty in assessing the spending requirements for the sector
The Russian author Fyodor Dostoyevsky once wrote that the degree of civilisation attained by a society can be judged by entering its prisons. The aphorism maintains an equivalent truth if the word ‘prisons’ is replaced by ‘hospitals’.
On this basis, the annual overcrowding in emergency departments and long inpatient waiting lists in Irish hospitals may lead one to conclude that healthcare is not being adequately supported at Government level. Yet statistics show that Ireland spends as much on healthcare as many other European countries and that funding for the HSE has increased in recent years with the growth in the economy. So what is the problem?
Good healthcare, of which hospital care is a part, requires investment. However, determining the level of investment and if it is sufficient to meet the needs of a country’s citizens is not straightforward.
The HSE National Service Plan for 2017 provides for a total funding level of €13.912 billion for the delivery of health and social care services this year, representing an overall increase of €458.6 million (3.4 per cent) when compared to 2016.
As part of Budget 2016, the HSE received a total revenue allocation of €12.987 billion to provide health and social care services, which was an increase of €817 million (6.7 per cent) from the previous year.
While the HSE has welcomed these increases, after years of austerity, it still commonly speaks of financial “challenges”. It stated in the National Service Plan 2016 that due to “demographic, regulatory and other service pressures, it is estimated that across the acute and community healthcare service areas there is a substantial financial risk being managed within this service plan”.
The 2017 Plan states that particular management focus will be required to mitigate risk in areas such as “increased demand for services beyond the funded levels”.
It also referred to changing needs and emergency placements in disability services; supporting complex paediatric discharges within primary care; and responding to increasing levels of demand for acute hospital unscheduled care services, among other risks to the delivery of the Plan.
Recently, HSE Director General Mr Tony O’Brien stated that €9 billion in capital spending was required over the next 10 years to replace equipment and improve/maintain service levels across the hospital sector.
A HSE spokesperson told the Medical Independent (MI) that the figure was arrived at following a detailed capital analysis and projection by the Executive’s Health Business Services that was presented to HSE leadership in late 2016.
Obtaining this additional funding could prove a tricky business, even if the economy continues to grow. Funding the health sector involves what the HSE wants and what the Department of Health, and ultimately, the Department of Public Expenditure and Reform (DPER) can or is willing to provide.
The Estimates campaign for the following year is normally initiated by a DPER Memorandum to Government seeking approval for a particular spending strategy based upon the best available economic forecasts of the ‘fiscal space’.
Subsequent to Government approval, DPER issues a circular to all Departments, setting out the spending parameters and commencing the consultation process.
Following submission of a formal Estimates bid to DPER, negotiations then ensue between officials of both Departments, which can often require Ministerial bilateral discussions.
High-level agreement is then reached between Ministers and an agreed funding envelope is identified as available to the Minister for the following year, before the agreed figure is announced by Government on Budget Day.
With the health budget, the HSE’s input into this process is important, but the ultimate figure is agreed with several other competing sectors in mind, such as education and social protection, and is never as much as those in Dr Steevens’ Hospital would desire.
How does Ireland compare internationally? According to OECD figures, Irish spending on health per capita is higher than in most other European and non-European OECD countries, but as a share of the economy, it is not greater than the EU average.
The Department of Health pointed out to MI that in 2015, Irish spend on health per capita ranked eighth-highest out of 35 countries in the OECD, spending over $1,000 more than the average of about $4,000.
System of Health Accounts: A new approach to estimating Irish healthcare expenditure
The Central Statistics Office (CSO) recently changed the manner in which it calculated health spending to bring it in line with other European countries by using the System of Health accounts (SHA). The SHA was devised by the OECD and consists of a set of tables for reporting on healthcare expenditure.
It facilitates the compilation of comparable international data, as well as providing an aid for national policy-making. The approach taken to compiling the tables enables comparability over time and across countries.
The CSO introduced the SHA system in Ireland in conjunction with the Department of Health, as well as the HSE. This new approach to estimating healthcare expenditure in Ireland has resulted in a number of changes from previous estimates.
These include a detailed breakdown of current spending by three classifications (funders, providers and services); while previously only high-level aggregates were reported. The review of Irish data has led to inclusion of a wider range of services in healthcare than previously reported.
The main change is that more long-term care for older people and people with a disability are now included under the definition of ‘healthcare’. The new method now makes it easier to compare Ireland’s health spending with other European and OECD countries.
“Our figures are now more comparable with other OECD countries, which is probably a good thing. Where it causes consternation among people like myself and yourself is in terms of, we were working with one set of figures, now we have our own set of figures — there is a problem in terms of comparability between pre-and post,” commented health economist Mr Brian Turner.
The OECD’s Health at a Glance — Europe 2016 showed comparisons only with other EU countries: Ireland ranked fifth on per capita spend, with only Luxembourg, Germany, the Netherlands and Sweden spending more in 2015.
Mr Gaetan Lafortune is a Senior Economist in the OECD Health Division and was a speaker at the recent Health Summit in Dublin.
“Health spending per capita in Ireland is relatively high compared to OECD countries or EU countries,” Mr Lafortune told MI in advance of his talk.
Mr Gaetan Lafortune, OECD
However, a different picture is presented when looking at health spend as a percentage of Gross Domestic Product (GDP). Using this metric, Ireland spent slightly less than the EU28 average of 9.9 per cent in 2015, with a percentage of 9.4, and that was before the huge revisions in the Irish GDP figure, which occurred in the summer of 2016.
Taking into account the revised and much higher GDP figure, the health spending share of GDP comes down to only about 7.9 per cent in 2015.
Some economists argue that assessing health spending as a proportion of GDP is distortive in Ireland, due to the important role of multinational, foreign-owned companies, which repatriate some of their business incomes back in their home country. They say per capita spend in relation to gross national income (GNI) is a more accurate measure of the relative share of health spending in total expenditure in Ireland.
GDP is roughly equal to GNI plus the income earned by foreign businesses and individuals paid back to their home country, and minus the income from Irish businesses and individuals earned abroad and repatriated in the country.
In most OECD countries, the difference between GDP and GNI is small, with the exception of Ireland and Luxembourg, where GNI is much lower than GDP due to the high amount of salaries or business incomes leaving the country. In Ireland, GNI was about 20 per cent lower than GDP in 2015, which indicates that less income stays in the country than GDP might suggest.
As a share of GNI, health spending in Ireland accounted for 9.9 per cent of the gross national income, which is equal to the EU average.
Which measure (between GDP and GNI) is best to assess the size of health spending in the whole economy?
“It depends on the perspective,” according to Mr Lafortune. “If we take a ‘production’ perspective, it makes more sense to use GDP to measure the size of the health sector (in terms of production of goods and services) in relation to the whole economy. But if we take an ‘income’ or ‘consumption’ perspective, it is legitimate to use GNI.”
Historical spending cuts
Given Ireland’s healthcare spending is at a similar level to many other developed countries, at least according to some metrics, why does the system experience access difficulties, such as emergency department overcrowding and long waiting lists?
One of the reasons, according to certain health economists, is due to the Government’s failure to make up for historical under-investment in health. University College Cork (UCC) health economist Mr Brian Turner pointed out to MI that OECD figures show that Ireland has 2.7 doctors per 1,000 population, compared with an OECD average of 3.3 (and a particular shortage of specialists) and 2.8 hospital beds per 1,000 population, compared with an OECD average of 4.8 (OECD, 2015).
Mr Turner said Ireland would need an additional 2,800 doctors and over 9,000 additional hospital beds in order to reach the OECD averages.
Mr Brian Turner, UCC Economist
Health inflation: adjusting health spending growth for inflation
Health spending per capita in Ireland has fluctuated widely over the past 10 years, going up before the financial crisis, then down in the years after the crisis, and now up again.
“In looking at the growth rate over time in health spending in a country like Ireland (but also in other countries), it is useful to measure ‘real’ health spending growth rates, that is, adjusting for inflation,” said Mr Gaetan Lafortune, Senior Economist in the OECD Health Division.
“Different types of inflation measures can be used to adjust health spending growth for inflation. At the OECD, we are generally using an economy-wide measure of inflation — what we call the ‘GDP deflator’. One alternative would be to use the consumer price index. If one wants to analyse more specifically whether the health spending growth has been mainly driven by price changes in the health sector or by the volume of health goods/services consumed, then one can also use a ‘health-specific deflator’ (ie, price changes related only to health services and goods). However, such health-specific deflators are less widely available than broader GDP deflators across EU and other OECD countries, which is why we tend to use more GDP-wide deflators for the time being to adjust health spending growth for inflation.”
“There was a huge under-funding of the Irish health system in the late 1980s/early 1990s for roughly about a decade,” Mr Turner said. “We never really fully recovered from that. We didn’t really over-spend to compensate for a decade of under-spending. So, okay, it might look like we are spending sufficiently now, but the under-spend in the late 1980s/early 1990s is still being felt. For example, we have fewer hospital beds; we have about 3,000 fewer hospital beds now than we did in 1980, despite the fact that our population has increased by a third since 1980 and our over-65 population, which would be more likely to use hospitals, has increased by two-thirds. Our system is under-resourced and that has implications in terms of waiting lists and emergency departments.”
Mr Turner said that the Government has never spent enough on healthcare to compensate for the cuts in the 1980s and 1990s.
“If you look at the resources in the system, you can see the legacy of the under-spending in the 1980s and the 1990s, particularly in terms of hospital beds, and we have such a shortage of hospital beds, so we need to be realistic in our expectations of what we can achieve, given the resources,” Mr Turner stated.
“We really need to spend significantly more if we want to bring our resources to the level where we are more comparable with the OECD. So we need to look at health spending relative to the OECD but we also need to look at it in the context of resources, relative to the OECD.”
Mr Turner’s argument is supported by the statistics. In Unhealthy State: Anatomy of a Sick Society, Ms Maev-Ann Wren recounts the “savage cutbacks” that took place during the economic recession in the late 1980s, when Mr Rory O’Hanlon was Minister for Health. Two years after the 1987 election, which resulted in a Fianna Fáil minority government, public spending on health had dwindled to 6.7 per cent of national income, having been close to 8 per cent between 1980 and 1986.
Ms Wren pointed out that other EU states were spending on average twice as much as Ireland on the health of their citizens. The effect of these spending cuts on health services was detrimental. During Mr O’Hanlon’s first term as Minister for Health, 3,244 acute beds were cut, a 19 per cent reduction, while a further 13 per cent reduction took place under Fianna Fáil ministers up until 1993. Over the next decade, despite population growth, the number of beds remained almost static, rising only slightly from 11,809 in 1993 to 11,985 in 2003.
The health cuts also resulted in a steep increase in the number of people who did not want to wait for a hospital bed, taking out health insurance.
‘There was a huge under-funding of the Irish health system in the late 1980s/early 1990s for roughly about a decade’
Mr Stephen Kinsella, health economist at the University of Limerick, also locates the problems experienced by the Irish health system over the last number of decades in a lack of historical spending, but traces the issue further back than the 1980s to the very establishment of the health system.
Although he agrees that access problems have been particularly stark for the last three decades at least, Mr Kinsella pointed to the decision by the then newly-created Department of Health in 1949 against creating an NHS-type system as the reason for the lack of a national, unified approach to health. Mr Kinsella said our awkward two-tier system, with a mix of public, private and voluntary hospitals, has hampered investment, in particular capital investment, which would have helped introduce additional, and necessary, capacity into the health service.
“The problem is, there is a distinct lack of cumulative investment, or capital investment, and you see this in terms of service development — you see it all over the place, and in particular you see it in the way the system works,” Mr Kinsella told MI.
“Take the maternity hospital in Limerick as an example. If you were a child and you were likely to be born in this area in 1951, you are getting born in that building. If you are born in 2006, like my child was, you are getting born in that building. The building is the same. The difference is, technology has slightly advanced. We have, for example, new ICU units (helping) premature babies to stay alive. The stock of capital has been the same, but the number of children and the number of mothers has gone through the roof. So the system is barely able to cope. On the other end of the spectrum, there are lots and lots of older people, but the system hasn’t had any sustained investment for a long time. All the extra money that has gone into the system has gone into pay and non-pay.
“There are fewer hospitals and fewer beds. It is not surprising. I am surprised that people are surprised every year. We should get 2018 excuses and apologies ready now.”
Minister for Health Simon Harris recently announced that a bed capacity review was underway to examine the issue. The Department also points out that healthcare spending has drastically increased over the last two decades.
“Health sector resourcing has grown enormously since 1980,” a spokesperson for the Department told MI. “Furthermore, reductions in spending in the years after the financial crisis have now been reversed and health expenditure levels in 2017 will be the highest in the history of the State.”
Assessing health spending
Fluctuations in GDP or GNI can give rise to situations where ratios of health spending increase in recessions, if the economy contracts at a faster rate than expenditure, even when the flat amount of expenditure has decreased. Similarly, an unexpected economic surge can make the health spend ratios shrink if the budgets are based on more conservative predictions.
Ireland’s large private health insurance market also helps in international comparison tables as the OECD considers private/voluntary spend in addition to Government spending.
According to Mr Lafortune at the OECD, it is extremely difficult to determine whether or not a country is spending a sufficient proportion of its budget on healthcare. While comparing spending with other European and OECD countries is helpful, it is not a ‘gold standard’ in calculating the necessary amount to invest in healthcare.
“Health spending needs to be funded,” said Mr Lafortune. “It needs to be funded by either Government or by people themselves. But the general idea is if you are going to spend money on health, this means you are not going to spend it in other areas, you are not going to spend it in education, transport and other public goods. There are the marginal benefits of spending on health compared with other sectors. And then if you are going to spend more on health, the benefits of the spending should exceed the cost. So what you need to do is reduce, to the extent you can, inefficient spending. You should try to get rid of this; by ‘inefficient’ or ‘wasteful’ spending, we mean spending that does not bring any benefits to patients. You should eliminate this. But then after that, it is a very hard judgement call to say whether or not the country is spending not enough or too much.”
Mr Lafortune spoke positively about the support of the Oireachtas Committee on the Future of Healthcare for a shift away from the hospital system towards providing more services at primary care level. Such a move can garner efficiencies in terms of treatment and cost.
“The amount of spending on hospital care and pharmaceuticals in particular is high, so if there are some efficiency gains that can be achieved, these are also areas to look at,” he said.
Such a reorientation of resources is likely to require time to take effect. Significant additional resources of the magnitude needed to bring more beds and health professionals into the system is also unlikely to occur in the short term. Yet the €9 billion figure proposed by Mr O’Brien to maintain and improve services over the next decade shows that the upper echelons of the HSE know significant investment is needed to address many of the health service’s problems.
It is not a new argument. In 2001, Deloitte and Touche (now Deloitte) was commissioned by the Department of Health to study the issue of value for money in the health service. The subsequent report, Value for Money Audit of the Irish Health System, found that Ireland’s per capita expenditure on healthcare was low by international standards and that significant additional funding was necessary in order to raise the capability of the health service.
The 2001 Health Strategy stated the health service needed a further €7.6 billion in capital investment over the following 10-year period, in addition to €2.5 billion already allocated in the National Development Plan.
According to the targets in the Strategy, expenditure would need to rise by €5 billion annually by 2011. If the Strategy, which planned a major increase in bed numbers, was to be fully implemented, health spending as a ratio of GDP was also to have risen to 12 per cent, according to Ms Wren. The financial crash made the targets set out in the Strategy unachievable.
Despite recent economic growth, it will undoubtedly be a great challenge to improve the health infrastructure to an adequate level, while simultaneously allocating additional resources into primary care. However, it is a challenge the health service will have to rise to, sooner or later, if we are to see an end to chronic overcrowding and long waiting lists.