Do hospitals need more money or do they need to be more efficient?

In its confidential submission to Government on its funding requirements for 2016, the Health Service Executive said the country's public acute hospital system needed investment of more than €465 million next year, along with an additional 1,821 staff.

It argued existing hospital budgets were underfunded, taking account of cumulative spending cuts over recent years, as well as increases in demand, growing waiting lists and demographic pressures.

Across the health service, the Department of Health says about €200 million in additional funding is required annually to cater for an ageing population.

The full details of the budgets for hospitals for 2016 will emerge only with the publication of the HSE’s service plan, its legal agreement with the Government on how its €13 billion allocation is to be spent.

It is highly unlikely the HSE’s spending wish list will be met in full.

The picture is compounded when the implications of new EU budget rules are taken into account. These would appear to rule out the possibility of further supplementary funding coming on stream later next year.

However, a number of weeks ago there emerged within Government, a counter-narrative to the argument that more money was needed, suggesting greater efficiency could be realised in the hospital system.

A report drawn up by the Department of Public Expenditure and Reform maintained hospital costs in Ireland were extremely high by international standards.

This report also seemed to take issue with the idea the ageing population alone should automatically trigger large-scale spending increases.

Dissenting commentaries

The Department of Public Expenditure and Reform document prompted strong criticism from the HSE and the Department of Health, both of which have produced dissenting commentaries.

The Department of Public Expenditure and Reform argued costs in Irish hospitals were 80 per cent higher than the EU average.

It acknowledged unit costs had fallen by about 10 per cent since 2009, but appeared to suggest this was primarily due to cuts in pay, which were centrally negotiated across the public service.

The department said its findings were based on a report drawn up by the OECD in 2014, which looked at the prices for a number of comparable treatments, making adjustments for how costs were calculated in different countries.

The OECD study looked at a range of costs, including laundry, patient food, cleaning, security, staff salaries, drugs and medical equipment. It contended that as hospital costs in Ireland were high by international standards, available resources should be concentrated on those with the most activity as measured by, for example, patients treated or procedures carried out.

“The cause of the identified high cost base needs to be understood so that further mitigating action can be pursued.

“In 2016, the Department of Health and HSE should pursue a workstream aimed at identifying the components of hospital spend, with a view to explaining where costs are incurred.”

It said this should include costs related to private work carried out in public hospitals by doctors, costs related to teaching and those stemming from diseconomies of scale.

Hospital activity

The Department of Public Expenditure and Reform argued that “pure demography is not a reliable predictor of hospital activity as resources are concentrated on a relatively small group of people within each age cohort”.

“Ninety per cent of people (and over 80 per cent of people aged over 70) do not experience an inpatient admission in any given year. Of those who do, the Department of Health estimate that 10 per cent of inpatients account for 50 per cent of acute hospital bed days,” it says.

Data in its report showed while the number of people aged over 85 increased from 29,813 in 2011 to 32,738 in 2013, the number of discharges from hospital among this age cohort rose from only 6 per cent to 7 per cent.

The department maintained activity was only one factor driving hospital costs. It said 65 per cent of cost was regarded to be independent of activity.

“Cost trends at hospital level vary greatly. Larger hospitals seem better able to generate activity from available funds.”

It said in 2014 the top 10 largest hospitals increased their activity by an average of 2 per cent with a 1 per cent increase in funds. However, it said the 15 hospitals with the largest reduction in activity “demonstrated an average fall in activity of 13 per cent with an increase in expenditure of 5 per cent”.

Misleading

The HSE strongly disputed the department’s findings in a response document. It described the findings on hospital costs, based on the OECD report, as “misleading”.

“Countries such as Bulgaria, Lithuania and Albania are included in that average. Clearly Ireland is not comparable in terms of standard of living to these economies,” the HSE said.

“In a sensible analysis, outliers such as this would be excluded from the calculation of the average, which would not place Ireland 80 per cent higher.”

The HSE said its officials had “recently met a physician from Lithuania who was earning €20,000”.

The Department of Public Expenditure and Reform had presented “a very dislocated view of the relationship between cost and activity”, according to the HSE, which maintained expenditure did not always change in line with activity.

It said additional spending could relate to new medical technologies that improved patient outcomes.

It also said issues such as energy, infection control, new drugs and incremental pay rises could influence nondiscretionary expenditure.

“Equally, hospitals can sometimes deliver increased volumes of activity by reducing length of stay or delivering other efficiencies which grow volume without growing cost.”

Larger centres

The HSE appeared to contend that concentrating resources in larger centres where more activity was carried out – as suggested by the Department of Public Expenditure – could have implications for smaller hospitals.

In a draft paper drawn up in mid-November, the Department of Health said the Exchequer was deriving better value or money from its expenditure on the acute hospital system.

It said spending in this area was below 2008 levels in gross and net terms, that there had been a significant increase in the volume of activity and that the level of complexity associated with that hospital activity had also risen.

The Department of Health maintained efficiency in the acute hospital system had improved significantly.

In 2016, with hospital spending issues again likely to come to the fore, expect to hear more of these arguments about costs and efficiencies.