HSE cutbacks triggered by €350m shortfall

The HSE privately told the Department of Finance earlier this year that its financial difficulties, which led to cutbacks in recent months, were due in part to a shortfall of nearly €350 million in funding.

Up to now the HSE and the Government have said that funding problems in the service were due to higher than anticipated expenditure on drug schemes and increased numbers of patients attending hospitals.

The financial problems in the health service led to a budget overrun of more than €200 million in the first seven months of the year.

However, in a confidential report to the Department of Finance in early summer, the executive said that it had previously warned of a €342 million shortfall in revenue from the Exchequer for the year.

"The HSE is covering the cost of demand-led drug schemes (such as the €85 per month for families' medicine) within its global resource and this is a major factor in the mix of expenditure. In 2006 expenditure on these schemes was €112 million (16 per cent) beyond funded levels and this is currently up to €144 million in 2007. Commitments of this magnitude do impact on the timing of developments," the report noted.

It added: "[ Furthermore] we flagged that globally the HSE is underfunded by €342 million in the estimate for 2007 if it is to maintain the existing level of service. We are seeing the impact of this."

The Department of Health subsequently informed the Department of Finance that while the executive had indicated initially that funding could fall short by up to €350 million, it had also said that this amount could be made good by, for instance, value for money initiatives within its existing budget.

In September the executive announced a series of controversial cutbacks. These included a temporary recruitment embargo and a ban on the employment of agency staff in an attempt to reduce its financial overrun. The recruitment ban was later relaxed to enable hiring of essential personnel.

However, health sector trade unions have strongly argued that the measures have affected patient care.

The HSE report forms part of a correspondence which shows that Department of Health and Department of Finance officials were discussing reductions in spending as early as last May, within days of the general election.

On May 8th, 16 days before polling day, the Department of Health informed the Department of Finance that the executive had overspent its budget by €126 million.

On May 25th, a day after the election, a senior Department of Health official told the Department of Finance: "Clearly current spending levels need to be reduced, this may well affect services?"

Moreover, at the end of May the Department of Finance posed questions to the executive which included whether there would be a reduction in the level of services provided. The HSE responded that hospital networks were being asked to make savings of €100 million or 2.3 per cent of budget.

"Measures will in the first instance be targeted at cost reductions in areas which will not impact patient care. Calibrating the implementation of new developments will be a factor and ultimately, some service impact may be required, particularly where services have exceeded planned levels," it stated in a report to the Department of Finance.

The internal correspondence reveals that at the end of May, at which time the HSE overrun had reached €138 million, officials of the departments met with health service management to discuss strategy for dealing with the problem.

On May 30th Minister for Finance Brian Cowen was told by his officials of the growing financial difficulties in the HSE.

The Department of Finance told the Department of Health that it had advised Mr Cowen of the main figures for the end of year position.

"We also pointed to the need for ministerial oversight of any measures the HSE might propose to take before they are implemented," the Department of Finance stated.

Shortly after their appointment in June, Ministers in the Department of Health were advised by officials that the HSE overspend could reach €400 million without remedial action.