Since 1998 health spending has more than doubled yet beds are still beingclosed. Emmet Oliver reports

Another week, another crisis. Hospitals, particularly those in Dublin, seem in a permanent state of turmoil. The winter vomiting bug. Nurses strikes. Industrial action by junior doctors. Funding shortfalls. Bed closures.

It is sometimes difficult to judge whether hospitals specialise in patient care or crisis management. This week the five Dublin academic teaching hospitals - Beaumont, St James's, St Vincent's, the Mater and Tallaght - warned of a new crisis, once again involving that most precious of commodities, the hospital bed.

They warned that due to adverse financial adjustments they would have to reduce their activity and treat 14,000 fewer patients than they treated in 2002. They said this would mean the closure of at least 250 beds in the Dublin area.

The five hospitals claim funding, which comes to them via the Eastern Regional Health Authority, is going to be practically unchanged this year from 2002 at about €871 million.

The Department of Health and the Government see things a little differently and the Tánaiste, Ms Harney, this week said the hospitals would have to live within their budgets. The Minister for Finance, Mr McCreevy has previously described people who cannot live within their budgets as numerically challenged.

Whatever about the mathematical ability of hospital chief executives (some of them happen to be accountants), it is going to be tough to remain on budget if you study the previous financial records of the five Dublin hospitals and the rampant inflation they have to deal with.

While nobody expects hospitals to operate like fully-fledged commercial businesses, the accounts do give a sense of the financial chaos afflicting most of the hospitals, with income normally only a small percentage of expenditure at each one.

But should hospitals be running such large deficits each year and have to cut back on beds when they received such enormous funds over recent years?

In 1998, the State was spending just over €4 billion on non capital expenditure in the health service, but this has risen for 2003 to €8.9 billion. This represents an increase of about 121 per cent in gross non capital expenditure over that period.

Yet beds are still being closed and people are still being treated on trolleys. So where does all the money go?

According to Prof Miriam Wiley of the ESRI, one-third of the extra money of recent years went on pay settlements.

Crucially, she estimates that across the health sector, two-thirds of each euro spent goes on salaries, overtime, pensions and related provisions. Thanks to benchmarking, further increases have entered the system.

So immediately, the potential pot of cash for direct patient provision is drastically reduced. Take any hospital and you can see the scale of staff costs as against direct patient care costs.

At Beaumont Hospital staff costs in 2001 (few of the hospitals have released accounts for 2002 yet) came to €125 million, while the money spent on direct patient care came to €27.7 million. The pay bill for doctors alone was almost €10 million more than the total amount for direct patient care services.

The pay bill for the whole hospital sector stands at the moment at over €5.5 billion a year, it accounts for nearly 40 per cent of the total exchequer pay bill.

The chief executive of the Health Services Employer's Agency, Mr Gerry Barry, has recently pointed out that the nurses pay dispute added between 25-30 per cent to the nurses pay bill.

There have also been pay settlements with junior doctors, paramedical groups, occupational therapists, physiotherapists and social workers. It all costs money, says Prof Wiley. Agreements covering overtime in recent years have been generous according to some observers and this has pushed the pay bill even higher.

So there is little that can be done on the pay side, but are hospitals under pressure elsewhere?

Medical inflation is running at 10 per cent, so the budgets of the hospitals must increase by this level at least each year. One can only imagine what other sectors of the economy would do if they had to cope with a 10 per cent inflation rate.

At local level drugs and medicine are becoming a major cost for hospitals. Beaumont spent €10.3 million on drugs and medicine in 2001, St James's spent € 5 million. Inflation in this area is considerable, for example St James's spending on drugs rose by 33.7 per cent in 2001.

Carrying these increases is not easy and the way hospitals work means keeping a lid on them is virtually impossible. "Consultants are able to order a certain drug if they want, to stop them would be an interference in clinical practice, so it cannot be done," claims one hospital administrator.

Most people would argue that newer and more effective drugs should be ordered, whatever the cost. But with one patient last year having €4 million spent on him, getting the drugs a little cheaper might help.

"We tend to have to go through local agents and companies and that can be far more expensive than ordering them directly via the UK or Europe," said the administrator.

The people managing hospital budgets claim that drugs sourced via Irish suppliers are 10 to 20 per cent more expensive than drugs bought directly in Europe. But when contacted big drugs manufacturers tell hospitals they have to deal with local suppliers and cannot buy directly. However, a central purchasing unit called the Hospital Procurement Services Group has managed to cut some of the drugs costs down.

The accounts of St James's also show that sourcing blood products is also hitting the bottom line of hospitals. In 2001, spending on blood and blood products came in at €35 million and the hospital's annual report said this "represents nearly half the non-pay expenditure on direct patient care for the hospital".

Recently, the Public Accounts Committee looked at this cost area. A meeting heard that the price charged by the Irish Blood Transfusion Service (IBTS) for units of blood collected from voluntary donors increased almost threefold over the past five years from just over €80 million to €223 million last year.

The IBTS said that price increases were necessary to cover costs in implementing new blood-testing procedures, introduced to deal with some of the scandals of recent years. The organisation is largely self-financing.

However, the Department of Health has expressed concern about the price hikes because of the knock-on effects on hospital budgets. A price freeze is in effect for 2003 and may bring relief.

Nevertheless expenditure is not going to fall any time soon, certainly not based on an inflation rate of 10 per cent.

On the income side the returns for most hospitals are paltry. At Beaumont expenditure on staff alone amounted to € 124 million, but income for the whole hospital only came to € 23 million.

The system is mainly run on the basis of "free at the point of entry" and this means that hospitals have little opportunity to boost their income, at least via patients. At the Mater Misericordiae income in 2000 came to € 8.6 million, compared to almost € 100 million in expenditure.

Most of the income produced by hospitals comes from out patient charges, canteen receipts and minor property sales. So there is not much growth potential. All this means that massive deficits are here to stay and with inflation running rampant, the incessant rows over funding are likely to be with us for years to come, unless there is major structural reform of the whole system.