Do we overspend on health?

Posted on May 14, 2016 by Tom Healy

Tom Healy, Director NERI
Tom Healy, Director NERI

Ministerial responsibility for health services in the Republic of Ireland has been compared to a stay in some African country. For all its woes and failings the National Health Service (NHS) seems to be a badge of national pride in the UK even 60 years after its establishment. What is it about the Irish health service and its management that attracts so much opprobrium? Everyone wants an efficient, fair and humane health service yet what we get is a two-tier one in which individuals and families with particular health needs face years if not months of waiting for treatment or diagnosis. Mental health services seem to be the cinderella of the system.

At the same time it is a widely held belief in many policy circles that Ireland overspends on health and that there are large inefficiencies (see for example page 72 of The European Commission Staff  Working Document issued last February here ). Indeed, claims of waste and over-spending are frequently brought to the table when demands for more funding or reversal of recent cuts are raised.  From a technical budgeting point of view we read about spending ‘over-runs’ in most recent years as demand continues to outstrip projected trends for a range of different reasons. But, what is the evidence about these claims? I am drawing on some on-going research by my colleague Paul Goldrick-Kelly in a recent NERI Research InBrief here .

The question is not so easy to answer because many factors need to be considered including the age-structure of a population, the geographical spread of population (many health centres and hospitals in more dispersed populations cost more in per capita terms) and what gets counted as health spending according to international statistical rules. Moreover, what matters is how healthy people are and how long they live. So, it is the ratio of outcomes to spend that matters and not the size of the spend itself.  Healthy outcomes are a product of many factors including diet, lifestyles, information etc. and not just how many medical staff and facilities are available. However, resources clearly do matter and availability of highly qualified and experienced staff as well as timely access to screening, diagnosis and intervention does matter and 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 to similar EU countries (see Chart 1 Total spending on health as a percentage of GDP in 2013). Curiously, commentators who claim that Ireland overspends on health choose to focus on spending as a percentage of Gross National Income instead of GDP – 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).

Chart 1


 There are significant differences among countries when it comes to the share of private spending. The Republic of Ireland 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 spending (Chart 2).

Chart 2


But, health spending should not be even at the average, some will claim, because we have a relatively young population (for now at least) compared to most other OECD countries.  An estimation of an ‘age-adjusted’ health spend is not easy. My colleague Paul Goldrick-Kelly has provided some estimates of the impact of demography in terms of future increases in spending here .

Even still, the fact that we are above or below the average does not say anything about how efficiently spent that money is. A country might spend a lot on health (e.g. the USA) but record high levels of ill-health (especially among the poorer in its population). Many factors are relevant to health outcomes including culture, lifestyles, education, public awareness and inequality. Yes, inequality!  It has been convincingly shown by Kate Pickett and Richard Wilkinson among others in The Spirit Level that there is a relationship between economic inequality and health outcomes with egalitarian countries such as the Scandinavian countries tending to show better health outcomes.

Chart 3 Public spending % GDP by function

If there is evidence that total health spending could be lower than it currently is in the Republic of Ireland what areas could provide hints for future reform? Two areas seem to stand out in international comparisons (See Figure 3 in the Research InBrief here):

  • Pharmaceuticals
  • Hospital outpatient

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 exact same medications in Newry?  The European Commission may have thrown just a little light on this in their nuanced comments on page 74 of the Commission Working Document that is part of the Country Specific Recommendations process:

For medicines no longer patent-protected but which fall outside the system of interchangeable groups, no price benchmarking exercise has been performed. As before, the authorities seem reluctant to activate their pricing powers gained under the Health (Pricing and Supply of Medical Goods) Act.

One may simply ask why this is the case after five years of severe cuts to health services and then 3 years of acute pressure on services during a period of economic recovery.

Pharmaceuticals is one area where progress has been made in curtailing costs. However, more could be done and it seems that tough choices may be necessary in relation to monopoly suppliers. The second area listed above is is significant because the Republic of Ireland 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.  The formal definition of "day curative and rehabilitative care" is "services delivered to 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". It differs in definition from standard “outpatient” care in that admissions are formal and planned. Why is spending on  "day curative rehabilitative care" relatively high in the Republic of Ireland? Could more investment in primary health care make a  difference?  This is only part of the picture but an important one at that. Other areas of possible cost reduction include streamlining of services and a greater role for health professionals in driving innovation.

 Are the HSE and other public bodies ‘bloated by administration’?  A cursory glance at Eurostat figures in the Research InBrief does not support such claims.

While efficiencies and savings are possible we need to be mindful of two realities:

  1. The health services have endured dramatic cuts over the last half decade and more to a point where key services have broken down
  2. Few could argue that we do not spend enough on mental health services, preventive education and upfront investment in community care to keep people out of costly hospital care including day outpatient care.

The existence of a two-tier health service based on ability to pay may actually further increase total spending as is the case in the USA. This is apart from the morality of a two-tier system. To put it bluntly, waiting 12 months for a colonoscopy in the public system may be fatal whereas getting a referral and quick procedure through a consultant through the private insurance route can make all the difference. One hopes that in cases of real emergency and evidence of symptoms people are seen and dealt with quickly. But, this is not always so.

More spending on preventive care (where the Republic of Ireland spends less than other comparator countries) as well as mental health services and community health care will take more money and notn less against the background of a tight ‘fiscal space’.  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 precious consultant resources and refocus on key areas of need.

So, in answer to the question “Do we overspend on health from public sources in the Republic of Ireland” the answer is that there is no compelling evidence that we do relative to size of GDP. In fact, we probaly need to spend a bit more in the aggregate but to spend it much better and to give priority to preventive care, education and diagnosis.  Monies saved on some areas can be diverted to priority areas. Health spending can represent a form of investment with a pay-back by way of healthier, happier and more productive citizens (to put in stark economic terms).

Digital Revolutionaries