The Impact Of The Financial Crisis On The Health System .

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CASE STUDYThe impact ofthe financial crisis onthe health systemand health in IrelandAnne NolanSarah BarrySara BurkeSteve Thomas

The impact of the financial crisis on the health system andhealth in Ireland

The European Observatory on Health Systems and Policies supports and promotes evidencebased health policy-making through comprehensive and rigorous analysis of health systems inEurope. It brings together a wide range of policy-makers, academics and practitioners to analysetrends in health reform, drawing on experience from across Europe to illuminate policy issues.The European Observatory on Health Systems and Policies is a partnership, hosted by the WHORegional Office for Europe, which includes the Governments of Austria, Belgium, Finland,Ireland, Norway, Slovenia, Sweden, the United Kingdom, and the Veneto Region of Italy; theEuropean Commission; the World Bank; UNCAM (French National Union of Health InsuranceFunds); the London School of Economics and Political Science; and the London School ofHygiene & Tropical Medicine.

The impact of the financial crisison the health system and healthin IrelandAnne NolanSarah BarrySara BurkeSteve Thomas

Keywords:DELIVERY OF HEALTHCAREHEALTH POLICYHEALTHCARE FINANCINGHEALTHCARE SYSTEMSIRELAND World Health Organization 2014 (acting as the host organization for, and secretariat of,the European Observatory on Health Systems and Policies)Address requests about publications to: Publications, WHO Regional Office for Europe, UN City,Marmorvej 51, DK-2100 Copenhagen Ø, Denmark.Alternatively, complete an online request form for documentation, health information, or forpermission to quote or translate, on the Regional Office web site (http://www.euro.who.int/pubrequest).All rights reserved. The European Observatory on Health Systems and Policies welcomes requests forpermission to reproduce or translate its publications, in part or in full.The designations employed and the presentation of the material in this publication do not imply theexpression of any opinion whatsoever on the part of the European Observatory on Health Systemsand Policies concerning the legal status of any country, territory, city or area or of its authorities, orconcerning the delimitation of its frontiers or boundaries. Dotted lines on maps represent approximateborder lines for which there may not yet be full agreement.The mention of specific companies or of certain manufacturers’ products does not imply that they areendorsed or recommended by the European Observatory on Health Systems and Policies in preferenceto others of a similar nature that are not mentioned. Errors and omissions excepted, the names ofproprietary products are distinguished by initial capital letters.All reasonable precautions have been taken by the European Observatory on Health Systems andPolicies to verify the information contained in this publication. However, the published material isbeing distributed without warranty of any kind, either express or implied. The responsibility for theinterpretation and use of the material lies with the reader. In no event shall the European Observatoryon Health Systems and Policies be liable for damages arising from its use. The views expressed byauthors, editors, or expert groups do not necessarily represent the decisions or the stated policy of theEuropean Observatory on Health Systems and Policies or any of its partners.

ContentsList of tables and iiiixIntroduction11. The nature and magnitude of the financial and economic crisis1.1 The origins and immediate effects of the crisis1.2 Government responses to the crisis1.3 Broader consequences22242. Health system pressures prior to the crisis53. Health system responses to the crisis3.1 Changes to public funding for the health system3.2 Changes to coverage3.3 Changes to health service planning, purchasing and delivery111113174. Implications for health system performance and health4.1 Cost savings and efficiency4.2 Access to services4.3 Impact on health212122225. Discussion5.1 Drivers of change5.2 Content and process of change5.3 Implementation challenges5.4 Resilience in response to the crisis25252627276. Conclusions30Appendix: Major crisis-related events and changesin the Irish health care system, 2008–201331References33About the authors41

vi The impact of the financial crisis on the health system and health in IrelandList of tables and figuresTablesIR Table 1Demographic and economic indicators in Ireland, 2000–20123IR Table 2 ublic expenditure on health in Ireland (including capital expenditure),P2006–20147IR Table 3 Health care expenditure trends in Ireland, 2000–2011IR Table 4Entitlement to publicly financed health care in Ireland, 201313R Table 5Changes to statutory entitlement in Ireland, 2008–2013167FiguresIR Fig. 1Public health expenditure (capital plus current) in Ireland, 2000–2013IR Fig. 2 roportion of total public expenditure devoted to health in Ireland,P2007–2014125IR Fig. 3 Population coverage by category in Ireland, 1990–201214IIR Fig. 4Inpatient, emergency and day case activity in Ireland, 2008–201217IR Fig. 5Total, male and female death rates per 1000 population in Ireland,2000–201223

The impact of the financial crisis on the health system and health in IrelandAbbreviationsEUGDPGPOECDPHIWHOEuropean UnionGross domestic productGeneral practitionerOrganisation for Economic Co-operation and DevelopmentPrivate health insuranceWorld Health Organizationvii

viii The impact of the financial crisis on the health system and health in IrelandForewordThis report was produced as part of a series of six country case studies and formspart of a larger study on the impact of the financial crisis since 2008–2009on health systems in the European Region. The countries studied in depthare Estonia, Greece, Ireland, Latvia, Lithuania and Portugal, which represent aselection of countries hit relatively hard by the global financial and economiccrisis. In-depth analysis of individual countries, led by authors from the countryconcerned, adds to understanding of both the impact of a deteriorating fiscalposition and the policy measures put in place as a result. These case studiescomplement a broader analysis which summarizes official data sources andthe results of a survey of key informants in countries of the WHO EuropeanRegion; they will also be published as part of a two volume study conductedjointly by the European Observatory on Health Systems and Policies and theWHO Regional Office for Europe.

The impact of the financial crisis on the health system and health in IrelandAcknowledgementsThe authors and the study editors would like to thank Richard Layte, CiaranO'Neil and Miriam Wiley for their helpful and constructive reviewing andcomments on a previous version of this case study. They also would like tothank and acknowledge the comments and information received from theDepartment of Health. Also thanks to Matthew Jowett who acted as an internalreviewer. Finally, thanks are due to participants at the author workshop heldin Barcelona in January 2013, as well as those commenting via the web-basedconsultation following the World Health Organization (WHO) meeting"Health systems in times of global economic crisis: an update of the situationin the WHO European Region" held in Oslo on 17–18 April 2013.Financial supportThe WHO is grateful to the United Kingdom Department for InternationalDevelopment for providing financial support for the preparation of the series ofsix country case studies. Thanks are also extended to the Norwegian governmentfor supporting the broader study on the impact of the economic crisis on healthsystems in the European Region.ix

IntroductionThe collapse of Ireland's overexposed banking and construction sectors atthe onset of the global financial crisis precipitated a sovereign debt crisis thatrequired a Financial Support Programme from the European Union (EU),European Central Bank and the International Monetary Fund (the Troika).In parallel to sharply rising unemployment and declining household incomes,the terms of the country's international loan agreement required deep cuts topublic sector spending, including the health sector, and incentivized reformsaimed at achieving greater efficiency and cost savings.Public expenditure on health has fallen by about 9% since its historical peak in2008, requiring several efficiencies to be achieved through lowering unit costs,particularly in pharmaceuticals and human resources, increasing productivity,laying the ground for a hospital payment system where "money follows thepatient" and reallocating services across levels of care. To a large extent, theeconomic crisis helped to highlight the need for health system reform, andnowhere is this better exemplified than by the government's commitmentto radically expand population coverage through a staged introduction ofuniversal health insurance, starting with population-wide entitlement to freeprimary care services by 2015. A primary challenge will be to implement themajor health financing reform associated with a new universal insurance systemwithin the context of continued budgetary constraints. In addition, while theremay be potential to develop longer-term real efficiency gains, most of the maincost-cutting measures already have been employed and care must be taken notto erode the health system's operational capacity, quality of services or accessto care.

1.The natureand magnitude ofthe financial andeconomic crisis1.1 The origins and immediate effects of the crisisAs a small open economy, Ireland was particularly exposed to, and affected by,the global financial and economic crisis. Domestically, access to cheap credit andinadequate government oversight of the financial sector led to the development ofan unsustainable property bubble. When the global financial crisis hit in 2008, thiscontributed to an internal banking collapse and the collapse of the constructionsector. In response, private bank debt was effectively converted into sovereigndebt following the bank guarantee scheme announced in September 2008. Onthe revenue side, the tax base had become increasingly dependent on pro-cyclicalconsumption taxes (Thomas, Ryan & Normand, 2010); the widening gap betweenrevenues and expenditure was reflected in a sharply increasing debt to gross domesticproduct (GDP) (Thomas et al., 2012) ratio. In addition, between 2008 and 2011Ireland's gross national product fell by nearly 20% (CSO, 2012b).1.2 Government responses to the crisisIn 2008 and 2009, several budgets sought to address the impact of the economiccrisis (Thomas & Burke, 2012). However, borrowing costs continued to rise: inNovember 2010, yields on the benchmark 9-year Irish Government bond reached9% (Carswell, 2012). In November 2010, after continued deterioration in keyeconomic indicators and increasingly unaffordable borrowing costs, Irelandaccepted a Programme of Financial Support from the Troika worth 85 billionfor the period 2010–2013. Despite a return to the bond markets in 2013, theeconomic outlook remained bleak, with low growth forecasts nationally andinternationally (Duffy & Timoney, 2013), continued high unemployment ofnearly 14% in 2012 (CSO, 2013b) and a large, albeit slightly falling, debt/GDP ratio of approximately 120% (Department of Public Expenditure andReform, 2012b; Duffy & Timoney, 2013; see also IR Table 1).

5.534.2Long-term interest rates(10-year government rate)(%)Total unemployment(% of total labour force) aNote: c12 months or more.Sources: a OECD, 2013; bEurostat, 2013.–37.0Government consolidatedgross debt(% GDP) b–Government deficit(% GDP) b33,60011.29.3Long-term unemployment(% of total unemployed) a, 20011.459.414.4–104.18.20.737,60011.73,805.2 3,866.2 3,932.0 3,996.6 4,070.3 4,160.0 4,274.1 4,399.0 4,543.9 4,459.0 4,519.4 4,576.8Real GDP growth(%) aGDP per capita( ) aPeople aged 65 and over(% total population) aTotal population levels(in thousands) a2000IR Table 1 Demographic and economic indicators in Ireland, 2The impact of the financial crisis on the health system and health in Ireland3

4 The impact of the financial crisis on the health system and health in Ireland1.3 Broader consequencesThe Irish rate of unemployment increased sharply during the crisis, fromunder 5% at the end of 2007 to just under 14% at the end of 2012 (CSO,2013b). Rates of unemployment among the younger population were higherstill, at over 30% for males aged 15–24 years in 2012, while at the end of thatyear, long-term unemployment (defined as out of work for more than a year)accounted for nearly 60% of total unemployment (CSO, 2013b).Household incomes and poverty rates also were affected, with household incomesfalling by over 12% in nominal terms, the “at risk of poverty” rate increasingfrom 14.4 to 16.0% and the proportion of the population experiencing two ormore types of enforced deprivation (e.g. without heating in the last year, unableto afford a hot meal, etc.) increasing from 13.8 to 24.5% over the period 2008to 2012 (CSO, 2013c). Inflation in health prices has consistently exceeded thatof overall prices, and given the heavy reliance on out-of-pocket payments inthe Irish health system (see section 3.2), this has created an additional burdenon households. In particular, sharp increases in private health insurance (PHI)premiums, in combination with deteriorating household finances, have beenreflected in increasing numbers cancelling their PHI cover over the duration ofthe crisis (see section 3.2 for further discussion).

2.Health system pressuresprior to the crisisSince the start of the 2000s, overall levels of public expenditure on health haverisen rapidly, albeit from a very low base (IR Fig. 1), and per capita levels are nowbroadly in line with expenditure in other countries (OECD, 2012a). Howeverin the preceding 30 years, Ireland's health expenditure was considerably belowthe EU average, particularly for capital expenditure, which amounted to just66% of the EU average over the period 1970–1996 (Wren, 2004).IR Fig. 1 Public health expenditure (capital plus current) in Ireland, 2000–201318,00016,00014,000Expenditure ( , million)12,00010,0008,0006,0004,0002,00002000 2001 2002 20032004 2005 2006 2007 2008 2009Nominal2010 2011 2012 2013Real (2,000 1.0)Note: Public health expenditure includes capital expenditure.Sources: CSO, 2014a; Department of Public Expenditure and Reform, 2014.

6 The impact of the financial crisis on the health system and health in IrelandAs illustrated in IR Fig. 1, there have been substantial cuts in public expenditureon health since 2008 (see also IR Tables 2 and 3). The total public health budgetin 2008 was 15.4 billion, that for 2013 just 13.6 billion (Department of PublicExpenditure and Reform, 2012a; Thomas et al., 2012). Much of the reductionin public health expenditure to date has been achieved through cuts to staffnumbers and staff pay, as well as driving efficiencies across the public healthsystem (Thomas & Burke, 2012). In October 2012, there was an overrun of 360 million in public health expenditure (Department of Public Expenditureand Reform, 2012a), although this had been reduced to 75 million by theend of 2012 (HSE, 2013d). Overruns such as these illustrate the difficulties ofachieving continued expenditure reductions year on year.The cuts in public health expenditure have occurred against a backdropof existing political commitments to make improvements in primary andcommunity care, in mental health, in some chronic disease programmes andin the quality of public hospital care. In 2011, the new coalition governmentmade a commitment to introduce free care by general practitioners (GPs)for everyone by 2015 and to implement a universal, single-tier health servicethrough the introduction of universal health insurance (Government of Ireland,2011a). The new commitments reflect aspects of the pre-election manifestos ofboth coalition partners.Studies on Irish health expenditure highlight the importance of national income,population size and distribution, prices and institutional features of the system(such as provider-reimbursement methods) (Brick & Nolan, 2010; Borowitz,Moran & Pearson, 2011; Normand, 2011). The greatest immediate pressure onthe Irish health system is the reduced public health budget that is expected tomeet the needs of a growing population. The Irish population is relatively youngand has the highest fertility rates in the EU (Department of Health, 2012a). Ofparticular relevance for longer terms financial pressures is the projected increase inthe dependency ratio (the ratio of the population aged 65 years to the populationaged 18–64 years) from 0.18 in 2011 to 0.38 in 2041 (Barrett et al., 2011).High and increasing prices have been a continuous source of financial pressurein the Irish health system. Between 2005 and 2011, health care costs in Irelandincreased by over 20%, while overall prices increased by approximately 10%(Thomson, Jowett & Mladovsky, 2012). This very high health inflation waslargely driven by continued increases in hospital charges, outpatient fees,doctors' fees and dental fees, which impose a particularly large burden on thesection of the population with the lowest income. In addition, PHI premiumsrose by 22% in 2011 and a further 16% in 2012 (CSO, 2012a, 2013a), althoughthese increases have also been driven by recent moves by the government toensure full economic costing of private activity in public hospitals.

91201114,043201214,0242013 (e)13,8102014 003Source: OECD, 2014 (health data for 2012 and beyond are not available).Notes: PPP: Purchasing power parity; THE: Total health expenditure.THE per capita(US PPP)THE(% GDP)Public expenditureon health(% THE)Voluntary health insurance(% THE)Out-of-pocket spending(% THE)2000IR Table 3 Health care expenditure trends in Ireland, –67.08.93,699.52011Notes: (e): Estimate; figures for private expenditure are not presented as they are only available up to 2009 but indicate that private expenditure grew by over 20% in nominalterms between 2006 and 2009 (Department of Health, 2012b).Sources: Department of Public Expenditure and Reform, 2012a, 2014.Public expenditure( millions)2006IR Table 2 Public expenditure on health in Ireland (including capital expenditure), 2006–2014The impact of the financial crisis on the health system and health in Ireland7

8 The impact of the financial crisis on the health system and health in IrelandApproximately 14% of public expenditure on health in Ireland is expenditureon prescription pharmaceuticals (Gorecki et al., 2012). Public expenditureon pharmaceuticals rose very rapidly after 2000, but some recent measureshave reversed this trend (see Brick, Gorecki & Nolan (2013) and Goreckiet al. (2012) for a full description), and legislation to introduce a system ofreference pricing and generic substitution for certain pharmaceuticals waspassed in 2013 (Government of Ireland, 2013b). However, there has been slowprogress on the implementation of additional cost-cutting measures (Thomson,Jowett & Mladovsky, 2012) and a recent comparison of ex-factory prices ofthe leading pharmaceuticals found that originato

R Table 5 Changes to statutory entitlement in Ireland, 2008–2013 16 Figures IR Fig. 1 Public health expenditure (capital plus current) in Ireland, 2000–2013 5 IR Fig. 2 Proportion of total public expenditure devoted to health in Ireland, 2007–2014 12 IR Fig. 3 Population cove

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