The Unhealthy Irish Health Service

Independent economic analysis and advice

It’s no surprise to anyone to say that there are problems in the Irish Health Service.

There have been problems for as long as anyone can remember and it is not uncommon to hear that it is teetering on the edge of catastrophe or that a crisis is imminent.

Why has this situation persisted? Why have the problems persisted through boom and bust?

One answer may be that Health is an area where the general population expects outstanding services, but appears to be unwilling to pay to have those services in place as they are usually required by ‘other’ people.

When the time comes to use the services, money becomes of secondary importance. But this time is usually transitory.

The permanent issue appears to be a belief in a right to services when required.


The Cost of Health Must Rise

A quick look at some of the economic realities identifies some other causes of problems.

One of the most important issues is that the cost of providing health services should be expected to rise in advance of any commonly used measures of inflation.

Let’s keep background conditions, such as policy about access and the size and structure of the population, constant. There are a number of drivers that will push up the cost. It is useful to look at these from the supply side and the demand side.

On the supply side, health provision is a labour intensive activity, a trait it shares with most service sectors.

No matter what foreseeable technological improvements occur or what efficiencies are achieved there are limits to the ability to replace people with machines.

So productivity gains will be limited, once reasonably efficient operations are ensured, without quickly affecting the nature of the service provided.

Indeed, the introduction of new technology typically involves more or more highly trained labour. This is the opposite of many sectors, particularly manufacturing and non-personal services.

A second related factor is that people working in the health service expect that they will see their incomes rise in line with rising living standards.

In other words, a very big cost item must rise in advance of the rate of inflation. This is the case even if there is no up-skilling and becomes even more important as new technology is introduced.


A third distinct factor that has both demand and supply side aspects relates to the changing nature of health service provision.

New technology, new methods and new pharmaceuticals mean that much more can be done now than even a few years ago.

This process is not about to change. And when new technology is available, service providers will wish to use it and patients will want access.

This is a qualitative improvement but unlike, for example, improvements in the ICT sector, the technology and the service cannot be digitised and replicated at low marginal cost. Therefore the qualitative improvements push up costs.

The fourth major driver of costs is increased demand for health services since, as general living standards rise, the demand for better health services rises disproportionately.

In strict economic terminology this would define health as a luxury good, although most perceive it as a basic necessity.

This quantitative impact pushes up the cost of providing health care to a desired standard further ahead of general inflation.


The Public-Private Structure

So much of the debate around health occurs around the issues of the roles of the public and private sectors and so much of it is futile.

One great failing is often an inability to distinguish between demand and supply. There is actually a fairly widely accepted idea that the State has a role in ensuring that there is a basic level of service available to all and that individuals have the right to access additional paid services.

So, the issue is not ideological, although there will always be differences about the specifics.

But the idea of ensuring access has been confused with the provision of services in the conceptual model that is usually used.

Look at it this way. The public sector can be both a provider (supply) and a purchaser (demand) – on behalf of patients – while the private sector can be a provider and a purchaser – by patients – of health services.

As a general rule, greater involvement by the public sector will improve the equality of the services that can be accessed while greater involvement by the private sector will improve efficiency.

This does not mean that the services will be cheaper but that they will be of better quality for any given cost. Otherwise, patients with the ability to access private services would not bother to do so.

irish health service

Given this, what would an ideal service look like?

It would have a high degree of public purchasing to achieve social aims and a high level of private provision to ensure efficiency.

How would we characterise the Irish service? Exactly the opposite.

We have a high level of public provision – apart from at the level of local GPs – and a high level of private purchasing. The not-unexpected result is an inefficient service with inequality.

We need to get over the practice of confusing private provision with private access.

Put another way, we need to move from the idea that public provision of access to services requires public provision of those services. It does not.

This confusion has resulted in a system where public supply dominates the sector even though the incidence of market failure in health service provision is not that great.

Certainly there are market failures, but they are nothing like as great as, for example, in the transport sector.

Furthermore, by far the greatest market failures relate to information – standards, understanding, irreversibility of decisions, etc. – and these are all capable of being dealt with by regulations, most of which are required even if the public sector is providing the sector.

So, public ownership and operation is not required to address these issues.


A Collection of Competing Interests

The greatest market failure is between the respective positions of the patient as the source of demand and the health professional as the source of supply.

It is inevitable that patients are in a subservient position as they place their trust in the professionals who know what is required and what should be purchased.

Indeed, patients have no real interest in obtaining the service or even knowing what is being provided. They are interested in the results that appear after the service is bought.

Perhaps most importantly, patients use the service on a transitory basis while providers are permanently engaged in the activity.

Additionally, the service is complex with numerous skill sets and hierarchical levels of provision.

A result of this complexity is that the health service becomes a collection of competing interests. The interest of the patient is just one among these and, no matter how caring the service providers may be, the voice of the patient is going to be lost due to the transitory existence of individuals as patients.

irish health service

Situations such as this are not unusual in large organisations.

There are two ways to address the inefficiencies that arise. The first is by direction. This can comprise a myriad of rules, regulations and procedures.These are certainly necessary but have major drawbacks.

The first is that, almost by definition, a rule works only when it is forcing someone to do something that they would otherwise not do. If this is not the case then it is either unnecessary or ineffective. So, it must be constantly monitored and managed.

Second, rules are difficult to construct in a system such as the health services with a disparate range of skills.

Who should make the rules? Is it the service providers who know what is required? But this will lead to rules in their own interests.

Should the rules be imposed by others who know what might be best for the efficiency of the organisation but might not understand patient treatment? The deficiencies of this approach are obvious.

The second way is through the use of appropriate incentives.

This is always favoured by economists since the outcome is that individuals decide to do what is required since it is in their own best interests to do so. Maximising this approach is best but there is a big drawback when you start with a large organisation.

Changing incentives means changing rewards, changing activities and possibly changing reporting structures. Resistance to change is likely to be very high.

So this must be viewed as a long term project, undertaken within a stable institutional structure.


Policy Reforms in the Irish Health Service

There have certainly been changes in Irish health service policy. However, these may have done as much over the past couple of decades to disguise the problems as to solve them.

The first to mention is the creation of the HSE. The old system certainly needed reform and the move to the HSE was a move in the right direction. It is clear that there are severe problems but this does not mean that further institutional reform is the solution, or is even part of the solution.

Expecting that institutional change would address the problems is akin to thinking that changing house would solve the problems of a dysfunctional family.

However, the debate about the HSE persists and distracts from the real issues. Indeed, the fact that there is such disagreements suggests to an outsider that the problems may be that there is resistance to accepting the changes that are required in terms of incentives and so on.

The second major reform – and the term is used advisedly here – relates to funding difficulties as a consequence of the financial collapse.

Like every other part of the Irish economy where public support is required there have been funding constraints and is has become easy to blame this for many of the problems.

But this is too easy. During the boom there was a much more relaxed situation with regard to funding but the problems were not addressed. Indeed, many reports indicated that problems such as waiting lists got worse. So what was happening?

Consider the following situation, which is not atypical.

Start with large waiting lists in public hospitals and other constraints with people having to directly purchase services in private hospitals.

Let’s say the Government announces a policy change to address this by enabling greater access to services and we’ll assume they correctly assess how much this will cost and the required funding is fully provided. What is the outcome?

The waiting lists in the public parts of the service get worse – the opposite of what was required.

The problem is once again a confusion between demand and supply.

Waiting lists are a symptom of insufficient supply. Expanding access is a policy to increase demand. Even if it is properly funded it will simply result in additional demand on a system that is constrained.

This explains why it often appears that no matter how much additional money is put into the health service is does not get over the problems.

There is no proper distinction being made between money that is allocated to provide services and money allocated to pay for services since the public sector is both provider and purchaser.



There is little reason to think that current policy proposals will address the problems in the Irish Health Service as the debate appears to remain mired in unrealistic, but politically attractive, proposals for greater access and talk of more institutional change.

The former will increase demand, even though lack of demand for services is certainly not the problem.

Even worse, many of the proposals appear poorly constructed and involve the use of proxy variables, such as age, to determine access requirements, rather than actual needs based on health variables.

Institutional change, while it may be required as part of a solution, is not the answer.

To expect that this post would provide immediate solutions is to miss an important point.

We need a fundamental rethinking of how the health service should be provided. There is no reason why the 20th century model of public health should be appropriate and we don’t want to drift to a model where access is ever more determined by the market.

Note that this does not necessarily restrict private provision.

Ireland has one thing in its favour. This is that the problems are structural and operational: in other words, how policy is made and how the service is organised and run.

The problems are not ideological as there is general agreement – or general acceptance at least – that the State has a major role to play in provision with private individuals free to purchase an upgraded service if they wish.

The implication is that the problems are not political. So, why is the health service so heavily influenced by politicians and why do we constantly look to politicians to provide the solutions?

Solutions can only emerge if this restrictive framework for analysing the problems is replaced.