The visit of the promoters of the National Children’s Hospital to the Oireachtas Health Committee earlier this month was no advance on the visit of December 2019. We still do not have a price for the hospital or a completion date. The contractor claims the design of the project is not yet completed. The promised date for these vital pieces of information is early 2021, four years after the IMF warned about this project.
The IMF warned then that “discussions with departments and DPER [Department of Public Expenditure and Reform] did not reveal any instances of fundamental review being undertaken, even though there appear to have been instances where this would have been appropriate, eg. in the case of the National Children’s Hospital”.
One of the published estimates for the hospital is €2.7bn, or €5.7m for each of the 474 beds. This is some 10 times the per-bed cost of the 144-bed single-occupancy rooms opened at Altnagelvin Hospital, near Derry, in February 2019. The project cost £73.5m (€82.4m).
The National Children’s Hospital’s transition to the St James’s site will accomplish its third location in a little over two decades. The journey has been from Harcourt Street via Tallaght to St James's. The cost has risen steadily. The 91-bed Harcourt National Children’s Hospital was sold in 1998 for €4m or €44,000 per bed. The next venue at Tallaght, the Meath Adelaide and National Children’s Hospital (known as MANCH), cost €140m for 562 beds, or €250,000 per bed.
Factoring in the inflation level of 4pc between 1998 and 2020 the Harcourt Street sale price per bed becomes €64,000 and the MANCH cost at Tallaght becomes €363,000 per bed at 2020 prices. The move from Harcourt Street to Tallaght raised bed costs in real terms 5.7-fold. The second move from Tallaght to St James’s will raise bed costs in real terms by a further 15.7-fold. At 2020 prices the sale price of the entire first National Children’s Hospital at Harcourt Street, €5.8m, for 91 beds, buys one bed at St James’s.
The wish of the National Children’s Hospital to depart Tallaght and return to the city centre raises the question of what hospital bed prices were in the city centre at the time of the plan to return. In 2015 Baggot Street hospital was on sale for €14m for its 193 beds, or €73,000 per bed. The purchase option chosen, St James’s, at €5.7m per bed, was 78 times more expensive as the health sector’s own selling price per hospital bed nearby in central Dublin in 2015. Those purchasing new hospital bed places in the same area had a vastly divergent assessment of the correct price compared to others in the same sector engaged in selling hospital bed places nearby.
Building a new hospital in Ireland brings together three main dangers for the wider society. Ireland combines a low-productivity/high-cost construction sector, as per the Build Report; a high-cost/low-productivity health sector, as per the Department of Health’s own annual data series; and one of the weakest public expenditure appraisal systems in the world, as reported by the IMF in 2017.
When all three combine, you can expect cost overruns and delayed completion dates. Two bizarre cost increasing rules top up the problems. Some on the public construction bonanza are paid more as the total cost of the project increases and are paid more the longer the delays in completing the project. In a normal market we reward those who reduce costs and deliver on time. Rewarding cost increases with income increases and rewarding late delivery with further income increases should have been anticipated to lead to the problems at the NCH.
Projects such as NCH also have the OPM problem, where OPM is 'other people’s money’. Big budgets boost egos and career prospects of high-spending bureaucracies. This promotes the Edifice Complex in both health and higher education. The supreme accolade was awarded to a head of a UK university who built “the empire on which the concrete never sets”.
The Budget Statement of October 13, 2020, promised that “the National Economic Plan, to be published next month, will also have a key role in mapping out our economic pathway for the coming years and for developing economic resilience in a post-Covid world”.
The problems of low productivity in construction and health were increased by large spending increases without reform in both sectors in the October Budget. Our weak public expenditure appraisal system has fobbed off the IMF reforms proposed in 2017. The NCH debacle shows a totally inadequate system of project appraisal.
Two reforms are urgent. The first reform is to implement Article 33 of the Constitution which states that “there shall be a Comptroller and Auditor General to control on behalf of the State all disbursements and to audit all accounts of moneys administered by or under the authority of the Oireachtas”. It must become the norm that the Comptroller is the one “to control ALL disbursements” and “to audit ALL accounts”. Recent reports indicate some 147 staff at the Comptroller’s office. Problems such as the NCH indicate large potential gains from control of disbursements and audit of accounts. In many cases by the time the Comptroller gets around to a problem area the Public Expenditure Horse has well and truly bolted. Spending bureaucracies maximise spending by their departments because that is what we reward. They are ineffective in project appraisal, as proved yet again in the NCH case.
The second reform is to repeal the Ministers and Secretaries Act, 1924. The law says that all actions of a government department are deemed to be the actions of the minister. In practice, this is not possible but it allows all those directly involved in public spending to shift the blame on a minister who is not the person who got input prices and quantities wrong.
Sean Barrett is Associate Professor of Economics and Fellow of Trinity College Dublin.