Charles J. Larkin
Director of Research, Institute for Policy Research, University of Bath
Healthcare in Ireland is an expensive business. Consistently, public expenditure for the health vote of the budget overruns initial estimations.
According to Ireland’s fiscal watchdog, the Fiscal Advisory Council, €0.6 billion of €2 billion in overspends in 2022 are related to health. The health system is hitting limits, and their solution is to spend more. Even before Covid-19 in 2019, acute hospital beds were running at 90% occupancy (safe = 85%).
Spending more to achieve little to no improvement in health outcomes has turned the health sector into the favourite ‘bête noire’ of the Government. Health spending, in terms of GNI*, stood at 8.3% in 2019. This is in line with the EU average. Ireland is a big spender, coming sixth in the OECD. Despite Ireland’s famously youthful population (14% over 65), Ireland spends more than Japan (29% over 65).
Theory of economic growth
Digitalisation is an essential part of reform. It transforms healthcare from a low-productivity cost centre into a locus of economic growth. Working with my colleague Dr Aida Garcia-Lazaro, as part of the MSI: People-Led Digitalisation EPSRC research programme, we looked at case studies from the living labs and pilot projects led by Martin Curley at HSE Digital Transformation.
An interesting conclusion emerged: when specifically designed, miniaturised digital technology, combined with highly skilled human capital, resulted in massive cost reductions, better outcomes and a very high ROI.
Combining well-educated and trained labour with smart capital created a complementarity effect.
We took a deeper look into the theory of economic growth and adapted it to what we were seeing in the data. We came up with a new explanation about how technology, capital and labour interact.
We called this type of capital ‘smart capital’ — being devices with advanced software (machine learning). Combining well-educated and trained labour with smart capital created a complementarity effect. This capital-labour complementarity can drive productivity growth and ultimately economic growth.
Where do these positive outcomes come from?
Two sources: technological improvement and capital complementarity. We argue that the digital transformation of the healthcare system is about delivering both. Capital complementarity will become the economic engine. Productivity improved as work is reallocated to critical thinking and decision-making and away from the mundane.
A necessary condition for rethinking our relationship with the healthcare system is to embrace digitalisation and the power of Curley’s Law. It is necessary but not sufficient. Ultimately, to achieve the necessary and sufficient conditions, we require transformational leadership.
