The newly appointed head of the State’s acute hospitals has warned hospitals their costs are running at unsustainable levels and must be immediately addressed.

Dr Tony O’Connell, national director of acute hospitals, writing in only his second week in his new position in the HSE, said in a letter to hospitals dated last Wednesday that there was a “lack of visibility of savings”.

He said three-quarters of “cost reductions” that acute hospitals claimed they had made did not stand up to scrutiny.

“There has been a generally poor response to requests from HSE for hospitals to submit cost containment plans (CCPs) either in terms of no returns, poor quality plans or very significant residual deficits for which no plan was returned,” Dr O’Connell wrote.

He states that “of the €34 million in CCPs submitted by hospitals and described as ‘cost reductions not yet visible in run rate’ just over €25 million (74 per cent) were discounted by Finance upon review leaving just €9 million that were assessed likely to deliver.”

In January the HSE said acute public hospitals will have to make do with nearly €250 million less in funding from the State this year.

Above budget Dr O’Connell said in his letter he believed that spending above budget by hospital chief executives or general managers was a “very serious matter.”

“Hospital costs are running at unsustainable levels and are trending at 6 per cent above allocation and 2 per cent above 2013 levels, despite the significant enablers within the Haddington Road Agreement to reduce pay and pay-related costs.”

“I am concerned this indicates a reduction in management and governance focus on appropriate cost control and this must be reversed immediately,” he said. Dr O’Connell said the State was currently working on the development of independent hospital trusts and that the principles of “accountability and autonomy must be closely aligned” in the meantime.

He told every hospital/ group to submit a new “detailed cost containment plan designed to safely deliver a breakeven position”.

“These plans must reflect clinical prioritisation within available resources,” he added.

‘Minimum target’ He said an “initial minimum target” was to bring gross expenditure to 98 per cent of final 2013 levels and that hospitals needed to also “demonstrate a robust process to maximise their income”.

Acute hospitals he said, appeared to be tackling the number of hours worked but “the cash-releasing benefits are well below the agreed national targets.”

“The lack of visibility of savings indicates that hospitals have in place unfunded and unapproved capacity,” he said.

Submitting new cost-cutting plans was essential to “closing the unacceptable gap between current projected deficits and cost containing plans in place.”

Dr O’Connell said his team would be visiting hospital groups in the coming weeks to discuss in detail their challenges and plans. He took over running the country’s hospitals earlier this month after his predecessor Ian Carter was transferred to a new post, less than a year after taking up the position. Mr Carter is now national director for strategic developments.

Minister for Health James Reilly has faced fresh questions over his command of the portfolio after he admitted earlier this week he will not realise €108 million in pay savings required in this year’s budget.