Health Minister James Reilly has said the HSE's budget restrictions for 2014 represented an unprecedented challenge for the Irish health system.

He told the Oireachtas Health Committee this evening that significant improvements had taken place in productivity and services in health against a background of a 20% cut in health spending in recent years.

The Minister said there was a savings target of €619 million identified for the HSE this year. The original 'probity' savings target for the medical card scheme had been reduced from €133 million to €23 million.

He said following a review he had initiated, it was found that the original probity target had not taken into account the extent of savings that already had been achieved or could be achieved through medical card applications scheme centralisation and probity measures without changing the current guidelines for medical cards.

Minister Reilly denied that medical cards were being indiscriminately withdrawn.

He said a number of reform measures would be progressed this year, including 'money follows the patient', where hospitals would be funded based on activity levels,  the interim establishment of a patient safety agency, and the reorganisation of hospitals into groups.

HSE Director General Tony O'Brien said the reduction in the health service budget between 2008 and 2013 amounted to €3.3 billion and when coupled with reductions in 2014, the total budget reduction over six years amounted to almost €4 billion.

Mr O'Brien said there was an underlying projected deficit of €419 million for the HSE in 2014, in addition to the €619 million savings target for this year. The key message is that patient safety is paramount, he said.

"The health service is facing a very significant financial challenge in 2014. This challenge comes at a time when the demand for health services is increasing every year, which in turn is driving up costs. Managing ill-health resulting from an ageing population and an increase in chronic conditions is a major driver of healthcare costs," Mr O'Brien told the Committee.

He told the Committee hearing on the HSE's 2014 service plan that said savings measures to be implemented included:

* A reduction in the lump sum provision for pensions which will be used to offset, in part, the incoming deficits from 2013.

* Making use of savings which will accrue from the phased implementation of new developments during 2014.

* Additional savings targets of €129 million in areas such as procurement (€30 million), shared services (€10 million), value for money initiatives (€10 million), hospital reconfiguration (€7.5 million), energy efficiency savings (€15 million) and 'full delivery of cost containment plans of €56.5 million for hospitals'.

He said other measures would include pay and flexibility reductions totaling €268 million, of which Haddington Road would facilitate up to €140 million - €108 million of this related to 'unspecified savings' and would be held centrally pending a separate process, and a further €80 million related to the Haddington Road Agreement would also be held centrally.

Fianna Fail Health spokesperson Billy Kelleher told the Committee that the health service was facing an overall reduction of over €1 billion this year.

Sinn Fein Health spokesperson Caoimhghin O 'Caolain said there had been no additional funding made available this year for nursing home places.