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06 Jul 2015

The Federal Government could dump all responsibility for public hospitals onto the states or pay for hospital treatment through a Medicare-style benefit scheme under radical proposals being considered ahead of a national leaders’ summit to discuss reform of the Federation.

An options paper prepared by the Department of Prime Minister and Cabinet canvasses an overhaul of Commonwealth health funding arrangements that could leave the states short of $18 billion a year or seem them bypassed altogether.

The Green Paper makes five suggestions, including the Federal Government shifting full operational and funding responsibility for public hospitals onto the states and territories, the creation of an MBS-style hospital benefits scheme, jointly funded individualised patient care packages, or the establishment of a single national or regional agencies to purchase health services.

Although many of the factors forcing health costs up have little to do with the structure of the Federation, the Reform of the Federation Green Paper 2015 said improving the way the health system was funded and operated could improve prevention and care while making better use of funds – particularly by providing funding on the basis of outcomes rather than activity.

The paper has been released as the Abbott Government engages in a high-stakes stand-off with the State and Territory governments over public hospital funding following the decision in its 2014 Budget to walk away from funding guarantees made under the National Health Reform Agreement and reducing the indexation of post-2017 funding to CPI plus population growth, ripping $57 billion out of the public hospital system over 10 years.

The inadequacy of the indexation formula has been highlighted by Australian Institute of Health and Welfare figures showing in the five years to 2013-14, hospital admissions grew by an average of 3.3 per cent a year and their expenditure rose by 4.4 per cent annually, while over the same period the population increased by just 1.6 per cent and inflation averaged less than 2.5 per cent a year.

The AMA is a fierce critic of the Budget decision, which President Professor Brian Owler warned created an “impending crisis” for the nation’s public hospitals.

Professor Owler said public hospitals were facing a “perfect storm” of increasing demand, missed performance targets and major funding changes.

“The combination of these factors will have devastating consequences for our public hospital system,” he told the AMA National Conference in late May.

The Federal Government has decided to withdraw around $80 billion in Commonwealth funding for hospitals and schools over the next decade to pressure the states into looking at alternate sources of revenue, including increasing the GST or broadening its base.

As the Federal, State and Territory leaders prepare to discuss such options at their retreat later this month, South Australian Premier Jay Weatherill has suggested the GST be extended to include financial services.

Professor Owler said that, whatever the funding model that might be developed, it needed to ensure public hospitals were given the resources they need to meet the growing demand for care while also providing the quality teaching and training that the next generation of doctors required.

He said that pushing responsibility for public hospital funding back to the states and territories without providing them with the means to generate more revenue would be “irresponsible”.

New South Wales Premier Mike Baird recently described public hospital funding as the most significant finance issue facing the states and territories, and Professor Owler said he was particularly concerned about prospects for the smaller jurisdictions, some of which had areas of significant disadvantage and inequitable access to care, but which had limited revenue-raising capacity to fund improvements on their own.

“If the planned changes [announced in the 2014 Budget] go ahead, there will be serious consequence for frontline clinical services,” he said.

His NSW counterpart, Dr Saxon Smith, warned that if the Commonwealth persists with its 2017 indexation change, the subsequent plunge in services would be equivalent “to closing five-and-a-half hospitals the size of Westmead over the next few years”.

Adrian Rollins



Published: 06 Jul 2015