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Public hospital funding in Australia

Partner Institute: 
Centre for Health, Economics Research and Evaluation (CHERE), University of Technology, Sydney
Survey no: 
Gallego, Gisselle
Health Policy Issues: 
Funding / Pooling, Access
Current Process Stages
Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no no no yes no no


One of the main characteristics of the Australian Health Care system is the division of responsibilities between the Commonwealth and State governments. The State, with diverse levels of financial assistance from the Commonwealth, are primarily responsible for the funding and operation of public hospitals. In August 2007 the Federal Government announced an unprecedented decision: to fully fund a small regional public hospital in the State of Tasmania.

Purpose of health policy or idea

Funding of public hospitals in Australia has been a particularly contentious issue due to the division of responsibilities between the Commonwealth and State governments. The debate has been underlined by a series of claims and counter claims over the adequacy of expenditure by each jurisdiction on public hospitals. The Commonwealth considers that resource management is not undertaken efficiently by the States whilst the States argue that the Commonwealth does not provide enough funding for public hospitals. As a result there is a constant "blame-shifting" or "bucking-passing" between the Commonwealth and the States (Buckmaster and Pratt, 2005).  

There have been calls for changes to the way in which health care is funded and managed and for the States and the Commonwealth to work together and find a better way to provide health care and reduce duplication. Some have also called for the Commonwealth to increase their funding of the public hospital system to match the increased funding to private hospital services which have resulted from the private health insurance rebate.  

A few years ago, the current federal Minister for Health, the Hon. Tony Abbott, made public comments about his desire for a federal take-over of funding of public hospitals. However, he then retracted those comments and opted for the status quo. The policy initiative reported here appears to be a federal take-over - albeit - limited thus far to one small district hospital.  

The Mersey, a 96 bed hospital located in the town of Devenport, Tasmania, was battling to find and keep medical specialists. The Tasmanian Government decided to downgrade the services provided by the hospital to a level of general practitioner care and day surgery unit. Local residents who need more specialised care can travel to Burnie hospital (160 beds) 20 minutes away from Mersey or Launceston Hospital (250 beds) which is 80 kilometres away.

The decision made by the State government to downgrade the hospital followed research and consultation (Richardson, 2004). According to the Australian Healthcare Association (AHA) it followed a thorough planning exercise to ensure high quality services in the area. The Commonwealth government decided to intervene and directly fund the hospital. According to the prime Minister the government will provide funding to maintain surgical procedures at the hospital. The take over will cost A$ 45 million a year and will make Mersey the first direct Commonwealth funded public hospital in Australia. According to the health minister Tony Abbott "this project if successful could validate a new model for running public hospitals, especially in regional areas".  

Meanwhile, the federal opposition party has outlined its plan for public hospitals. It states that it will work co-operatively with the State and Territory Governments to improve public hospital performance over a period of two years. If, at the end of that period, no improvements have been achieved it will seek a mandate from the Australian people for a federal take-over of public hospital funding. Details on how such a funding model would operate have not been clarified.

Main points

Main objectives

The main objective of this initiative is to guarantee the continued funding of a wide range of services (in-patient and out-patient) at the Mersey hospital. Allow for the hospital to be operated as a community-controlled and Commonwealth-funded institution (Prime Minister, 2007).

Type of incentives


Groups affected

Patients, medical staff, community

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Characteristics of this policy

Degree of Innovation traditional traditional innovative
Degree of Controversy consensual highly controversial highly controversial
Structural or Systemic Impact marginal rather fundamental fundamental
Public Visibility very low high very high
Transferability strongly system-dependent strongly system-dependent system-neutral

Political and economic background

The Australian Health Care Agreements between the Federal and State and Territory Governments are the main policy instruments by which the Federal Government can influence the financing and performance of public hospitals. The Agreements run for five years and the current set is due to expire in 2008. The Agreements are highly controversial with claims and counter claims over inadequate funding support, inefficient management and cost-shifting. Recently, the State and Territory Governments released a report, titled Caring for Our Health, on how the the Federal Government is under-funding public hospitals. The Federal Government suspended negotiations for the next agreement, pending the outcome of the election in July 2007 (State and Territory health ministers, 2007).  

The announcement of a local hospital closure is according to some a "far too familiar headline for Australians living in rural and remote communities" (Hobbs and O'Sullivan, 2007). However what makes this hospital decision different is that it was taken on an election year and viewed by some as a short term political end. The Mersey hospital is located in the key marginal Liberal seat of Braddon. This seat according to current polling is in great danger of falling into the opposition party (Labor). Commentators have suggested that this intervention is opportunistic in nature and some stakeholders were sceptical about the announcement. 

Purpose and process analysis

Current Process Stages

Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no no no yes no no

Origins of health policy idea

According to the Commonwealth, the initiative was a response to the community concerns about plans of the Tasmanian Government to downgrade or close many of the services at the Mersey hospital (Prime Minister, 2007).

Initiators of idea/main actors

  • Government
  • Providers
  • Opinion Leaders
  • Political Parties

Stakeholder positions

The Tasmanian Premier reluctantly accepted the Commonwealth's offer to take over Mersey hospital. The premier remains "deeply concerned that the take over is not sustainable or safe and that it does not represent good public policy" .

The State premiers also voiced their concerns and considered the move was politically motivated.  

Even though the Tasmanian president of the Australian Medical Association (AMA) described the initiative as "highly destructive"; overall the AMA as well as the Australian Health Care Reform Alliance supported the initiative.    

The Australian Health Care Association (AHA) considers that additional public hospital system funding is needed. However the AHA considers this funding should be targeted towards delivering high quality care to the community and not in a way which serves short term political ends. AHA also believes that the Commonwealth should focus on strategies that support the public hospital system (AHA, 2007). 

The Rural Doctors of Australia Association welcomed the recognition of the problems faced by regional hospitals but were sceptical about the timing of the announcement, just weeks out from a federal election campaign.  

Australian Nursing Federation expressed serious concerns at what was described as Howard's "power driven political stunt".

Actors and positions

Description of actors and their positions
State Governmentvery supportivestrongly opposed strongly opposed
Health care providersvery supportiveopposed strongly opposed
Opinion Leaders
Academiavery supportiveopposed strongly opposed
Political Parties
Labor Party (Opposition)very supportivestrongly opposed strongly opposed

Actors and influence

Description of actors and their influence

State Governmentvery strongweak none
Health care providersvery strongweak none
Opinion Leaders
Academiavery strongweak none
Political Parties
Labor Party (Opposition)very strongnone none
Health care providers, AcademiaLabor Party (Opposition)State Government

Positions and Influences at a glance

Graphical actors vs. influence map representing the above actors vs. influences table.

Adoption and implementation

Implementation arrangements are currently being negotiated with the Tasmanian Government. An Interim Mersey Community Hospital advisory committee was appointed on the 5th of September and its main role will be to ensure there is a "smooth" transition to a community-controlled and Commonwealth funded-hospital (Hobbs and O'Sullivan, 2007).

Monitoring and evaluation

No formal evaluation of the initiative has been announced.

Expected outcome

The Federal Government has stated that Mersey hospital will continue providing services including emergency department, aged care and obstetrics. The question remains if Mersey will be able to recruit and retain specialists. It is also unknown what impact this initiative will have on the neighbouring hospital of Burnie which serves the same population and as previously reported competes for patient numbers and local workforce. According to this report the population catchment area implies the need for only one hospital and it will be hard to maintain two hospitals with the same characteristics (Richardson, 2004).  

This new hybrid also seems an unnecessary addition to an already fragmented health care system. It is uncertain how this new model will improve health care and deliver better outcomes as proposed by the Commonwealth. It will be important to evaluate its impact on the safety and quality of health services for the region.  

Impact of this policy

Quality of Health Care Services marginal rather fundamental fundamental
Level of Equity system less equitable neutral system more equitable
Cost Efficiency very low low very high


Sources of Information

1. Commonwealth Department of Health and Aged Care. The Australian Health Care System, An Outline. Canberra: ACT, Publications Unit, Commonwealth Department of Health and Aged Care; 2000.  

2. Buckmaster L, Pratt A. "Not on my account! Cost-shifting in the Australian health system." Parliamentary Library Research Note 2005;6(2005-06).  

3. Richardson J. Reforms for the 21st Century: Report of the Expert Advisory Group into Key Issues for Public and Private Services in Tasmania. 2004.  

4. Prime Minister of Australia John Howard. "Mersey Hospital Tasmania, A Commonwealth-Funded and Community Controlled Public Hospital." 2007 [cited 20 September 2007]; Available from:

5. State and Territory health ministers. Caring for Our Health? A report card on the Australian Government's performance on health care" 2007 [cited 09 October 2007; Available from:

6. Hobbs Tony, O'Sullivan Patrick. "Good planning is good politics." ABC News, 2007 [cited 14 September 2007; Available from:

7.Australian Healthcare Association. "Howard wrong on Mersey Hospital - AHA." 2007 [cited 2007 25 Sep]; Available from:

8. Australian Government Department of Health and Ageing. "Mersey Community Hospital Interim Advisory Committee." 2007 [cited 20 Sep 2007; Available from:  

Other sources:

Author/s and/or contributors to this survey

Gallego, Gisselle

Suggested citation for this online article

Gallego, Gisselle. "Public hospital funding in Australia". Health Policy Monitor, October 2007. Available at