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Health reform in Australia: the latest installment

Partner Institute: 
Centre for Health, Economics Research and Evaluation (CHERE), University of Technology, Sydney
Survey no: 
(15) 2010
Marion Haas
Health Policy Issues: 
System Organisation/ Integration, Political Context
Reform formerly reported in: 
Shake up of the Australia health care system
Current Process Stages
Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no yes no no no no


In 2007 the Rudd Labor government was elected on a platform of health reform. In 2008, it formed the National Health and Hospitals Commission to inform its policy decisions; the NHHC reported in early 2009. In March 2010, after coming under pressure for delaying its response, the government announced its proposals for an overhaul of the health system, involving taking control and revenue away from the States and forming small hospital "networks". The plan has not been welcomed by some States.

Recent developments

Much was expected of the Rudd Labor government in the way of health reform - it was elected at a time when all the States were also governed by the centre-left Labor party and promised to end the "blame game" - a popular pastime in Australia where each level of government blames the other for perceived problems in the health system; generally, the States blame the Australian government for not providing sufficient resources to run the health system and the Australian government blames the States for inefficient management of the resources they have.

Much was also expected of the National Health and Hospitals Commission (NHHC) which spent almost 12 months consulting experts and the community as well as commissioning specific papers before compiling its final report. The report was generally well-received although there were some criticisms of various recommendations including those for Medicare Select, which would involve the introduction of competition for public insurance coverage (i.e. to some extent following the Netherlands model). Overall, however, the recommendations were broad and would have enabled the government to make a wide range of decisions about the detail of reform.

Since mid-2009, the government has come under increasing pressure to respond to the NHHC report. The Minister for Health, Nicola Roxon, in a number of speeches and announcements, signalled various proposed changes; for example, it was widely reported that the Australian government would take control of all aspects of primary health care services, including community health services currently run by the State governments. The pressure has increased recently, as 2010 is an election year at the national level. Finally, in March 2010, the Prime Minister, Kevin Rudd, used a speech at the National Press Club to announce the proposed reform, the basis of which was that the Australian government would become the "majority funder" of public hospitals (increasing the proportion it funds from 40 percent to 60 percent), the formation of small hospital networks, to be run by local clinicians and funded by the Australian government on an activity basis (i.e. DRG funding). However, it is also proposed that the States' current Goods and Services Tax (GST) revenue would be reduced by 30 percent, all of which would be directed to public hospitals. The announcement also included a proposal for the Australian government to take over all funding and policy responsibility for GP and primary health care services.

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Characteristics of this policy

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

Having one level of government responsible for the funding (even majority funding) of the health system is innovative for  a federal system such as exists in Australia. However, the national level of government has control of numerous aspects of policy related to health including the welfare system and much of the aged care system, so it would not be a completely radical change. It is highly controversial because it moves both money and power away from an area traditionally controlled by the states. Its structural impact may be fundamental in some aspects but it is difficult to know how much change would be noticed by patients. The media coverage has been constant, particularly as the announcement, the TV debate and the "fight-back" by the states have all happened in a relatively short space of time.

Purpose and process analysis

Current Process Stages

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

Initiators of idea/main actors

  • Government: The State governments have been involved in discussions regarding the proposed reforms
  • Providers: Providers are divided although generally agree that there is not sufficient detail in the proposal
  • Scientific Community: Academics agree that the level of detail in the porposal is not sufficient to enable its complete evaluation. However, there have been many criticisms of it.
  • Political Parties: The Opposition has criticised the proposals but has been hampered by lack of a policy of its own.

Stakeholder positions

The States are somewhat divided over the proposal. However, the strongest and largest States, NSW and Victoria, are opposed and Victoria has put forward its own proposal. The Premier of NSW has written to the PM asking him about issues such as whether there will be an increase in funding to meet rising demand, how the reduction in GST to states will affect their funding base overall, whether he is prepared to make a committment that no state will be worse off under his proposed reforms, whether any establishment costs associated with moving from a current model (e.g. NSW's eight Area Health Services) to the proposed model have been taken into account, how the prices for services under a new model would be set, what would happen in the case of a regional hospital which is unable to deliver services at the agreed price, what range of services are to be included in the new definition of primary care and how the proposal will result in better alignment of primary and hospital care, how will new capital developments be funded?

The Prime Minister has spend a number of weeks meeting the Premiers and health ministers in each State but has not been able to convince them to agree to his proposal. It is not very surprising that the States are opposed to a reduction in their funding and power (if the proposal went ahead as announced, much of the State's central health bureaucracy would no longer exist). A meeting of the Australian and State governments (Council of Australian governments, COAG) will soon meet and Mr Rudd has indicated that he expects agreement to be reached at this meeting. If no agreement is reached, he is proposing to put a referendum to the population to ask for their backing in his proposed take-over of funding and organisation of the health care system. In the lead-up to this meeting he is expected to announce further proposed changes (including funding), prompting additional criticism that all the proposed changes should be announced together so that entire reform proposal can be evaluated.

The oppositon Liberal Party, has recently elected a new leader, Tony Abbott, a Health Minister in a previous government. He has adopted a general position of opposing the government at every turn and did so on this occasion, despite a federal takeover of health funding and management being one of his proposals whilst in government. In a new development in the Australian political scene, the Prime Minister and the Oppositon Leader held a televised debate on the specific issue of health reform in the weeks after Mr Rudd made his initial announcement, despite the official election campaign not yet being underway. The PM was widely perceived as winning the debate largely due to the fact that the Oppositon did not have a policy with which to counter the government's proposals. Tony Abbott has since admitted that this was a mistake.

Initially, providers were positive about the proposal, largely because much of the rhetoric centered on the need for local control of local services. However, as time has passed, their sentiments have become more neutral, largely because, on closer inspection, the proposal does not contain sufficient detail to understand what changes would occur. There are some differences of opinion between the national and state brances of the Australian Medical Association (AMA).

Academics have been cautious in their approach and some are opposed. Most, however, recognise a fundamental issue in the proposal to reduce State revenue and power by less than 100 percent.

Actors and positions

Description of actors and their positions
Australian governmentvery supportivevery supportive strongly opposed
State governmentsvery supportiveopposed strongly opposed
Australian Medical Associationvery supportivesupportive strongly opposed
Scientific Community
Academicsvery supportiveneutral strongly opposed
Political Parties
Opposition partyvery supportivestrongly opposed strongly opposed
current current   previous previous

Influences in policy making and legislation

Legislative changes will be required if the proposed reforms are to go ahead. However, none is drafted as yet due to the lack of agreement between the national and state governments regarding the necessary change in the balance of powers and funding arrangements.

Legislative outcome


Actors and influence

Description of actors and their influence

Australian governmentvery strongvery strong none
State governmentsvery strongstrong none
Australian Medical Associationvery strongstrong none
Scientific Community
Academicsvery strongnone none
Political Parties
Opposition partyvery strongneutral none
current current   previous previous
Australian governmentAustralian Medical AssociationAcademicsState governmentsOpposition party

Positions and Influences at a glance

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

Adoption and implementation

The implementation is delayed due to the protracted negotiations between the national and state governments. If no agreement is able to be reached, the Australian goverment is proposing that the final say be given to the Australian population via a referendum. This could be held at the same time as the national election which is due towards the end of  2010, but the government may wish to expedite this. It is notoriously difficult to persuade the Australian population to respond positively to a referendum- the vast majority have not been successful.

Monitoring and evaluation

Evaluation of the proposed reforms (should they take place) will be possible by comparing the outcome to the stated objectives which are for the Australian government to:

  • become the majority funder of public hospitals
  • take over all funding and policy responsibility for GP and primary health care services
  • dedicate approximately 30 percent of GST revenue to fund this change in responsibilities
  • change the way hospitals are run, taking control from central bureaucracies and handing it to local hospital networks
  • changing the way hospitals are funded, by paying networks directly for each hospital service they provide (e.g. activity-based funding or DRG funding), rather than by block funding from the Australian to the state governments.

However, it is not clear that the proposed reforms will end the "blame game" as funding is still shared between the national and state governments, there are no committments to additional funding to meet additional demand and no funding for promised strategies on mental or dental care, two areas widely identified as requiring additional resources.

Expected outcome

It is not clear what the outcome will be, at a number of levels.

First, it is not clear whether the Australian and States governments will reach an agreement. If they do, it is likely to be on the basis of a modified proposal. If they do not reach agreement, it is not clear if the proposed referendum will go ahead and (if it does occur) how it will play out. Although it is clear that many Australians are not particularly happy with the way the health system is currently operating, translating this into agreement to change may not be easy.

Finally, it is not clear how the proposed reforms will actually happen. For example, in the case of GP and primary care, it is possible that nothing will happen; GPs are already funded by the Australian government through Medicare and the government may choose to direct policy concerning the other part of primary care i.e. community health services, but may not take over funding or employment of the personnel who work in this area, which is currently the responsibility of the states.

The Victorian government has proposed a 50-50 split in funding as its response to the Rudd reform package but many commentators are asking why Mr Rudd has not proposed a 100 percent takeover on the part of the federal government.

Impact of this policy

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

It is unlikely that this proposal will have any fundamental impact on the quality of services provided, as the changes are at a higher level than would be expected to affect quality. If the hospital networks are as small as was announced eg 3-4 hospitals, this could affect equity of service provision especially for populations not covered by a tertiary level hospital as their access to more specialised services could be compromised. It is not clear that the proposal as it stands would have any impact on efficiency, although this would depend on the extent to which the activity-based funding was introduced and the prices that were agreed for servies. Crucially, it would also depend on the size of the networks, which are currently proposed to include between one and four hospitals. This size is unlikely to be efficient except in the largest metropolitan areas. One commentator has urged the creation of larger regional networks, each centred around a public university with Faculties of Medicine and Health Sciences.


Sources of Information

Rudd K, Swan W, Roxon N. A national health and hospitals network for Australia's future. Commonwealth of Australia 2010.

Keneally K. Letter to the Prime Minister, Mr K Rudd. 5 March 2010

Pennington D. Prime Minister Rudd's plan for refomring Australian public hospitals. Medical Journal of Australia eMJA 9 March 2010

Deeble J. Reforming Australian health care: the first installment. Medical Journal of Australian eMJA 9 March 2010

Canberra Time: Mixed feelings after health funding talks. March 27, 2010

Franklin M. One move at a time: the strategy unfolds. The Australian, March 16, 2010

Gittens R. Sensibly done, Rudds' reform plan will treat the causes of healthcare pain. The Age, March 8, 2010.

Austen P, Grattan M, Meldew J. Show us the money, Victoria tells Rudd. The Age, March 8, 2010

Metherall M, Rowbotham J. States push back against national hospital takeover. Sydney Morning Herald, February 8, 2010.

Reform formerly reported in

Shake up of the Australia health care system
Process Stages: Idea

Author/s and/or contributors to this survey

Marion Haas

Suggested citation for this online article

Marion Haas. "Health reform in Australia: the latest installment". Health Policy Monitor, April 2010. Available at