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Implementing health reform in New South Wales

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


NSW is in the process of implementing Australia's health reforms which were agreed in 2010. The most relevant change affecting both the health workforce and the public is the establishment of Local Health Networks which, in NSW, will replace the existing eight Area Health Services. The new 15 LHNs will comprise a single hospital or group of hospitals and other health services that are geographically or functionally linked.

Purpose of health policy or idea

The purpose of this policy is to create a structure of health provision which will provide a more efficient and supportive environment for the health workforce and a more focussed and responsive experience for patients. In particular, the policy is designed to make it easier for patients to navigate and access services in their community- from GP to acute and specialist care in public hospitals.

Main points

Main objectives

  • To create a structure of health provision which will provide a more efficient and supportive environment for the health workforce and a more focussed and responsive experience for patients.
  • To make it easier for patients to navigate and access services in their community- from GP to acute and specialist care in public hospitals

Type of incentives

The National Health and Hospitals Network Agreement (NHHN Agreement) which has been agreed between the Commonwealth and all States and Territories except Western Australia, provides some important incentives for the States to co-operate and to create the new LHNs:

  1. The Commonwealth will take greater responsibility for funding public hospitals (60% of an agreed price)
  2. Performance targets have been agreed and are to be monitored by an independent body, the National Performance Authority. 
  3. Increased funding will be available if hospitals meet agreed targets for emergency and elective surgery services.
  4. Funding for individual services will be provided directly by the Commonwealth government to the hospital based on activity (ie case mix funding). The State will continue to mandate the services delivered on the basis of volume, mix and quality of services as well as the budget and will oversee the sharing of high cost services such as radiology and neurology which are available only in tertiary hospitals.

Groups affected

Health sector employees, Patients

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Characteristics of this policy

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

In the Australian context, the refoms represent a modest structural change. The most interesting aspect is the extent to which these changes represent a platform for future changes which may be broader in scope. For example, there are tentative moves to identify the functions of purchansing separately from provision. The Commonwealth has established itself more firmly in the role of funder with a greater committment to performance monitoring. There are hints of a vision to develop primary health care more broadly than just GP care and attempts to trial capitation funding for chronic care.

However, at the State level, NSW may be a case where the overall result is only a rearrangement of the roles and responsibilities between the Commonwealth and State governments.

Political and economic background

In 2007, the Rudd Labor government, in its first term, appointed a Health and Hospitals Commission to investigate the possibilities for reform of Australia's health system. The results of the Commission's deliberations have been previously reported in the Health Monitor (see references above). There was no formal response to the Commission's report provided by the government. However, as the time for a federal election approached, the goverment came under internal and external pressure to propose some reforms to the health system. Mr Rudd released a discussion paper in which he proposed the formation of LHNs (which, in contrast to AHSs, will be smaller entities and have an Advisory Council) and then began a protracted round of consultations with hospital clinicians and managers and another round of negotiations with the States and Territories.

The Opposition has proposed reverting to a system of Hospital Boards and it is clear that Mr Rudd was influenced by his discussions with clinicians that more locally based management of services would improve the efficiency and quality of delivery.

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

The origins of the idea are not clear although a similar policy was canvassed as an option in the report of the Commission and rejected. Among other issues identified, the Commission considered that:

  • there was a risk in moving too fast to all Commonwealth funding
  • it would be difficult to set fair budgets
  • rural and remote areas would be problematic
  • it could generate new layers of bureauracy and cost

Since the announcement was made by Mr Rudd and the completion of the negotiations between the different levels of government, a Federal election has been held in Australia. During the election campaign, the NSW government made it clear that it would remain committed to the idea of LHNs even if the federal government changed (which, in the end, it did not).

The main purpose of the policy is to make most health services available to patients in their community and to define that community in terms of the local network. The Commission emphasised the importance of a health system driven by primary care and facilitating linkages between primary care and acute care services. Mr Rudd's first discussion paper did not mention primary care (although the government had previously undertaken some reforms in this sector by establishing a number of GP Super Clinics. The aim of these clinics was to provide all primary care services at a central location). The final version of the agreement includes provision for the formation of Primary Health Care Organisations (called Medicare Locals) which will "engage" with the LHNs. However, it is not clear how different the scope of Medicare Locals will be from the current arrangement of Divisions of GPs.

Initiators of idea/main actors

  • Government: The NSW government is in the process of establishing 15 new LHNs instead of the current 8 AHS
  • Providers: Health providers in public hospitals in NSW have been extensively consulted about the proposed changes

Approach of idea

The approach of the idea is described as:

Stakeholder positions

There has been little or no response to the NSW government's announcement of the changes to the structure of health services in the State. The Opposition political parties in NSW have claimed that the policy is similar to their suggestion, made in March 2009,  for 20 health districts each with a chief executive answerable to a Board and more decision making authority for clinicians (ie doctors).

The local branch of the Australian Medical Association welcomed the inclusion of local clinicians in hospital governance which they believe will mean that planning will be done more locally. However, the Doctors Reform Group is wary of the reforms, arguing that large hospitals would continue to draw resources from smaller community hospitals in areas of expanding populations.

Actors and positions

Description of actors and their positions
NSW governmentvery supportivevery supportive strongly opposed
Providersvery supportivesupportive strongly opposed

Influences in policy making and legislation

The LHNs will be Statutory authorities under State legislation with a Council appointed by the Minister for Health.They are the product of an agreement between the States and the federal government under which all the States (except WA) agreed to introduce the necessary legislation to create the LHNs etc This is necessary because under the Australian constitution, the States actually provide health services, particularly public hospital services (ie they own the hospitals). As yet, no legislation has been introduced in NSW.

Actors and influence

Description of actors and their influence

NSW governmentvery strongvery strong none
Providersvery strongvery strong none
NSW governmentProviders

Positions and Influences at a glance

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

Adoption and implementation

The State government and health department are managing the process of splitting up and geographically reducing eight AHS to 15 LHNs. The agreement negotiated with the Commonwealth forbids the employment of any new bureaucrats in the system so it is expected that most executives and managers will be re-deployed within the system. Despite the arrangement for direct funding for services provision, the Discussion Paper released by NSW Health outlines that each LHN will negotiate a Service Agreement, which will include a budget, with the State government.  The LHNs will also provide information about the provision of services to the State which will inform the Commonwealth of the payments to be made. Thus, there is no direct agreement between LHNs and the Commonwealth government. The Discussion Paper also outlines that the LHNs will "engage" with other LHNs to collaborate on matters of mutual interest, with local primary health care providers and organisations (although what about is not stated) and with the local community and clinicians to enable their views to be considered when making decisions on services delivery at the local level and service/capital planning at the State level.  

The role of the LHN Governing Councils is stated as being responsible for establishing and maintaining effective systems to ensure health services meet the needs of the community and the obligations of the LHN as detailed in the Service Agreement with the State. The members of the Councils will be appointed by the State Minister and will include members with expertise and experience in health management, business management, financial management, clinical practice and research. In practice, each Governing Council will consist of unpaid volunteers and will operate as a type of Board. Advertisements were placed in newspapers recently. Some members of the Council will be local clinicians who work in the LHN as a salaried or consultant doctor.

Monitoring and evaluation

No formal mechanisms for monitoring and evaluation are proposed.

In its Discussion Paper, NSW Health has rated the extent to which each of its proposed LHNs meets the criteria for their establishment which are that each will:

  • be established around a principal referral or specialist hospitals
  • be aligned with Medicare Local (PHCO) boundaries
  • have a population of around 500,000 for metropolitan LHNs and may be less for rural LHNs
  • include the quantity and type of services that will enable the community to be totally self sufficient in terms of geneal medical and surgical services and relatively self sufficient in terms of high level complex services such as radiotherapy/chemotherapy, maternity, cardiac,  stroke, paediatric surgery and mental health.
  • have appropriate economies of scale to ensire administrative overheads are not excessive (ie not more than 4% of the budget)
  • maintain established clinical service networks
  • cater for growth of the region in terms of population

Most of the metropolitaon LHNs meet the indicators (a few will not include some specialist services such as high level services). However, as expected, the Rural LHNs meet fewer criteria including some considered necessary for the provision of a comprehensive clinical service such as a stroke service as well as lacking many high level services for cancer, cardiac and paediatric surgery.

Results of evaluation

No evaluation results beyond the benchmarking exercise reported above has been undertaken.

Expected outcome

A broad-based program of reforms in Australia should consider the roles of the private hospital sector, health insurance, have a focus on primary health care (particularly around incentives to provide better care etc) and the development of more flexible funding mechanisms. Although one of the stated onjectives is to improve health outcomes, given the narrow emphasis of the reforms (ie activity-based funding and public hospitals), there seems little prospect that it will have any impact on these outcomes. Moreover, given the complexities of organisational and delivery structures now in place, it may not be possible to observe any changes even in terms of outcomes such as the provision of services locally and greater levels of responsiveness.  It may be possible to observe changes in specific elective surgeries which may take place as a result of the changes to funding.

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 low very high

There is no suggestion that the delivery of medical services will change under these reforms- thus no change in quality is expected. The expectation that LHNs will be self-sufficient may create problems for rural LHNs who will be competing for the services of clinicians and others and the level of equity of access may fall. Although no increase in bureaucracy is mandated, it is difficult to see how each LHN will be able to function in terms of providing and managing all the necessary services without an increase in staffing. A lack of ability to coordinate and share costs across LHNs may decrease the efficieny of the system.


Sources of Information

NSW Health. Health Reform in NSW. A discussion paper on implementing the federal government's "A National Health and Hospitals Network for Australia's Future" in NSW. August 2010.

Hall L, J, Robins B. Health revamp triggers $1.2b in funding. Sydney Morning Herald. August 6, 2010

Hall J (2010). Australian health care reform:giant leap or small step? Journal of Health Services Research and Policy. 15(4), 193-194.


Reform formerly reported in

Health reform in Australia: the latest installment
Process Stages: Policy Paper
Shake up of the Australia health care system
Process Stages: Idea
Reforming the Australian Health System
Process Stages: Idea

Author/s and/or contributors to this survey

Marion Haas

Suggested citation for this online article

Marion Haas. "Implementing health reform in New South Wales". Health Policy Monitor, October 2010. Available at