National Health Reform Agreement: what might it achieve?

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National Health Reform Agreement: what might it achieve?

Posted 4/08/2011 by Anne-marie Boxall


Image Source: Access to Justice
After nearly four years in government, an 18 month independent inquiry into the health system, a Prime Ministerial listening tour of the nation’s hospitals, several fraught Council of Australian Governments (COAG) meetings and one unsuccessful attempt, the federal Labor Government has finally secured a health reform deal with all states and territories.

The National Health Reform Agreement announced this week is essentially a detailed implementation plan for the Heads of Agreement on National Health Reform, which was negotiated at COAG in February 2011. Most commentators agree that the scope of reform has been scaled back over time. The reforms outlined in this Agreement and the earlier Heads of Agreement are less extensive than those outlined in the April 2010 National Health and Hospitals Network (NHHN) Agreement (for a summary of the changes made to the NHHN Agreement see here). The contentious proposal to hold back GST from the states in order to fund reforms has disappeared (this was the main reason Western Australia refused to sign up before). Other discarded reforms include plans for a Commonwealth ‘take over’ of primary health care and to become the majority funder of public hospitals.

While most commentators and stakeholders have welcomed the Agreement, some have also been critical of its narrower scope. According to Professor John Dwyer, a health policy expert, the Agreement is “a reform package in a financing/accounting sense rather than a system sense, and that's its big weakness”.

It is true that large sections of the Agreement are devoted to public hospital financing, in particular to explaining how the Commonwealth will move from block funding public hospitals to an activity based funding (ABF) system. COAG first committed to ABF in 2008, so this proposal is not new. What is new is the detail on how ABF will work in practice. The Agreement, for example, explains how states will go about budgeting for public hospitals under an ABF system, and how ABF will affect other Commonwealth funding streams to the states for health care.

The new Agreement also provides considerable detail on how funding will flow between the Commonwealth, state and territory governments and Local Hospital Networks (LHNs). It explains how a National Health Funding Pool will be created, with separate bank accounts for each state and territory. The main objective of this reform is to make financial flows from both levels of governments to LHNs more transparent, thus taking some of the heat out of the ‘blame game’ in health.

Details on the role of the Independent Hospital Pricing Authority (IHPA) are also spelt out in this Agreement. As well as determining ABF prices, the IHPA will play a role in determining what constitutes a public hospital service; this is important because the Commonwealth has committed to funding a greater share of public hospital services but not other state funded health services. The IHPA will also get involved in resolving disputes between governments over cost shifting and cross border funding arrangements.

The Agreement also provides some additional detail on the new governance and performance monitoring arrangements. The National Health Performance Authority (NHPA) will, for example, maintain the MyHopsitals website currently run by the Australian Institute of Health and Welfare (AIHW), and will compare performance data for LHNs and Medicare Locals in order to identify best practice. Sharing data is a vital part of performance monitoring and arguably one of the key weaknesses with existing arrangements. The Agreement sets out principles for data sharing between levels of government and agencies (for example the IHPA, NHPA, Australian Commission on Safety and Quality in Healthcare, AIHW, and COAG Reform Council). It also commits governments to develop more formal data sharing arrangements through a National Health Information Agreement. The need to develop such an Agreement suggests that data sharing between governments and agencies is likely to be an ongoing point of contention.

There are also some changes to local governance of public hospitals outlined in the Agreement. Importantly, LHNs will have separate bank accounts and will receive Commonwealth funding directly from the National Health Funding Pool. This means that they will have greater funding certainty and more flexibility in budgeting than they do now. There will still be limits because the state government, which remains the majority funder, will be able to shift its funds between LHNs, if necessary.

So when all is said and done, what is the Agreement likely to achieve?

The changes outlined in public hospital financing are seen by many to be genuine reforms (see for example here and here). By shifting to ABF and committing to fund a set proportion of expenditure growth, the Commonwealth will become a much more active partner in public hospital financing. But, while the states and territories will continue to own, operate and manage public hospitals, (in many ways their proportion share of funding is arguably a peripheral issue), they will continue to be the dominant partner.

By establishing national governance agencies and a performance and accountability framework, the Commonwealth is indicating that it wants to be more active in ensuring that health care providers deliver high quality care. However, the Commonwealth’s role will still be limited to overseeing, encouraging and cajoling health care providers (this includes the states, Medicare Locals and private hospitals) into achieving performance standards because the Commonwealth itself does not deliver hospital care.

The Federal Opposition has claimed that the only reason an agreement was reached was because the Commonwealth capitulated to the states. Given the starting point for negotiations on reform –Kevin Rudd's threat to takeover public hospitals unless the states lifted their game – some degree of compromise on behalf of the Commonwealth was probably needed to restore co-operative relations on health care between the two levels of government. The work that has gone into establishing formal processes that will allow the two levels of government to continue to work on some of the most contentious aspects of health care should also be beneficial. In a federation like Australia where health care is a shared responsibility across the Commonwealth and the states, co-operation between governments is essential. Reforms that facilitate this are likely to yield longer term benefits.


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