On budget night, the Government released its response to three
key reports–those by the National Health and Hospitals Reform
Commission (NHHRC) and the Preventative Health Taskforce, and the
Primary Care Strategy. Some $7.3 billion of funding over five years
has been allocated to implement the recommendations accepted by
National Health and Hospitals Network (NHHN) is the centrepiece of
the Government’s response and has been presented by the
Government as the most ‘significant reform ... since the
introduction of Medicare’.
Central to the Government’s plan is the establishment of
independent Local Hospital Networks (LHN) and independent primary
health care organisations, to be known as Medicare Locals. LHNs
will be single or small groups of public hospitals with a
geographic or functional connection and will be directly funded by
the Commonwealth to provide hospital services. Hospitals (with the
exception of some rural and regional hospitals which will be block
funded) will be funded on the basis of activity based funding
Commonwealth will pay 60 per cent of the ‘efficient
price’ of an episode of hospital care with the states meeting
the balance. Each LHN will be responsible for the delivery of
agreed services, meeting performance standards and the day-to-day
operation of the LHNs.
The initial allocation to the NHHN of $2.2 billion over four
years is a reflection of the Government’s commitment to be
the dominant funder of public hospitals, and to take full policy
and funding responsibility for GP and primary care services and
full funding responsibility for aged care. These arrangements were agreed at the
Council of Australian Governments meeting in April, after difficult
negotiations with the state and territory governments. It should be noted that
Western Australia is not a signatory to the agreement and Victoria
did not agree to hand over responsibility for aged care.
To fund public hospitals, the Government will create a National
Health and Hospitals Network Fund. The Commonwealth and each state
and territory will jointly create a Funding Authority. Each
government will transfer funds to the Funding Authority, which will
distribute funds to the LHN on the basis of services provided.
These arrangements are expected to commence from 1 July 2011.
Agreement on the NHHN is conditional on the retention of a
proportion of goods and services tax (GST) revenue by the
Commonwealth from state and territory governments (around one-
third). The Government has also introduced a range of governance
structures and accountability measures for hospitals.
In 2010–11, the Commonwealth will provide $14.3 billion to
the state and territory governments for the provision of health
care services. For many of these measures, the Government has
allocated ‘facilitation and reward payments’ as well as
capital funding. The measures include:
- recurrent funding for around 22 000 additional elective surgery
procedures in 2013–14
- implementation of access targets for elective surgery:
- $650 million over four years for facilitation and reward
- $150 million over three years for capital funding
- additional funding for emergency departments to implement
four-hour national access targets:
- 1300 new sub-acute beds ($1.6 billion over four years) and
- flexible funding for emergency departments, elective surgery
and sub-acute care through creation of a funding pool ($200
million over four years). 
Funding of $91.8 million over four years will be
allocated to establish the Independent Hospital Pricing Authority
which will have responsibility for the development and
implementation of the activity based funding arrangements. Implementation of these
arrangements will be supported by $163.4 million over four years to
develop the infrastructure and accelerate implementation.
Activity based funding (ABF)
The shift to ABF has not been without criticism.
Commentators have expressed reservations: there is insufficient
data to calculate a single national price, there are differences
among the states in the cost of procedures and superannuation, and
there are problems in adjusting the formula to account for
differences in Aboriginal and Torres Strait Islander and rural
Concerns raised about the ongoing viability of rural and remote
hospitals under ABF prompted the Government to agree that some
small regional and rural public hospitals will be block
The introduction of a nationally consistent
approach to ABF was first agreed as part of the National Healthcare
Agreement in 2008. Implementation to date has been slow. According to the
proposed outputs of the implementation plan, a patient
classification system and refined casemix costing methodology was
to be agreed by the end of 2009–10. Work was to commence on
the development of a common approach to costing small or regional
hospitals not adequately funded by ABF, and a common framework for
the funding of training, research and development was to commence
during 2009–10 to be finalised by 2010–11. Continuing debate
about the introduction of ABF would suggest that many of these
issues remain unresolved. It remains to be seen whether the
creation of the Independent Hospital Pricing Authority will
facilitate resolution of these issues and meet the proposed
implementation 2012 date for ABF for the NHHN.
There is a strong focus on performance reporting and management
in the NHHN. All public and private hospitals, Medicare Locals and
LHNs will be overseen by the National Performance Authority, at a
cost of $118.6 million over four years. A range of reports will be required:
each hospital will be required to produce a ‘Hospital
Performance Report’, all LHNs will be required to report
against national standards and a ‘Healthy Communities
Report’ will also be produced by each of the Medicare Locals.
This level of reporting has the potential to create a significant
administrative burden on health care professionals and providers
with the additional risk of duplication of effort and data.
Performance indicators and reporting will be set against
‘new, higher national standards’, although little
detail is yet available about what these standards might be and the
implications for clinical governance, safety and quality standards
and reporting. While performance reporting can deliver improvements
in quality, care and safety, there are also limits to its capacity
and ability to identify underlying systemic issues such as poor
clinical governance and staff morale which can have profound
impacts on patient safety.
The Government envisages that this reporting will help
Australians make ‘informed choices’ about health
However, there is some evidence that ‘performance report
cards’ of health care services have little impact on
consumers and may even create confusion. Furthermore, the way in which
information is presented can have a significant influence on
decision making. The format, standards and content of this reporting
remain to be determined.
Much of the commentary about the establishment of LHNs occurred
soon after the Prime Minister’s announcement in March
2010. One of
the significant criticisms of the LHNs was the potential lack of
integration with other aspects of the health care system, notably
primary care and aged care. Although it is anticipated that Medicare Locals
and LHNs would have common geographic boundaries, neither appear to
be accountable to a single governing entity, potentially adding to
the fragmentation of the health care system. Integration and
‘reform’ of the health care system may well be limited
if there is no single point of accountability.
. N Roxon (Minister for Health and
Ageing), Three major reform projects responded to in the
2010–11 Budget, media release, 11 May 2010, viewed 12
. N Roxon (Minister for Health and
Ageing), Building a health and hospitals network for
Australia’s future, media release, 11 May 2010, viewed
12 May 2010,
. Activity based funding refers to
making payments on the basis of outputs delivered by health service
providers. In the hospital context this can refer to a hospital
admission or an emergency department visit. It is also known as
casemix funding; and typically casemix classifications have been
developed for inpatient services and include the full range of
services received by a patient during their hospital stay.
These commitments are further outlined in
Council of Australian Governments, Communiqué,
29th Meeting, 19–20 April 2010, viewed 15
and Commonwealth of Australia, A national health and hospitals
network for Australia’s future – delivering better
health and better hospitals’, Commonwealth of Australia,
Council of Australian Governments, op. cit.
. Australian Government,
Australia’s federal relations: budget paper no. 3:
2010–11, Commonwealth of Australia, Canberra, 2010, pp.
. Australian Government, Budget
measures: budget paper no. 2: 2010–11, Commonwealth of
Australia, Canberra, 2010, p. 233.
. Budget paper no. 2, op. cit., p.
. See P Gross, in ‘Panel to
discuss Rudd’s hospital plan’, The 7.30
Report, transcript, Australian Broadcasting Corporation, 3
March 2010, viewed 12 May 2010, http://www.abc.net.au/7.30/content/2010/s2835827.htm;
and M Metherell & K Murphy. Doubts cast on hospital overhaul,
The Age, 5 March 2009, p. 1, viewed 13 May 2010,
Council of Australian Governments, op. cit.
Council of Australian Governments (COAG), National Healthcare
Agreement, COAG, 2008, viewed 15 May 2010,
Council of Australian Governments (COAG), National Partnership
Agreement on Hospital and Health Workforce Reform, COAG, 2008,
p. 12, viewed 15 May 2010,
. Budget paper no. 2, op. cit., p. 236.
. See M
van der Wyden, ‘The Bundaberg Hospital: the need for reform
in Queensland and beyond’ Medical Journal of
Australia, vol. 183, no. 6, 2005, pp. 284–5, viewed 15
. Budget paper no. 2, op. cit.
. J Hibbard, P Slovic, E Peter and M Finucane,
‘Strategies for reporting health plan performance information
to consumers: evidence from controlled studies’, Health
Services Research, vol. 37, no. 2, 2002, pp. 291–313,
national health and hospitals network for Australia’s
future, op. cit.
. For an
overview of the commentary, refer to D Pennington, ‘Prime
Minister Rudd’s plan for reforming Australian public
hospitals’, Medical Journal of Australia, vol. 192,
no. 9, 2010, pp. 507–8,
and I Hickie, ‘The 2010 Rudd plan: will it actually deliver
better services?’, Medical Journal of Australia,
vol. 192, no. 9, 2010, pp 511–12, viewed 15 May 2010,
Dwyer, ‘Health plan needs a few dollars more’, The
Australian Financial Review, 11 May 2010, p. 63,
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