Health - Hospitals

Budget Review 2010-11 Index

Budget 2010–11: Health


Rebecca de Boer

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 Government.[1] The 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’.[2]

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 (ABF).[3] The 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.[4] These arrangements were agreed at the Council of Australian Governments meeting in April, after difficult negotiations with the state and territory governments.[5] 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.

Budget measures

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 payments  and
    • $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). [6]

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.[7] Implementation of these arrangements will be supported by $163.4 million over four years to develop the infrastructure and accelerate implementation.[8]

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 populations.[9] 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 funded.[10]

The introduction of a nationally consistent approach to ABF was first agreed as part of the National Healthcare Agreement in 2008.[11] 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.[12] 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.

Performance reporting

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.[13] 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.[14]

The Government envisages that this reporting will help Australians make ‘informed choices’ about health services.[15] However, there is some evidence that ‘performance report cards’ of health care services have little impact on consumers and may even create confusion.[16] Furthermore, the way in which information is presented can have a significant influence on decision making.[17] 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.[18] 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.[19] 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.[20]

[1].     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 May 2010,

[2].     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,

[3].     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.

[4].     These commitments are further outlined in Council of Australian Governments, Communiqué, 29th Meeting, 19–20 April 2010,  viewed 15 May 2010,; and Commonwealth of Australia, A national health and hospitals network for Australia’s future – delivering better health and better hospitals’, Commonwealth of Australia, Canberra, 2010,

[5].     Council of Australian Governments, op. cit.

[6].     Australian Government, Australia’s federal relations: budget paper no. 3: 2010–11, Commonwealth of Australia, Canberra, 2010, pp. 29, 32–6.

[7].     Australian Government, Budget measures: budget paper no. 2: 2010–11, Commonwealth of Australia, Canberra, 2010, p. 233.

[8].     Budget paper no. 2, op. cit., p. 229.

[9].     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,; and M Metherell & K Murphy. Doubts cast on hospital overhaul, The Age, 5 March 2009, p. 1, viewed 13 May 2010,;query=Id%3A%22media%2Fpressclp%2FVK2W6%22

[10].   Council of Australian Governments, op. cit.

[11].   Council of Australian Governments (COAG), National Healthcare Agreement, COAG, 2008, viewed 15 May 2010,, p. A–13.

[12].   Council of Australian Governments (COAG), National Partnership Agreement on Hospital and Health Workforce Reform, COAG, 2008, p. 12, viewed 15 May 2010,

[13].   Budget paper no. 2, op. cit., p. 236.

[14].   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 May 2010,

[15].   Budget paper no. 2, op. cit.

[16].   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,

[17].   Ibid.

[18].   A national health and hospitals network for Australia’s future, op. cit.

[19].   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,

[20].   J Dwyer, ‘Health plan needs a few dollars more’, The Australian Financial Review, 11 May 2010, p. 63, http://parlinfo/parlInfo/search/display/display.w3p;adv=yes;db=;group=;holdingType=;id=;orderBy=customrank;page=0;query=Author%3Adwyer%20Date%3A11%2F05%2F2010%20%3E%3E%2012%2F05%2F2210%20Dataset%3Apressclp;querytype=;rec=0;resCount=Default

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