Bills Digest No.163  1997-98 Health Legislation Amendment (Health Care Agreements) Bill 1998

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This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.


Passage History
Main Provisions
Contact Officer and Copyright Details

Passage History

Health Legislation Amendment (Health Care Agreements) Bill 1998

Date Introduced: 12 March 1998

House: House of Representatives

Portfolio: Health and Family Services

Commencement: Royal Assent, except for the proposed sections dealing with the establishment of a Health Care Information Commissioner. These sections are to commence on a day to be proclaimed which must be within 12 months of this Act receiving Royal Assent.


  • To introduce amendments dealing with a new Health Care Agreement between the Commonwealth and the States and Territories that will apply from 1 July 1998;
  • To provide that financial assistance will be conditional on adherence to the Health Care Agreement Principles, and the development of a Public Patients' Charter; and
  • To establish the position of Health Care Information Commissioner.


Medicare was introduced on 1 February 1984 and is Australia's national health care funding system. Medicare provides universal access for all Australian residents to free or subsidised medical care and free hospital treatment in public hospitals, irrespective of age, income or health status. Benefits are also available on a limited basis to persons covered by ministerial order (eg. applicants for refugee status) and to citizens of countries which have reciprocal health care arrangements with Australia.(1) Medicare is funded from general taxation revenue, plus a levy on taxable income payable only by those earning above a certain income level.

Australian residents can choose to be Medicare patients in a public hospital, or private patients in public or private hospitals. If they choose to be a Medicare patient, treatment is provided free of charge by doctors nominated by the hospital. State and Territory governments are responsible, under agreements with the Commonwealth Government, for ensuring that services, adequate to meet these entitlements, are available in public hospitals. This component of Medicare is funded jointly by the Commonwealth Government and State and Territory governments.


The Commonwealth provides financial assistance to the States and Territories for public hospitals and other health services. Financial assistance is not payable unless a State or Territory has entered into an Agreement. Agreements between the Commonwealth and the State and Territory governments are for a five year period. The current Agreements were negotiated in 1993 and are in force under section 24 of the Health Insurance Act 1973 (the Principal Act). These Agreements end on 30 June 1998. The amount of financial assistance which the Commonwealth contributed under the current agreements was $26 billion.

Negotiations on a new Agreement began in earnest in December 1997 with a meeting of Commonwealth, State and Territory Health Ministers. At this meeting the Commonwealth offered to increase its contribution for health services by an extra $3 billion, to $29 billion, over five years. This offer was rejected by State and Territory governments who said that the sum was inadequate to make up for the increased burden on the public hospital system caused by a fall in the number of patients with private health insurance, which they say is costing them an extra $622.5 million a year.(2) They asked for an additional $1.1 billion a year over the life of the agreement (a $5.5 billion increase on the Commonwealth's offer to $34.5 billion).(3)

On 15 January 1998 the Australian Capital Territory Government accepted in principle the new health funding arrangements, on the understanding that if the States and the Northern Territory were able to negotiate increased funding, then the ACT would also benefit.

At this time it was confirmed that the Commonwealth expected to be able to find an additional $80 million or $100 million (later increased to $120 million) - some of it left over from the gun buy-back levy - which would be used to reduce hospital waiting lists in 1998-99. This additional funding was offered as an incentive to the States and Territories to sign the new Agreement.(4) The Minister for Health and Family Services, Hon Dr Michael Wooldridge MP, said that the extra $120 million would reduce national waiting lists (which he quoted as being between 100,000 and 120,000 patients) by more than 40,000 people.(5) Under the plan, $4 million would be released each week from 16 March 1998 to States and Territories which signed up to the Health Care Agreement.

Despite a number of meetings in 1998, Health Ministers of the States and Northern Territory were unable to reach agreement with the Commonwealth. The States insisted that they needed an additional $1.1 billion a year to meet growing demand, an ageing population and continuing declines in private health insurance.(6) They complained that the Commonwealth Government has not increased funding to public hospitals, despite the fact that the current Medicare Agreements provided a trigger to review funding each time private health insurance coverage fell by 2%.(7) Two reviews of Medicare Agreement funding were carried out under these arrangements, but the States received no additional grants.(8)

The Commonwealth increased its offer to $30.170 billion over five years, in part by agreeing to pay the full cost of services for veterans provided in public hospitals (estimated at $750 million for five years). In addition the Commonwealth's proposal included automatic adjustments for any further decline in the coverage of private health insurance in any State or Territory.(9) These would take the form of an extra payment of $83 million a year for ever percentage point fall in private health coverage from June 1999.(10)

In rejecting the States' demands for additional money, the Commonwealth has argued that the States have not maintained their own levels of funding for public hospitals. It has been stated that when the current Medicare Agreements came into effect in 1993-94, the Commonwealth increased its contribution to hospital funding by around 10%. 'State Treasuries skimmed this money off the top and used it to replace reduced State funding. None of the Commonwealth's additional money found its way into health, and State funding took three years to return to 1992-93 levels'.(11)

Further discussions on the Health Care Agreements(12) took place at the Premiers' Conference held on 20 March 1998. When the Commonwealth indicated that it would not increase its offer, the State and Territory leaders left the Conference. The Prime Minister, Hon John Howard MP, later stated on national television that his Government would provide health care funding to the States and Territories after 1 July 1998, consistent with the Commonwealth's offer. The Government will distribute the money through special purpose payments.(13)

This Bill is introduced ahead of the Commonwealth having reached agreement with the States and the Northern Territory on the amount of financial assistance to be paid by the Commonwealth for health services and related matters.

Cost shifting

This Bill also establishes a position of Health Care Information Commissioner to gather information on the extent of cost shifting from State health budgets to the Commonwealth. The Minister for Health and Family Services, Hon Dr Michael Wooldridge MP, has identified cost shifting as a long standing problem in Australia's health system.(14)

An example of cost shifting would be charging Medicare for hospital patients when the cost should have been paid out of the State hospital grants. According to press reports, 'hospitals cost-shift by various means, including setting up private clinics in hospital grounds and referring patients for expensive services such as pathology and radiology'.(15) Other press reports suggest that the prolonged accommodation of elderly people from rural areas in State-funded hospitals instead of in Commonwealth-run nursing homes,(16) or the increased out-of-pocket expenses borne by patients, are other forms of cost shifting which benefit the Commonwealth.(17) Although there have been many allegations of cost shifting in the health care system, it has proven difficult to identify the extent of the practise.

In the 1996-97 Budget, the Government announced its intention to introduce a more accurate mechanism to measure the extent of cost shifting. From 1 November 1996, doctors who billed Medicare for services which would generally be identified as outpatient services, pre-admission or post-discharge services were required to identify those services on their account forms.(18) The Australian Medical Association (AMA) complained that doctors were being required to 'blow the whistle on the State governments', and that they were 'being dragged into the cost-shifting war between the Commonwealth and the States'.(19) In April 1997 it was reported that only one in five doctors were complying with the Government's requirement when submitting Medicare account forms.(20) The AMA has agreed to cooperate with the Government in developing strategies to reduce cost shifting, in return for a commitment to remove the requirement for doctors to mark their accounts.(21)

The Health Care Agreements appear to offer an opportunity for the Commonwealth, States and Territories to take a more objective approach to dealing with cost shifting through improved information sharing.

Main Provisions

Amendments to the Health Insurance Act 1973

The effect of Item 4 is to move the definition of a 'private hospital' from the Health Insurance Act 1973 to the National Health Act 1953. According to the Explanatory Memorandum, this will put together the in the National Health Act similar provisions relating to the definition of private hospital and private day hospital.

Item 5 inserts a definition of a 'public hospital' in the Principal Act. A public hospital is defined as a hospital, other than a private hospital or day hospital facility, where hospital services to public patients are wholly or partly funded by a State, or a hospital declared to be a public hospital by the Minister. At present the Principal Act uses the terms 'recognized' or 'recognised' hospital to mean a public hospital, and this amendment, and the consequential amendments in items 6-11, are intended to clarify the meaning of the Act.

Proposed section 25 includes a definition of a 'designated health service' as used in this Bill. The definition includes the notion of a service which historically was provided by a hospital, though it may not be provided in this way now.

Comment: The provision of health care is changing, and hospitals are becoming less important overall. For example, reports indicate that the average length of stay by patients in acute care facilities fell 30% between 1985-86 and 1993-94, and is continuing to fall. Same day services, as a proportion of all acute services, has now grown to approximately 40%. Changes in technology will continue to move the provision of health care services into the community setting.(22) This definition seems to have been chosen to allow States flexibility to choose different ways in which to provide health services most efficiently.

Item 12 repeals Part III of the Principal Act and replaces it with a new Part III. Proposed section 26 provides that the Commonwealth may enter into an agreement with a State, (which is defined in section 23E of the Principal Act to include the Northern Territory and the ACT), in order to provide financial assistance for designated health services and related matters for five years from 1 July 1998. The scope of the proposed Health Care Agreements is said to be wider than the previous Medicare Agreements, in that funding will also be provided for very substantial projects and programs that seek to achieve change over the period of the Agreements (Proposed Division 3, National Health Development Special Assistance, [see below]).

Financial assistance will not be provided unless a State has entered into an Agreement with the Commonwealth (proposed section 28).

Proposed sections 29 and 30 list the major conditions to which grants will be subject. These are:

  • Adherence to Health Care Agreement Principles (proposed section 29)

The principles are:

  1. Eligible people must be given a choice to receive public hospital treatment as a public patient free of charge;
  2. Access to public hospitals is to be on the basis of clinical need and within a clinically appropriate time. (This principle is intended to prevent private patients gaining earlier access to public hospitals.); and
  3. States are to ensure provision of public hospital services to all eligible persons, regardless of where they live.

These three principles reflect the Medicare Principles in Part III of the Health Insurance Act 1973.

  • Development of a Public Patients' Charter (proposed section 30)

States must agree to the development of a Charter which gives people information about the provision of designated health services, the process by which they can lodge complaints about health services and how those complaints will be heard. This requirement is similar to that included in the 1993 Medicare Agreements.

What is new in this Bill is the proposed subsection 30(2) which requires each State to specify the minimum standards for the content of the Charter, the structure and operation of the complaints body, and public access to the Charter, together with a date by which the State will have a Charter in place that meets its minimum standards.

Agreements may be varied with the consent of both parties, but variations are to comply with the conditions set out above (proposed section 31). Agreements are to be tabled in both Houses of Parliament (proposed section 32).

National Health Development Special Assistance

Proposed Division 3 provides Commonwealth funding to the States or to other parties for projects and programs that are designed to improve the efficiency and effectiveness of the delivery of, or reduce the demand for, designated health services, or to improve patient outcomes in relation to delivery of health services. The conditions for financial assistance to States include adherence to the Health Care Agreement Principles and the development of a Public Patients' Charter, and additional terms and conditions specified by the Minister (proposed section 35). The Minister may specify criteria for approving projects and programs, and the Minister's guidelines may be disallowed by Parliament under section 46A of the Acts Interpretation Act 1901 (proposed section 36). National Health Development Assistance is to be funded from Consolidated Revenue (proposed section 37).

Health Care Information Commissioner

Item 13 inserts a proposed Part IIIA dealing with the new office of Health Care Information Commissioner. The Commissioner's functions will include:

  • collecting and analysing patient level data supplied by the Commonwealth and the States, and
  • providing reports to the Commonwealth and the States on health service provision.

The Health Care Information Commissioner must ensure that any reports produced do not allow identification of individual patients (proposed section 38C).

The effect of proposed section 38E is to enable the Commissioner to gather information on medicare benefits and pharmaceutical benefits.

In carrying out his or her functions, or exercising his or her powers, the Commissioner must have regard to resolutions of the Health Ministers' Conference (proposed section 38F), and comply with written directions of the Minister for Health and Family Services (proposed section 38J). The Minister is also empowered to make guidelines concerning the use and secrecy of any personal information collected by the Commissioner. These guidelines may be disallowed by Parliament under section 46A of the Acts Interpretation Act 1901 (Proposed section 38H).

Proposed Division 3 sets out matters relating to the terms and conditions of the Health Care Information Commissioner's appointment. The Commissioner is to be appointed by the Minister after consultation with State Health Ministers, for a period ending no later than 31 December 2003, on a full or part-time basis (proposed section 38K). Salary and allowances for the Commissioner are to be determined by the Remuneration Tribunal (proposed section 38M), and the States may be required to contribute to funding the position (proposed section 38T). This is a matter which is still to be resolved in negotiations over the Health Care Agreements.

Amendments to the National Health Act 1953

The effect of Item 1 is to insert a definition of a 'private hospital' that is consistent with the definition which is to be repealed from the Health Insurance Act 1973 (Item 4 of Schedule 1 refers.)


  1. Health Insurance Commission, Annual Report 1996-97, Health Insurance Commission, Tuggeranong, 1997, 27.
  2. '$3 billion boost to nation's health budget', The Age, 18 December 1997, A8; 'States reject "inadequate" health offer', The Australian Financial Review, 20 December 1997, 3; 'Canberra "blinkered on health fund fall"', Sydney Morning Herald, 21 March 1998, 10.
  3. 'Howard and Borbidge in money talks', The Australian Financial Review, 10 March 1998, 3.
  4. 'Medicare deal breaks ranks with states', Canberra Times, 16 January 1998, 1.
  5. 'States reject latest $120m health offer', The Age, 20 February 1998, A9; 'All States, Territories gain from Commonwealth offer', Media release, Minister for Health and Family Services, MW 39/98, 10 March 1998.
  6. 'States reject latest $120m health offer', The Age, 20 February 1998, A9.
  7. 'Howard and Borbidge in money talks', The Australian Financial Review, 10 March 1998, 3.
  8. Review of Medicare Agreement funding pursuant to the decline in health insurance coverage, a report prepared by a Working Group of Commonwealth, State and Territory Officers for consideration by Health Ministers, [unpublished, 1995]; 2% Review (1996): Review of Medicare Agreement funding pursuant to the decline in health insurance coverage September 1994 to September 1995, a report prepared by officials of the Commonwealth Department of Health and Family Services in consultation with State and Territory officials, [unpublished], February 1997.
  9. 'Wooldridge furious after Medicare rebuff', Australian, 11 March 1998, 2.
  10. 'Bitter deadlock on health funds', Sydney Morning Herald, 21 March 1998, 1.
  11. 'All States, Territories gain from Commonwealth offer', Media release, Minister for Health and Family Services, MW 39/98, 10 March 1998.
  12. In a Media Release from the Minister for Health and Family Services dated 1 August 1997, it was announced that the Medicare Agreements were to be retitled 'Australian Health Care Agreements'.
  13. 'Bitter deadlock on health funds', Sydney Morning Herald, 21 March 1998, 1.
  14. Second Reading Speech, House of Representatives, Parliamentary Debates, 12 March 1998, 778.
  15. 'State in shock at $34m bill for health', Sydney Morning Herald, 20 November 1997, 1.
  16. 'NSW disputes $100m aged care bill', Sydney Morning Herald, 13 December 1997,
  17. 'Cost-shifting: no win mahyem(sic)', Roger Kilham, Australian Medicine, 16 September 1996, 10.
  18. Department of Health and Family Services, Budget papers 1996-97, 4.
  19. 'Doctors in Catch 22 on cost-shifting: Government must rethink dobbers plan', AMA, Media release, 24 November 1996.
  20. 'Cost-shifting paperwork ignored', Australian Doctor, 11 April 1997.
  21. 'New strategies for cost-shifting', Australian Medicine, 4 August 1997.
  22. Cost-shifting: no win mahyem(sic)', Roger Kilham, Australian Medicine, 16 September 196, 10.

Contact Officer and Copyright Details

Rosemary Bell
23 March 1998
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

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ISSN 1328-8091
© Commonwealth of Australia 1997

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Published by the Department of the Parliamentary Library, 1997.

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