MAY 1998

© Commonwealth of Australia 1998

ISSN 1440-2572



    Health Care Agreement Principles
    Public Patients' Charter
    National Health Development Special Assistance
    Health Care Information Commissioner




    Health Care Agreement Principles
    Cost Shifting
    Health Care Information Commissioner
    National Health Development Special Assistance
    Public Patients' Charter
    Protection if Agreements not signed
    Bill as Enabling Legislation




APPENDIX 1 – Submissions received by the Committee  
APPENDIX 2 – Public hearing  




Senator Sue Knowles, Chairman LP, Western Australia
Senator Andrew Bartlett, Deputy Chair AD, Queensland
Senator Kay Denman ALP, Tasmania
Senator Alan Eggleston LP, Western Australia
Senator Michael Forshaw ALP, New South Wales
Senator Ross Lightfoot LP, Western Australia

Former Members

Senator Kay Patterson LP, Victoria
Senator Karen Synon LP, Victoria

Substitute Members for the inquiry into the Health Legislation Amendment
(Health Care Agreements) Bill 1998

Senator Meg Lees (for Senator Bartlett) AD, South Australia
Senator Ron Boswell (for Senator Synon from 8 April to 29 April 1998 and

Senator Patterson from 30 April 1998)

NPA, Queensland

Participating Members

Senator Eric Abetz LP, Tasmania
Senator Bob Brown Greens, Tasmania
Senator the Hon Bob Collins ALP, Northern Territory
Senator Mal Colston Ind, Queensland
Senator Barney Cooney ALP, Victoria
Senator the Hon Rosemary Crowley ALP, South Australia
Senator Chris Evans ALP, Western Australia
Senator the Hon John Faulkner ALP, New South Wales
Senator Brenda Gibbs ALP, Queensland
Senator Brian Harradine Ind, Tasmania
Senator Sue Mackay ALP, Tasmania
Senator Dee Margetts GWA, Western Australia
Senator Shayne Murphy ALP, Tasmania
Senator Belinda Neal ALP, New South Wales
Senator Kay Patterson LP, Victoria
Senator the Hon Margaret Reynolds ALP, Queensland
Senator Sue West ALP, New South Wales
Senator John Woodley AD, Queensland



1.1 The Health Legislation Amendment (Health Care Agreements) Bill 1998 was introduced into the House of Representatives on 12 March 1998 and passed with amendments on 26 March. The House of Representatives Message transmitting the Bill to the Senate was reported on 31 March 1998. On 1 April 1998, the Senate, on the recommendation of the Selection of Bills Committee (Report No. 4 of 1998), referred the provisions of the Bill to the Committee for report by 18 May 1998. The reporting date was subsequently extended to 1 June 1998.

1.2 The Committee considered the Bill at a public hearing on 5 May 1998. The Health Ministers from New South Wales, Victoria, South Australia, Western Australia and Tasmania appeared at the public hearing. Details of the public hearing are referred to in Appendix 2. The Committee received eleven submissions relating to the Bill and these are listed at Appendix 1. Additional information provided to the Committee either at or following the public hearing is also listed in Appendix 1.


2.1 The Health Legislation Amendment (Health Care Agreements) Bill 1998 establishes a legislative basis for the Commonwealth to enter into agreements with the States and Territories, to be known as Australian Health Care Agreements, for the provision of designated health services for eligible people over the period 1 July 1998 to 30 June 2003. [1]

2.2 The definition of `designated health services' is intended to cover the range of services that are provided in public hospitals and funded under the present Agreements, as well as services that used to be provided as hospital services but are moving or have moved outside the hospital. [2]

2.3 The Australian Health Care Agreements will replace existing agreements under section 24 of the Health Insurance Act 1973, known as Medicare Agreements, which expire on 30 June 1998.

2.4 The Minister in the Second Reading Speech stated that:

This legislation is a concrete demonstration of this Government's commitment to retain Medicare as a system ensuring universal access to necessary health services. The Bill provides the basic framework for agreements between the Commonwealth and the States for the provision by the States of acute health services to public patients free of charge in return for Commonwealth financial assistance…Every Australian resident eligible for Medicare is to be given a choice to be treated free of charge as a public patient. Access to such services is to be based upon clinical need and is to be provided within clinically appropriate periods, regardless of the geographical location of the patient. [3]

2.5 While the Bill provides for money to be appropriated on the basis set out in Agreements, it does not specify amounts of money to be paid under Agreements. However, the Commonwealth offer to the States and Territories is for $2.9 billion over the period 1998 -99 to 2002-03. Also, the Bill does not include details of the range of services to be provided by the States. These and other details will be negotiated bilaterally in the Agreements. [4]

2.6 The legislation provides special assistance for national health development initiatives and a mechanism, through the establishment of a Health Care Information Commissioner, to address the issue of cost shifting between levels of government.

2.7 Each State and Territory Health Care Agreement will be negotiated bilaterally and therefore may differ in detail. However, all Agreements will:

Health Care Agreement Principles

2.8 The legislation provides for Health Care Agreement Principles for the provision of services as set out in section 29 of the Bill:

2.9 The principles are based closely on those in the existing legislation, which was endorsed by Health Ministers as part of their Vision for the Health of Australians at their 23 May 1997 meeting.

Public Patients' Charter

2.10 The legislation retains the need for States to continue to make available a Public Patients' Charter and an appropriate complaints mechanism. [7] The Charter is a document for the dissemination of information about the provision of designated health services and the mechanism for submitting and having complaints about the services dealt with.

2.11 Each State is required to specify minimum standards for the content of the Charter and the structure and operation of the complaints body and for public access to the Charter, and a date by which the State will have in place a Charter meeting the standards. [8]

National Health Development Special Assistance

2.12 The legislation also provides special Commonwealth support for major projects to enhance and improve the acute care system, improving the efficiency and effectiveness of the delivery of designated health services, improving patient outcomes in relation to the delivery of these services and addressing the factors that lead to unnecessary hospitalisation.

2.13 The Minister in the Second Reading Speech stated that `the Commonwealth will not be imposing uses for this money on the States, but will instead be inviting proposals from the States as to how the money might best be spent'. [9] Detailed arrangements for the selection and funding of projects will be set out in Agreements. [10]

Health Care Information Commissioner

2.14 The legislation establishes a Health Care Information Commissioner as a statutory authority responsible for the collection, analysis and dissemination of deidentified patient level data from the Commonwealth and the States. The Commissioner is also to carry out functions conferred on him/her under Agreements between the Commonwealth and the States. The Minister in the Second Reading Speech stated that `the Commissioner will identify the movement of services around the health system and report on how these services are funded'. [11]

2.15 The Information Commissioner will be appointed by the Commonwealth Minister for Health, after consultation with State Ministers for Health. The Bill specifies that the Commissioner must have regard to resolutions of the Health Ministers' Conference when performing functions and exercising powers, and that the Commissioner's reports will be made available to all parties. [12]


3.1 It is worth noting, as per the aforementioned paragraphs, that the legislation does not deal with the specific offers that have been made to the States and Territories.

3.2 Therefore one needs to view the reference of this Bill to the Committee by the Opposition in context. Clearly the only reason for the reference was to highlight the variation of views between the States, the Northern Territory and the Commonwealth. It is not surprising that the States and the Northern Territory took such an opportunity to present their arguments surrounding the impasse in negotiations over the Australian Health Care Agreements even though, they too were aware that their `claims' had little to do with the specifics of the Bill and everything to do with continuing the negotiations.

3.3 Unquestionably there were many issues raised and discussed in the Committee hearing about the impasse however that does not create a foundation upon which a Senate Legislation Committee formulates its report on a Bill.

3.4 A Report of a reference of a Bill is designed to specifically report upon the issues that were raised in relation to various clauses of the Bill and the effects, either positive or negative, of those clauses.

3.5 As stated previously, the Bill does not include details of the range of services to be provided by the States and while the Bill does provide for money to be appropriated it DOES NOT specify amounts. These have been previously, and continue to be, negotiated bilaterally.

3.6 Some matters raised in submissions that do relate to the Bill and the Departmental response follow.

Health Care Agreement Principles

3.7 Commonwealth Financial assistance is conditional on adherence by the States and Territories to the Health Care Agreement Principles. The States and Northern Territory raised issues relating to the Principles. With Principle 1 they argued that the definition of `designated health services' was `too vague and ambiguous' and that it was unclear how such services not provided at a hospital would be funded. The issue with Principle 2 related to the level of funding required to ensure that access to services was provided `within a clinically appropriate period'. In relation to Principle 3, the issue was that in ensuring equitable access regardless of geographical location, it may not be feasible for States and Territories with widely dispersed populations to provide rural and remote areas with the same services provided in cities. [13] The Australian College of Health Service Executives raised similar issues. [14]

3.8 The Principles were supported in a number of submissions. For example, the Council on the Ageing noted that `these principles are fundamental to consumers and reinforce the important message of a universal health system'. [15]

3.9 DHFS advised that the Commonwealth intends the new Agreements to be focussed on funding acute health services rather than simply public hospitals. Such a change in emphasis should encourage improved integration of care between hospitals and other service providers, and support developments in providing acute care outside the hospital setting. The definition of `designated health services' is intended to cover the range of services that are provided in public hospitals and funded under the present Agreements, as well as services that used to be provided as hospital services but are moving or have moved outside the hospital.

3.10 DHFS continued that the Commonwealth's intention is to ensure that free access is provided to services that were hospital services but can now be provided in other settings. However, patients should continue to receive these services without charge. The Commonwealth also intends that the scope of the definition of `designated health services' will be spelt out in Agreements, and modified to meet the particular circumstances of particular States and Territories. [16]

Cost Shifting

3.11 DHFS informed the Committee that the Commonwealth believes, on the basis of widespread anecdotal evidence and some statistical evidence, that services previously provided as a part of public hospital services funded by the States have been provided in a way shifting them onto the Medicare Benefits and Pharmaceutical Benefits programs that the Commonwealth alone funds. In the 1996-97 and 1997-98 financial years, the Commonwealth imposed a cost-shifting penalty on the States based on an analysis of the available data. [17] The penalty imposed was the withholding of $152.5 million from the Medicare Agreement Hospital Funding Grants over the two financial years. [18]

3.12 The States and Territories strongly opposed the imposition of this penalty, criticising it as being arbitrary and unfair. They claimed that the Commonwealth has not provided empirical evidence of alleged cost shifting practices to justify these financial penalties, strongly disputed the assertion that they have deliberately directed services away from the public hospital system into the private sector, and argued that there are many areas where Commonwealth policies and practices have resulted in the Commonwealth shifting costs to State and Territory Health Services. [19] The States and Northern Territory contend `that the issue of cost shifting is a result of current structural arrangements in the health system'. [20]

3.13 As noted above, the Department's action over cost shifting was based on `widespread anecdotal evidence and some statistical evidence'. At the hearing, the Department explained that `the problem that we have faced in the past, and continue to face, is that there are instances of changes in the way people do things in the hospital system that result in increased expenditure for the Commonwealth through the MBS and PBS. Sometimes those probably reflect better practice and they may be better for patients. Sometimes they reflect decisions that are being made without regard for improvement of treatment of patients and constitute a deliberate attempt to shift costs… It is getting that precise measurement that is difficult without doing a lot of the data matching work that we hope the [proposed Information] commissioner could do'. [21]

3.14 The Department acknowledged that the penalty `was a contribution towards what cost shifting had occurred on the basis of its broad analysis' [22] and subsequent to the hearing provided the Committee with examples representing what it believed to be the most common forms of cost shifting which included:

3.15 The Department also provided an explanation of how the $75 million cost shifting penalty for 1996-97 was derived. Over the period 1995-96 on 1994-95, `the difference between total actual Medicare Benefits paid and total adjusted Benefits paid (ie adjusted for high growth States (Victoria and Western Australia)), is assumed to be the value of cost shifting'. [24] DHFS conceded that this was `by no means an accurate calculation' but was `a very conservative estimate'. [25] Subsequent cost shifting penalties have been calculated using this base figure, adjusted for indexation.

Health Care Information Commissioner

3.16 The States and Northern Territory noted that the establishment of a Health Care Information Commissioner formalises in legislation recognition of cost shifting. They believe that it is clear that the impetus for the Information Commissioner is Commonwealth concerns about cost shifting by the States and Territories, with, what they claim to be, no due recognition of substantial cost shifting by the Commonwealth to the States and Territories. As noted above, the States and Northern Territory argued that cost shifting is a result of current structural arrangements in the health system. They consider that `instituting a legal solution to cost shifting is not the answer – it lies in fundamental structural reform of the roles and responsibilities of jurisdictions'. [26]

3.17 The States and Northern Territory also argued that if they agreed to support the establishment of the Information Commissioner, the position should be `independent from the Commonwealth and should be constituted to report to Parliament rather than the Minister'. [27]

3.18 The Bill provides that the Information Commissioner would have the independence accorded a statutory authority and is to be appointed after consultation with State Ministers for Health. As noted earlier, the Bill also specifies that the Commissioner must have regard to resolutions of the Health Ministers' Conference when performing functions and exercising powers, and that the Commissioner's reports will be made available to all parties. DHFS noted that, subject to the agreement of the States and Territories, it is possible that the functions of the Insurance Commissioner could be assumed by the Health Insurance Commission, in which case the stringent privacy requirements pertaining to the HIC would apply to the Commissioner. [28] DHFS suggested that the HIC could be able to adopt a bipartisan approach given the recent changes to the HIC which gave it greater independence, including the appointment of State representation on its Board. [29]

3.19 The establishment of the position of Information Commissioner was seen by a number of organisations as a `positive innovation' and one `to be applauded'. Indeed, it was submitted that the Commissioner's role and functions could be enhanced. The Australian College of Health Service Executives suggested that it would be remiss if the Commissioner `was just another layer in the monitoring spiral'. They proposed that `what is needed is a genuine expert working for the entire health care system, analysing and reporting on how the system is used, by whom, for what and where. The benefit of the [Commissioner] could be as an analyst on an integrated health care system'. [30]

National Health Development Special Assistance

3.20 The National Health Development Special Assistance funding is provided for health system restructuring. The States and Northern Territory noted that the funds are not recurrent and projects will be effectively `demonstration projects' that will provide data to enable the Commonwealth to measure possible future savings. They claimed that `the Commonwealth has already proposed a number of substantial projects for this funding including improving information technology, integrated care models for the aged and meeting transitional costs to enable hospitals to access the Pharmaceutical Benefits Scheme. As such, these types of projects are not direct funding to the States and Territories but are effectively Commonwealth own purpose programs'. [31]

3.21 The Department responded that it was the States and Territories, particularly South Australia, who had `highlighted to us that there are urgent needs to restructure the hospital system to facilitate more effective use of day surgery and step down facilities and to use information technology to support clinical decision making and improve integration of care. These changes will have immediate impacts on the cost effectiveness of public hospital and related care'. [32]

Public Patients' Charter

3.22 A condition of funding requirement is a continued obligation on States and Territories to provide a Public Patients' Charter. The concept of such a charter was supported by the States and Territories, and also in other submissions. [33] The States and Northern Territory believed that further clarification was needed to assess the implications of this requirement, particularly as the charter will extend coverage to all designated health services, which will also encompass services outside of the traditional hospital sector. [34]

Protection if Agreements not signed

3.23 The current Medicare Agreements are due to expire on 30 June 1998, with the new Australian Health Care Agreements to commence on 1 July 1998 and operate for a period of 5 years. Queensland and the ACT have already reached in-principle agreement with the Commonwealth. [35]

3.24 Following the Premiers' Conference on 20 March 1998, the Prime Minister committed the Commonwealth to provide funding to the States and Northern Territory for health care in 1998-99 if they have not signed an Agreement. The Bill was subsequently amended in the House of Representatives so that if a State or Territory has not signed an Agreement before 2 June 1998, the Commonwealth will provide funding through an annual appropriation, rather than using the standing appropriation authority contained in the Bill, on condition that the State adheres to the Health Care Agreement Principles and to any other terms and conditions determined by the Minister. [36] DHFS indicated that:

At this stage the Commonwealth intends that these terms and conditions should relate to elements of the grants relating to mental health, palliative care and quality enhancement. For mental health this would be endorsement of the Second National Mental Health Plan, for palliative care this would be agreement to the National Palliative Care Strategy, and for quality this would be implementation of an approved quality enhancement program. [37]

3.25 The States and Northern Territory argued that the implications of this amendment still require clarification. In particular, there was uncertainty around access to the $120 million waiting list incentive funding for those who do not sign, and that some elements of the Commonwealth's current offer may not be available, such as funding to cover any decline in private health insurance coverage. They also noted that the amendment does not detail arrangements for States and Territories in the event that an Agreement is not signed until after 1 July 1999, or in fact at all. [38]

Bill as Enabling Legislation

3.26 The States and the Northern Territory argued that as the Bill, the draft agreements and the funding offer constitute the three elements of the Commonwealth's Health Care Agreements proposal, all three need to be considered together as a package. They suggested that the legislation should only be enabling legislation at this stage for the purpose of allowing the flow of grants to States and Territories. [39]

3.27 DHFS responded that `in a sense the legislation is precisely that – it is enabling special appropriations to be made about agreements' and drew attention to previous parliamentary concerns over legislation `that was as broad based as the States seem to be intimating'. [40]


4.1 The Committee reports to the Senate that it has considered the Health Legislation Amendment (Health Care Agreements) Bill 1998 and recommends that the Bill proceed.

Senator Sue Knowles

May 1998







The primary purpose of the Health Legislation Amendment (Health Care Agreements) Bill 1998 is to allow the Commonwealth to enter into agreements with the States to provide funding for public hospitals and related health services over the next five years.

The agreements, to be known as Australian Health Care Agreements, will replace the existing Medicare agreements under section 24 of the Health Insurance Act 1973. The current Medicare Agreements are due to expire on 30 June 1998.

In considering the legislation it is necessary to examine the current offer by the Federal Government to the states and territories, the response of the states and territories, and the progress (or lack of progress) of the negotiations.

These issues were extensively canvassed in the submissions, particularly in the joint submission by the Health Ministers from NSW, Victoria, South Australia, Western Australia, Tasmania, and the Northern Territory.

The response of the Government Senators is to assert that because the legislation “does not deal with the specific offers that have been made to the States and Territories” means that this Committee should effectively ignore the serious issues raised by the States and Northern Territory during evidence to the Committee They argue that the report should be confined to “…issues that were raised in relation to various clauses of the Bill and the effects, either positive or negative, of those clauses.” (see Majority Report, Paras 3.1 and 3.4.)

We reject this narrow approach.

As noted earlier the purpose of the legislation is to enable the establishment of Agreements for the funding of the public hospital system and related health services over the next five years. This is an extremely serious issue involving billions of dollars of federal and state expenditure. Consequently the legislation has very little, if any, meaning if the Agreements are not finalised. Given the current impasse between the States/Northern Territory and the Commonwealth it is incumbent upon us to report to the Senate on the substantive issues to which the legislation is ultimately directed.


The Commonwealth claims their offer to the States provides for an additional $2.9 billion over five years. This additional funding is said to include:

Significant concerns about each of these components are at the heart of the dispute about the Commonwealth's funding offer.

Quality and Access

The States point out that there is no guarantee that the full amount of funding for quality and access will flow to the States as the draft agreements make explicit allowance for this funding to flow to other parties, such as universities.

Mental Health and Palliative Care

This money is nothing more than continuing funding for existing services. It is misleading for the Commonwealth to claim otherwise.

National Development Program

This program which the Commonwealth originally claimed was for capital works funding on a project basis is now under a cloud following revelations at the committee hearings that Queensland was granted money from this fund for recurrent services and without any formal criteria having been agreed. The status of this program appears to have been completely undermined by this deal. It is no longer clear on what basis this money will be provided.

Veterans Hospital Care

The first point to be made in relation to this package is that veterans' hospital care has not been previously included in the Medicare Agreements. Its inclusion in this offer appears designed to increase the apparent generosity of the Medicare Agreements offer.

The second point is that less than half of all veterans receive hospital care in public hospitals and the proportion is declining. Therefore all of the money to be spent cannot be claimed as increased funding to public hospitals. Indeed evidence given to the committee indicated that officials from DVA had agreed that the offer was significantly overstated.

The Commonwealth claims it's offer to be an increase of $2.9 billion or a 15% `real' increase. It seems there are very few who agree:

Even the Minister admitted recently (on Channel Seven's Face to Face, 17/5/98) that,

“if you take age out; if you take population out; if you take out any drop in private health insurance out; the increase is 1.5% per year, so that's 7.5% over 5 years …”

Age and population have always been built into the base.

The Commonwealth also makes no acknowledgment in its offer of the massive cuts made to Commonwealth contributions to State health spending ($800 million from public hospitals and $400 million from dental services) in the 1996 Budget.

The real value of the Commonwealth's offer is the key issue in achieving new Medicare Agreements. It is disappointing that the Commonwealth is continuing to misrepresent the size of its offer and as a result negotiations over the Medicare Agreements have broken down.


Initially, all the State and Territory Governments disputed the Commonwealths claims as to the level of real increases and rejected the Federal Government's offer. This stance has been consistently maintained during the negotiations, which commenced over 12 months ago, with two recent exceptions.

In January 1998, just prior to their elections, the ACT Government signed an in-principle agreement. Similarly in April, the QLD Government signed an in-principle Agreement. Prior to these sudden changes both Queensland and the ACT were strident in their criticism and rejection of the Federal Government's proposals.

The NSW, Victorian, South Australian, Western Australia, Tasmanian and the Northern Territory Government remain strongly opposed to the Federal Government's funding offer and draft agreements. They have refused to sign the agreements.

The opposition of these States and the Northern Territory was outlined in detail to the Committee, The following extracts from the evidence of the Honourable Robert Knowles, Victorian Minister for Health, summarises their position:

The bill, the draft agreements and the funding model need to be considered together as a package. We have two basic concerns with this package: the funding offer is not enough to cover the required service levels, and the bill and draft agreements do not address structural reform. The Commonwealth claims that it is offering the states an additional $3 billion over the next five years, but this offer includes funding increases for population growth and ageing, and for inflation –increases which have always been included in the Medicare agreement. It is also counting the continuation of funding for mental health and palliative care, which was part of the current agreement as additional money. So we are essentially arguing that that is not new money; from the state perspective, it is simply a continuation of the funding that the Commonwealth had been providing.

The Commonwealth is also counting $750 million over five years for veterans as part of the new health care agreement. The Commonwealth and the states have always dealt with veterans as separate from Medicare funding. In any case, we have not yet received an offer in writing from the Commonwealth for veterans funding. From our perspective, this cannot be counted as real money on the table.

The Commonwealth intends to increase the role of the private sector in the provision of veterans' services by allowing veterans to choose whether they use the private or the public sector. While we have no difficulty with that choice being given to veterans, it does represent for the public hospital system the possible loss of funding while the public hospitals still have to maintain the costs. There is only a benefit to the states if we actually close public beds and in fact reduce the overall cost in that scenario.

Money for quality and access and for capital funded under the proposed national development fund will require Commonwealth approval and is, in any event, for one-off projects. We cannot count that as recurrent funding for the treatment of patients.

We believe the negotiations have not been conducted in good faith. There has been no opportunity to comment on the bill before it was tabled in the House. The Commonwealth's proposed framework for agreements was sent to ministers one day before the 19 December meeting last year. Despite repeated requests by the states, the Commonwealth did not provide copies of the draft agreements until about three weeks after the bill was tabled in the House, yet it is impossible to make sense of the bill without looking at the draft agreements as well. The Commonwealth, by asking parliament to look only at half the story, is in our view not opening up for proper scrutiny its proposal for an Australian health care agreement.

The states are seeking a partnership approach, which must be embodied in the agreements and legislation. States have significant concerns about some of the directions of the key documents, around which there has been almost no consultation. The Commonwealth seems to be proposing to radically extend the definition of public hospitals by introducing a new concept of `designated health services' without defining in the bill exactly what this means. The services covered under Medicare must be universally available, not subject to bilateral arrangements between the Commonwealth and each state to decide what the designated health services are. (Committee Hansard, 5.5.98, pp.46-47.)

The states argued that the Federal Governments offer was insufficient to meet the growth in public hospital demand over the next 5 years. The states expect to treat approximately 20.26 million patients over this period but claim that the Federal Government's offer will only contribute to the cost of 18.83 million patients thus leaving a gap of 1.43 million patients unfunded by the Commonwealth.

They also note that this position has been, and will be further , exacerbated by the ageing population, the continuing decline in private health insurance coverage, as well as changing clinical practice and new technology.

Two states, Western Australia and Tasmania, stated that they would actually be worse off under the proposed agreements than under the existing Medicare agreements.

The Honourable Kevin Prince, WA Minister for Health stated:

As far as the Medicare funding offer is concerned, the joint bid by the states is well justified. The current offer – as my colleague Mr Knowles has said – is vastly inadequate for a whole series of reasons. And some of the claims that have been made about the offer are, frankly, misleading. What Mr Knowles has not discussed is how the Commonwealth offer would impact differently on different states. Under the most generous interpretation of the offer that was put on the table on 19 December last year, which has been reiterated this year, my state will actually receive $149 million less in hospital funding grants over the next five years than if the current Medicare agreement between the Commonwealth and Western Australia continued. There is no way that I can agree to that; it is simply not possible. One hundred and forty-nine million dollars less is not on when we have –and everybody knows that we have – this huge increase in demand that is trending upwards. (Committee Hansard, 5.5.98, p.51.)

In respect to Tasmania the Honourable Peter McKay, Minister for Community and Health Services stated:

Mr McKay–We find the current Medicare negotiations frustrating. I think probably best described as belittling. I think that the operation, as Dr Refshauge was saying, of the press media release type negotiation is astounding. I never cease to be amazed about how they can utilise this one-off funding of $120 million to try and get us to sign up to an agreement that would devastate our hospital system over the new five year agreement. It depends on which press release you read from the Commonwealth as to whether it is $4 million or $9 million. Today it was $9 million from Dr Wooldridge as far as what the state was entitled to. Not long ago it was only $4 million, so it has changed a little bit in that time. But that relates to something like about nine days of operation for our hospitals. Our hospitals cost around about $350 million to run acute care in Tasmania so it is roughly $1 million a day. He is trying to make us sign up to an agreement that gives us nine days of paradise and five years of absolute bloody hell. I really think that I am not that encouraged to sign.

One issue has been raised. I thank my local senators in Tasmania for distributing the information to the public about the cut in our health care grants. In 1997-1998, our base funding was $147 million. In 1998-1999, under this agreement, our base funding would be $118.7 million.

Senator FORSHAW—Could you say that again?

Mr McKay – In 1997-1998, our base funding from our health care grants is $146 million and what we have been offered in this 1998-1999 year is $118.7 million – a drop of $30 million. I cannot see how that is an increase. However, I am told it is an increase. The issue here is that they have put extra funds into the general purpose payments and tried to say that they have given the extra money to the states for health. (Committee Hansard, 5.5.98, p.54.)

Whilst the Federal Minister and the Government have attempted to dismiss the complaints of the States and the Northern Territory as just the usual posturing in Commonwealth-State relations there is no doubt that the states and territories are facing significant funding pressure in their public hospital systems.

The current impasse is clearly detrimental to the viability of our public health system recognised as one of the best in the world. As Mr Knowles, Victorian Health Minister said “Further consultation is required between the Commonwealth and the states to develop a partnership approach to delivery of health care and to agree on the appropriate way to embody that approach in the legislation and agreement.”


The following aspects covered by the Bill are discussed separately hereunder.

The Medicare Principles

Universal coverage and access to services on the basis of health need are the key Medicare principles that underpin both the present and the proposed agreements.

Section 29 of the Bill sets out the Health Care Agreement Principles as follows:

29 Financial assistance conditional on adherence to Health Care Agreement Principles

(1) Financial assistance is not payable to a State under this Part unless the agreement with the State provides for adherence to the Health Care Agreement Principles.

  1. (2) The Health Care Agreement Principles are as follows:
    1. Principle 1:
  2. Eligible persons are to be given the choice to receive designated health services free of charge as public patients.

Principle 2:

Access to designated health services by public patients is to be on the basis of clinical need and within a clinically appropriate period

Principle 3:

Arrangements are to be in place to ensure equitable access to designated health services for all eligible persons, regardless of their geographic location.

The State and Territory Ministers expressed concern that the words “recognised hospital services” in the Medicare Agreements have been replaced with the term “designated health services.” In their submission the States and Northern Territory argued that the definition of “designated health services is too ambiguous:

8.32 The definition of designated health services contained in Schedule A of the draft agreements includes services provided by hospitals to both admitted and non-admitted patients and also emergency services. This definition includes hospital services that:

8.33 The definition of designated health services is critical and the States and the Northern Territory have a number of concerns with this broader description. Firstly, it is far too vague and ambiguous given the requirement that States and Territories must ensure a full range of designated health services are made available on a public patient basis. The definition could be interpreted to include community health services or any other services that have at any time been provided by hospitals. The definition as it currently stands, is therefore so broad as to be meaningless.

8.34 Secondly, it is unclear how the designated health services not provided at a hospital will be funded. The Commonwealth funding model provides output based funding for public weighted separations from public hospitals. There does not appear to be any mechanism within the agreement to determine Commonwealth funding for designated health services that are not provided at hospitals.

8.35 A much clearer definition of the services covered by the agreement is therefore required. While the States and the Northern Territory prefer funding not be tied to specific levels of output, if this is to be the case, the agreements must specify how designated health services that do not result in hospital separations will be incorporated into the funding model. (Submission No.10.)

The States and Northern Territory also expressed concerns with Principle 2 and Principle 3. In particular they were concerned that the use of terms such as “within a clinically appropriate time” (Principle 2) and “regardless of their geographic location (Principle 3), if interpreted as strict legal conditions, could lead to Commonwealth funds being unfairly withheld.

Cost Shifting

The States and Northern Territory rejected the Commonwealth's allegations of cost shifting and strongly argued for a consensual approach to this issue. Whilst the Commonwealth alleged that the states were engaging in cost shifting the only example provided by the Commonwealth at the hearing turned out to be wrong.

The Commonwealth has withheld funding of $153 million since 1996/97 and proposes a further withholding of $81 million from the base grant for the first year of the new agreements as a penalty for alleged cost-shifting. The States and Territories assert that this will result in a total reduction of funding of more than $400 million over the next five years. They argue that this is a deliberate cost cutting exercise by the Commonwealth, without any justification such or proper analysis of relevant data and empirical evidence.

Further, in a counter argument, the States and Northern Territory submit that financial responsibility of Commonwealth funded programs have shifted from the Commonwealth to the States and Territories without adequate funds. For example the abolition of the Commonwealth Dental Health Program and changes to Aged Care services have resulted in increased pressure on public hospitals without any corresponding funding adjustment.

The States and Northern Territory are concerned that the proposed Health Care Information Commissioner (Part IIIA of the Bill) “formalises in legislation recognition of cost-shifting.” Further, the lack of clarity in either the Bill or the draft Agreements on the role of the proposed Commissioner means that the Commonwealth's interpretation in disputes over cost-shifting and funding will inevitably prevail.

If cost-shifting is to be addressed in any meaningful way it must be done consensually and if this position is to be established it has to be totally independent.

Public Patients Charter

The Opposition welcomes the Commonwealth's continuing commitment to the Public Patients Charter.

National Health Development Special Assistance

Division 3 of the Bill provides for special financial assistance for projects and programs that are designed to

  1. improve the efficiency and effectiveness of, or reduce the demand for, the delivery of designated health services ; or
  2. to improve patient outcomes in relation to delivery of such services.

Originally the parties had agreed to jointly develop the criteria for the assessment of submissions. There is no recognition of this in the Bill or in the draft agreements provided to the states. Further, apparently funds under this proposal have already been provided to Queensland in advance of agreement with all the states and territories and without the assessment criteria being in place.


Medicare Agreements are central to Australia's world leading health care system. Through meanness, incompetence or malevolence the Howard Government appears determined to sabotage them.

The real value of the Commonwealth's offer is the key issue in achieving new Medicare Agreements. It is disappointing that the Commonwealth is continuing to misrepresent the size of its offer and as a result negotiations over the Medicare Agreements have broken down.

Similarly, it is disappointing that the Government reports seeks to avoid this issue.

Without binding Medicare Agreements between the States and the Commonwealth the principles of universal access to free public hospital care is seriously threatened.

We call on the Government to rethink its position on these issues and re-open negotiations with the States in the interests of all Australians who rely upon our public hospital system.

Senator Michael Forshaw
(ALP, New South Wales)

Senator Kay Denman
(ALP, Tasmania)

Senator the Hon John Faulkner
(ALP, New South Wales)




Health Legislation Amendment (Health Care Agreements) Bill 1998

The Democrats support the general objectives of this Bill which articulates the Government's commitment to Medicare and its underlying principles. However, the Democrats have concerns with a number of aspects of the Bill as outlined below.

The Democrats strongly recommend that this Bill should be considered in conjunction with the draft Medicare/Health Care Agreements and the associated funding offer from the Commonwealth to the States and Territories. We believe that these documents together reflect the Government's true commitment to the public health system and that therefore the Bill should not be considered in isolation.

Health Care Agreement Principles

The Democrats support the Health Care Agreement/Medicare Principles.

We believe that it is important to articulate the rights of all Australians to obtain free and clinically appropriate treatment in public hospitals. However, we also feel that articulating principles will not, on its own, ensure that these rights are upheld.

The Democrats believe that through under-funding the public health sector, encouraging people to use private health services, offering financial incentives for people to take out private health insurance, enforcing penalties on high income earners who choose not to take out Private Health Insurance, the integrity of the Medicare Principles has been undermined. We believe that the Government cannot claim to fully support the Medicare Principles while it provides inadequate funding to public health services and makes policy decisions that unfairly advantage private health services and private health insurance funds.

The Democrats are also concerned that insufficient consideration has been given to the financial implications of the changes to the Medicare Principles. For example, the expansion of their application to `designated health services' could impose substantial additional costs on State and Territory governments. While the Democrats support the encouragement of day surgery and community and home-based treatments, where these are cost-effective and clinically appropriate, we feel that this should be supported by adequate funding.

Similarly, the Democrats support the principle that all people have access to treatment within `clinically appropriate periods, regardless of geographical location'. However, we recognise that adherence to this principle imposes a disproportionate burden on those States/Territories that have a large proportion of people in rural and remote areas.

The Democrats are concerned that the specific problems associated with health care delivery in rural areas have not been considered by the Government in this Bill. The Democrats recognise that there is significant un-met need for health services in rural areas, particularly in Aboriginal communities, and believe that a cooperative Commonwealth and State/Territory approach is the best way of addressing this serious issue.

We are not confident that the Government has adequately assessed the level of un-met need and believe that the funding offer to the States and Territories underestimates the costs of providing health services in rural and remote areas. The Democrats believe that Indigenous Health and health service provision in rural and remote areas are critical health issues which should be recognised and addressed in this legislation.

We are concerned that the lack of recognition in the Bill of the specific needs of Indigenous people and people in rural and remote areas and the under funding of Indigenous and rural health represents a lack of Government commitment to the Medicare Principle of equal access to treatment.

The Democrats are also concerned that penalties for failing to adhere to the Medicare Principles could adversely impact upon consumers. We believe that there should be appropriate procedures in place to ensure that funding disputes can be resolved between the Federal and State/Territory governments without resulting in decreased services or additional expenses for consumers.

Lack of Consultation

The Democrats are concerned about the lack of consultation by the Federal Government in the development of this Bill. We feel that the Bill has significant implications for Australia's health system over the next five years and therefore that all stakeholders, including consumers, State and Territory Governments and service providers should have had some input into its content.

The Democrats support a cooperative approach to the development of Australia's health system and believe that stakeholder involvement at all stages is vital to ensure the accountability of governments. Given that this legislation makes significant changes to the previous conditions of the Medicare Agreements, it is particularly concerning that the Government did not seek input from consumers and service providers about the impact of these changes.

Health Information Commissioner

The Democrats support the need for more information on health care expenditure and utilisation. However, we are concerned that the roles and responsibilities of the Health Information Commissioner (HIC) as proposed in this Bill have not been discussed with the States and Territories.

The HIC will, to a large extent, rely on the co-operation of the States in providing their data. Given the current breakdown in negotiations between Federal and State governments this expectation might be unrealistic. The Democrats suggest that consultation on this issue with the States may be necessary to develop protocols for the operation and function of the HIC, particularly since the States and Territories may be required to provide funding for this position.

The Democrats question the ability of the HIC to provide independent information given that s/he is to be appointed by the Minister for Health. The Democrats believe that the HIC should be independent of the Commonwealth and in addition to monitoring cost-shifting from the States and Territories to the Commonwealth, should investigate cost-shifting practices from the Commonwealth to the States and Territories and from all levels of government to consumers. It is important that any attempts to address cost-shifting also take into account current practices of cost-shifting to individuals and that decisions made in relation to cost-shifting between governments do not result in adverse financial or other impacts on consumers.

Public Patients' Charter

The Democrats support the development of a public patients' charter, however we are concerned that the Bill does not specify the minimum standards that the charter must meet. This leaves the situation open to States and Territories developing different charters, although consumers in all States and Territories have the same rights to access public health services.

We believe that the Bill should specify minimum standards for the development of patient charters and that this should be driven by consumers and consumer groups. We are concerned that consultation with consumer groups is not specified in the Bill as a requirement and that this could result in the States and Territories developing their charters without appropriate consumer input.

National Health Development Special Assistance

The Democrats support the allocation of additional health funding to the States and Territories, however, we have concerns about the details of this scheme. We support the use of the scheme to fund pilot projects which develop more efficient service delivery or more effective ways of structuring funding mechanisms to avoid cost shifting and decrease financial burdens on consumers.

The Democrats recognise that with the current under-funding of public health services, these sorts of projects would be unlikely to be supported financially by the States and Territories. However, we are concerned that this scheme has the potential for pork barrelling as the Minister has a large degree of control over where and how the funds are allocated. We believe that the allocation of these funds should be overseen by a committee representing all stakeholders, including the government, health experts and consumers.


The Democrats recommend that the Bill proceed and be passed with amendment.

Senator Meg Lees
Australian Democrats Senator for South Australia



Submissions and additional information received by the Committee

1 Consumers' Health Forum of Australia Inc.
2 Health Consumers' Council WA (Inc)
3 Council on the Ageing (Australia)
4 Northern Territory Government- Addendum, dated 12 May 1998
5 Commonwealth Department of Health and Family Services- Waiting times for elective surgery, tabled at hearing 5 May 1998

- Additional Information, dated 5, 6 and 11 May 1998

6 Australian Catholic Health Care Association
7 Australian Consumers' Association
8 Australian College of Health Service Executives
9 Australian Nursing Federation
10 States and Northern Territory Governments (joint submission)- Draft Agreement and Letter from the Commonwealth Grants Commission to DHFS dated 2 April 1998, tabled at hearing 5 May 1998

- Additional Information, dated 15 May 1998

11 ACT Government



Public hearing

A public hearing was held on the Bill on 5 May 1998 in Senate Committee Room 2S3.

Committee Members in attendance


State Health Ministers



[1] Explanatory Memorandum p.i.

[2] Submission No.5, p.4.

[3] Minister's Second Reading Speech

[4] Submission No.5, p.3.

[5] Draft Agreement tabled at hearing, 5.5.98. See also Submission No.5, p.6.

[6] Health Legislation Amendment (Health Care Agreements) Bill 1998, s.29. See also Submission No.5, p.1.

[7] Submission No.5, pp.1-2.

[8] Explanatory Memorandum, p.5.

[9] Minister's Second Reading Speech

[10] Explanatory Memorandum pp.6-7; Submission No.5, p.2.

[11] Minister's Second Reading Speech

[12] Explanatory Memorandum pp.7-9; Submission No.5, p.2.

[13] Submission No.10, pp.82-85.

[14] Submission No.8, pp.5-6.

[15] Submission No.3, p.1. See also Submission No.6, pp.10-11 and Submission No.7, p.2.

[16] Submission No.5, p.4. See also Committee Hansard, 5.5.98, p.96.

[17] Submission No.5, p.2.

[18] Committee Hansard, 5.5.98, pp.89-90. Submission No.10, Additional Information 15.5.98, p.2.

[19] Submission No.10, pp.67-74.

[20] Submission No.10, p.9.

[21] Committee Hansard, 5.5.98, p.86.

[22] Committee Hansard, 5.5.98, p.90.

[23] Submission No.5, Additional Information 11.5.98, p.1 and Attachment A.

[24] Submission No.5, Additional Information 11.5.98, Attachment B.

[25] Committee Hansard, 5.5.98, p.89.

[26] Submission No.10, p.85.

[27] Submission No.10, p.86.

[28] Submission No.5, pp.2-3.

[29] Committee Hansard, 5.5.98, p.88.

[30] Submission No.8, pp.6-7. See also Submission No.3, p.2.

[31] Submission No.10, p.89.

[32] Committee Hansard, 5.5.98, pp.84-85.

[33] Submission No.10, p.90; Submission No.3, p.2.

[34] Submission No.10, p.90.

[35] The ACT reached agreement on 15 January 1998 and Queensland on 27 April 1998.

[36] House of Representatives Hansard, 26.3.98, pp.1220-29.

[37] Submission No.5, p.3.

[38] Submission No.10, pp.92-93.

[39] Submission No.10, pp.1, 10, 75. See also Submission No.8, p.3.

[40] Committee Hansard, 5.5.98, p.104.