PDF 586 KB - Department of Health and Ageing

Contents
Foreword 2
Overview 4
Part 1: Reforming the funding and governance of health and hospitals 27
Chapter 1 – Funded nationally: reforming financial roles and responsibilities 29
Chapter 2 – Run locally: local governance institutions to drive performance
and responsiveness
35
Chapter 3 – Strong national standards and clear accountability for performance 45
Chapter 4 – Transparent and efficient funding arrangements 48
Chapter 5 – A secure funding base for health and hospitals 52
Part 2: Reforming the way health services are delivered to keep
people healthier and better respond to patients’ needs
57
Chapter 6 – Improving access to GP and primary health care 58
Chapter 7 – Taking funding and policy responsibility for aged care 71
Chapter 8 – Ensuring patients are cared for in the most appropriate setting 75
Chapter 9 – Taking action to prevent disease and keep Australians out of hospital 78
Chapter 10 – A personally controlled electronic health record system for Australia 84
Part 3: Investments and reforms to deliver more services today 89
Chapter 11 – Improving access to public hospital services 92
Chapter 12 – Boosting Australia’s health workforce 100
Chapter 13 – Better access to care in the community for people with mental illness 108
Chapter 14 – Better supporting older Australians by investing in aged care 115
Appendix A: Key delivery milestones 124
Appendix B: Summary of measures 126
Appendix C: Response to the National Health and Hospitals Reform
Commission final report
128
Delivering better health and better hospitals 1

Foreword
The provision of quality, accessible health care is a major challenge facing governments
around the world.
Demand for health services is increasing as populations are ageing and more people are
living with chronic diseases.
Meanwhile, medical care is becoming more expensive as technology and medicines
continue to advance. While fiscal constraints are intensifying, the community is expecting
more of the health care system.
The choice for governments is whether they act now so their health system can cope with
these increasing challenges, or whether they sit back and let their health systems gradually
become overwhelmed.
The Government has made the choice to act and to implement the most far-reaching
structural reforms to the health system since the introduction of Medicare.
We will establish a new National Health and Hospitals Network – that is funded nationally
and run locally.
We are implementing major reforms to the funding and governance of our health system,
to place it on sustainable long-term foundations.
We are changing the way that health services are delivered, through better access to
quality services designed around the needs of patients, and placing a greater focus on
prevention, early intervention and the provision of care outside of hospitals.
We are also increasing the national investment in our health and hospitals and our health
workforce, to deliver better care and better access to services for patients right now.
Some of the benefits of these reforms will be felt immediately, but many will only be seen
in the medium to longer term.
2 A National Health and Hospitals Network for Australia’s Future

As we have said in health forums conducted across every state and territory of the nation,
health reform is ultimately about one thing – better health and hospitals for all Australians.
The goal of our reform agenda is simply that all Australians may enjoy access to high quality,
better coordinated and sustainable health care in the decades ahead.
The Hon. Kevin Rudd MP The Hon. Wayne Swan MP The Hon. Nicola Roxon MP
Prime Minister Treasurer Minister for Health and Ageing
Delivering better health and better hospitals 3

Overview
1. A National Health and Hospitals Network for Australia’s future
The Government has secured agreement to deliver a National Health and Hospitals Network
– the most significant reforms to Australia’s health and hospital system since the introduction
of Medicare, and one of the biggest reforms to the federation in its history. State and
territory governments (referred to throughout this document as ‘states’) will work with the
Commonwealth Government to deliver the National Health and Hospitals Network. 1
These reforms have three primary objectives:
1. Reforming the fundamentals of our health and hospital system, including funding and
governance, to provide a sustainable foundation for providing better services now and in
the future.
2. Changing the way health services are delivered, through better access to high quality
integrated care designed around the needs of patients, and a greater focus on prevention,
early intervention and the provision of care outside of hospitals.
3. Providing better care and better access to services for patients right now, through increased
investments to provide better hospitals, better infrastructure, and more doctors and nurses.
These reforms to establish the National Health and Hospitals Network will drive major
improvements in service delivery and better health for patients. They will equip the health
and hospital system to better serve the Australian community into the future.
1.1 Funding and governance reforms to provide a sustainable foundation for
health and hospitals
Funded nationally – the Commonwealth taking majority funding responsibility across
Australia’s health and hospital system
Under the National Health and Hospitals Network, the Commonwealth Government will
become the majority funder of Australian public hospitals. The Commonwealth will fund
60 per cent of the efficient price for all public hospital services, and 60 per cent of capital,
research and training in our public hospitals. The Commonwealth will also take full funding
and policy responsibility for GP and primary health care services, and for aged care services.
1 See page 24 for a description of the current status of negotiations with Western Australia.
4 A National Health and Hospitals Network for Australia’s Future

To reduce cost shifting and strengthen integration between care provided in hospitals and care
provided in the community, the Commonwealth will, over time, also move to fund 100 per cent
of the efficient price of primary health care equivalent outpatient services.
The Government will ensure new financing arrangements effectively support small regional
and rural hospitals. The Government will ensure funding reflects the higher costs associated
with delivering services in regional and rural areas of Australia, including providing block
funding where appropriate so that small rural and regional hospitals can continue to deliver on
Community Service Obligations.
Delivered locally – devolving responsibility for service delivery to the local level
The governance and management of local health and hospital services will be devolved to the
local level. New local institutions will work together to deliver more integrated health services
in their local community, and drive improvements across the entire health system.
Responsibility for hospital management will be devolved to Local Hospital Networks. This will
increase local autonomy and flexibility so that services are more responsive to local needs.
Local Hospital Networks will provide more flexibility for local managers and local clinicians
to drive innovation, efficiency and improvements for patients. They will deliver improved
clinical engagement, an important driver of innovation and productivity. Local Hospital
Networks will work with clinicians to incorporate their views, especially on quality and safety,
into day to day operations.
Independent primary health care organisations – to be called Medicare Locals – with strong
links to local communities and health professionals will be established to provide better
services, improve access to care and drive integration across GP and primary health care
services. Medicare Locals will work closely with Local Hospital Networks to improve patient
care and the quality of health and hospital services. Together they will ensure that GP and
primary health care and hospital care are better integrated, so patients smoothly transition in
and out of hospital and continue to receive all the care they need.
One stop shops located across the country will ensure Australians can more easily access
information and assessment for aged care services. Aged care one stop shops will provide
advice and help people access the care that meets their needs – from basic home based services
to high level residential care – and will link up with Local Hospital Networks and Medicare
Locals to improve integration between all the health services that older Australians require.
Delivering better health and better hospitals 5

Clear and transparent performance reporting against new, higher national standards
New, higher national standards and transparent reporting will provide Australians with more
information than ever before about the performance of their health and hospital system. This
performance information will be nationally consistent and locally relevant, better informing
communities about the performance of their local health and hospital services against strong
national standards.
Regular Hospital Performance Reports will provide clear and transparent reporting on the
performance of every Local Hospital Network, and the hospitals within it, and every private
hospital. They will show how all Australian hospitals perform against new national standards
and other performance indicators. The Government will also develop Healthy Communities
Reports on GP and primary health care performance – including on access to GP services and
out of hours GP care, preventive health risk factors and other measures of community health
and wellbeing.
Transparent reporting will help health providers promote a culture of continuous improvement.
It will allow strong performance to be identified and transferred across the sector, while
supporting early identification of poor performance, so that interventions can be made before
problems become entrenched.
Paying Local Hospital Networks for the services they provide through activity
based funding
To drive transparency and efficiency in funding of health services, Local Hospital Networks will
be paid on the basis of each service they provide to public patients under service agreements
negotiated with states. The Commonwealth’s contribution will be based on a national efficient
price, to be determined by a new, independent national umpire – the Independent Hospital
Pricing Authority (IHPA). This will reduce waste and increase the number of services provided
for each dollar invested.
For the first time, both Commonwealth and state funding for public hospital services will be
clearly identified, and delivered transparently and directly to Local Hospital Networks through
a National Health and Hospitals Network Funding Authority (‘Funding Authority’) in each
state. Jointly governed by the Commonwealth and the relevant state, these Funding Authorities
will transparently report on the number of services provided and paid for. This will introduce
new levels of transparency in funding for public hospitals, and give greater confidence to the
community that scarce health dollars are going directly to hospital services.
6 A National Health and Hospitals Network for Australia’s Future

Commonwealth funding will flow automatically through Funding Authorities directly to Local
Hospital Networks based on services actually provided – there will be no scope to divert
taxpayer funds dedicated to health to other uses. Funding Authorities will have no policy or
operational role, beyond receiving activity based payments from governments and making
payments to Local Hospital Networks. This will give hospitals more funding certainty than ever
before. Transparent funding arrangements will also support transparent performance reporting
and drive continuous improvement within each public hospital.
Public hospital services will be provided under service agreements between each Local Hospital
Network and states. The Commonwealth will make payments to states for system‐wide
matters such as research and training payments, and block grants, including for small rural and
regional hospitals to recognise Community Service Obligations. The Commonwealth will place
strong conditions on this funding to ensure it is spent consistently with the overall objectives
of the National Health and Hospitals Network. States will manage system‐wide issues for
public hospitals, operating within a framework of unified national funding and governance
arrangements. States will be held to account for meeting strong national standards – including
standards backed by funding linked to performance – and the community will have much
better information about each hospital’s performance.
The combination of national funding and standards, local management and service delivery,
and transparent reporting, is at the core of the new National Health and Hospitals Network.
The disparate performance and operating models of states will become a thing of the past
with this shift to a single national network.
Financing the National Health and Hospitals Network
Under these new funding arrangements, the Commonwealth Government will pay for the
majority of growth in public hospital costs over time – including growth over and above the
share of Goods and Services Tax (GST) dedicated to health and hospitals in each state.
The Commonwealth’s share of public hospital funding has slowly declined over the past two
decades. Under present arrangements, if a state decides to invest more in health and hospital
services, the Commonwealth does not make any contribution.
Through the establishment of the National Health and Hospitals Network, the Commonwealth
will permanently pay 60 cents in each dollar of growth in health costs. If states need to provide
more elective surgery procedures, to meet community expectations for instance, and they are
willing to fund their share, Commonwealth funding will automatically flow.
Delivering better health and better hospitals 7

As costs continue to grow, this reform will provide an increasing benefit to health and
hospital services in each state, starting with at least $15.6 billion in additional growth costs
guaranteed by the Commonwealth from 2014–15 to 2019–20. This will underpin the financial
sustainability of our health and hospitals system into the future. It will also improve the long
run productivity of the Australian economy: the level of government with the most stable and
efficient means of raising revenue will now be the majority funder of the fastest growing area
of public expenditure.
Reducing blame shifting and cost shifting
The funding and governance reforms outlined above will reduce blame shifting and cost
shifting between levels of government in a number of critical ways.
Over the past decade, the states have blamed the Commonwealth for the pressures facing
public hospitals because its funding share has not kept up with growth in costs and increased
demand for services. For the first time, the Commonwealth’s share of public hospital funding
will become a fixed, majority share of public hospital costs, with the efficient price of hospital
services determined by a new, independent umpire – the IHPA. The IHPA’s ruling will be
binding, and the Commonwealth will pay its fixed 60 per cent share of every public hospital
service that Local Hospital Networks and states agree to provide. This will end arrangements
whereby the Commonwealth’s contribution to public hospitals bears little relationship to health
service demand or increasing costs.
Currently, the states and Commonwealth shift costs onto one another, as no one level of
Government is responsible for the majority share of funding in key parts of the health system –
public hospitals and GP and primary health care. The Commonwealth will become the majority
funder of public hospital services, and also take full funding and policy responsibility for GP
and primary health care and aged care. This means the Commonwealth will have a strong
incentive not to cost shift into the hospital system – because it will be left footing the majority
share of the bill for expensive acute care services in public hospitals if it does. The IHPA will
also provide binding independent arbitration on cost-shifting and boundary issues, and on
cross-border charging between states, to further reduce cost shifting.
Historically, the Commonwealth and the states have blamed each other for poor service
delivery and performance. Under the National Health and Hospitals Network, the
Commonwealth will set strong national standards – and it will provide the resources to deliver
them. This document outlines new investments of $7.3 billion – linked to improving waiting
times in our hospitals and improving access to comprehensive GP and primary health care
services in the community.
8 A National Health and Hospitals Network for Australia’s Future

These reforms will deliver better health and hospitals by helping patients receive more
seamless care across sectors of the health system. They will improve the quality of care
patients receive through high-performance standards and improved engagement of local
clinicians. They will provide a secure funding base for health and hospitals into the future.
1.2. Reforming the way health services are delivered to keep people healthier
and better respond to patients’ needs
The National Health and Hospitals Network will ensure that services are designed around the
needs of patients, and more strongly oriented to early intervention and high quality integrated
care in the community.
The Commonwealth’s role as the majority funder across the entire health system will provide a
foundation for a health system that helps Australians stay healthy and out of hospital. By footing
the majority of the hospital bill, for the first time, the Commonwealth will have a direct financial
interest in driving better integration of care for patients and ensuring that resources are allocated
more efficiently across the health system. Better treatment in the community will help keep
Australians healthy and out of hospital. In many cases, it will also keep people in the workforce
and therefore improve workforce participation and productivity – a crucial economic reform.
To deliver better early intervention and high quality integrated care in the community, the
Government will implement measures that:
››
focus on prevention and early intervention, rather than waiting until patients become
more unwell;
››
organise care around the needs of patients, rather than governments or service providers;
››
ensure patients experience smoother transitions between different kinds of care;
››
expand access to care outside the acute hospital setting, including GP and primary health
care, aged care and sub-acute care, as well as ensuring better integration within and
between these sectors; and
››
make much better use of patients’ health information to improve the quality of care they
receive, and reduce inefficiency and avoidable errors.
These reforms will improve patients’ quality of life, take pressure off our public hospitals, and
improve the financial sustainability of our health and hospital system.
Delivering better health and better hospitals 9

Responding to the challenge of chronic disease through prevention, early intervention
and coordinated care for patients with diabetes
Central to keeping Australians healthy will be countering the high and increasing rates of
chronic disease, much of which is avoidable. That is why the Government is tackling the
lifestyle related risks that cause chronic disease – targeting smoking in particular. To achieve
this, the Government will:
››
increase the tobacco excise by 25 per cent above normal CPI adjustments;
››
require plain packaging for cigarettes; and
››
implement the largest ever national public education campaign on smoking.
The Government will also ensure patients suffering from chronic disease are able to access
personalised care that better responds to their needs, and helps them stay healthy over time.
Coordinated care for Australians living with diabetes is an important first step in transforming
the way Australians with long term illness are treated. It will benefit patients by ensuring that:
››
their GP is supported to manage their condition and keep them healthy over time;
››
they have access to the services they need to manage their condition;
››
they play a more significant role, guided by their GP, in determining their own care
plans; and
››
their care, which will often involve multiple health professionals, is coordinated to meet
their needs.
Increasing access to high quality GP and primary health care
Building on its funding and policy responsibility for GP and primary health care, the
Government will strengthen these services and drive improved integration to ensure patients
receive better care in the community. These reforms will help deliver more appropriate and
convenient care for patients, and take pressure off public hospital services:
››
Medicare Locals will help improve access to services and integration of services – both
with other primary health care services and with Local Hospital Networks and aged care
services.
› › Communities will have access to GP advice and services after hours, with more GPs
available in the community, and 24 hour telephone assistance to provide advice and place
Australians in contact with a GP service in their community when they need it, coordinated
by Medicare Locals.
10 A National Health and Hospitals Network for Australia’s Future

››
Australians will have better access to integrated care provided by teams of primary health
care providers through a major investment in around 23 new GP Super Clinics and 425
upgrades to GP and primary health care services to provide GP Super Clinic-style services.
››
Increases in GP training places to record levels will deliver more doctors providing primary
health care services.
››
Reforms to GP and primary health care provide a platform for better integration of mental
health care now, and for further reforms to mental health services into the future –
including through the Commonwealth providing greater policy and funding leadership for
specialist community mental health services over time.
Improving aged care and sub-acute care to help patients access more appropriate,
better integrated care
The Government will make significant investments and reforms to sub-acute care and aged
care, recognising that many patients with significant care needs could be better served by care
that is more appropriate to their needs, and supported to make smoother transitions between
different kinds of care. These reforms will also help take the pressure off acute hospital
services.
By taking full funding and policy responsibility for aged care services, including the Home and
Community Care Program (HACC), the Government will deliver simplified assessments across
all forms of aged care, and more integrated care so older Australians experience smoother
transitions as their needs change. The Government will work with the full spectrum of aged
care providers – including community and respite care – to ensure that they are better
supported in:
››
helping older Australians and their families receive different types of care services as their
needs change;
››
working with Local Hospital Networks to identify appropriate care options that best suit
the needs of older Australians and avoid unnecessary hospital stays, including through
sub‐acute and step-down care; and
››
working with Medicare Locals to improve older Australians’ access to high quality GP and
primary health care services in their local community.
In addition to these investments today, the Government has provided terms of reference to the
Productivity Commission to undertake a major inquiry into the aged care sector, to ensure that
it is equipped to meet the challenges of tomorrow.
Delivering better health and better hospitals 11

A major investment in sub-acute care will ensure patients’ transitions in and out of hospital are
smoother – delivering more appropriate care and reducing the risk of readmission. For many
patients this will reduce the need for acute hospital care.
A personally controlled electronic health record system
The Government will make a landmark $467 million investment in an electronic health record
system, so that all Australians have access to a personally controlled electronic health record if
they choose to. This will enable better and safer care, help patients transition more smoothly
between health care providers, and reduce waste.
Australians who choose to use this service – and their chosen health care providers – will
have better access to their health information such as medications, test results and allergies
when and where they need it. Patients will control what is stored on their health records and
will decide which health and medical professionals can view or add to their files, meaning
privacy will be strengthened, compared to the current fragmented, paper-based system. The
Government will work with the health sector to ensure the new e-health infrastructure securely
and efficiently connects current data systems.
Under this system, critical information will follow patients as they move through different
health and hospital services, rather than being physically isolated amongst a number of health
services. More accurate patient information will also better equip health professionals to tailor
patients’ care to their needs, and will help reduce complications and duplication. This will be
particularly valuable in helping the growing number of people with long term illness manage
their conditions more effectively, as this often involves them seeing several care providers and
taking several types of medication.
As a condition of this investment, states will be required to commit to making the investments
required to link public hospital data systems into the electronic health record system – around
$286 million over the next four years.
1.3. Investments and reforms to deliver better access to care through more
services today
The establishment of the National Health and Hospital Network will deliver important changes
to the way health services are organised and delivered, and better equip our health system
to serve the Australian community well into the future. Building on these changes, the
Government is also investing in key gaps and pressure points in our health system today – to
deliver more easily accessible, and higher quality services to patients right now.
12 A National Health and Hospitals Network for Australia’s Future

In total, the Government will invest an additional $7.3 billion as part of establishing the
National Health and Hospitals Network. This substantial investment will begin rolling out from
1 July 2010, including:
››
Hospitals – to increase the number of beds, and over time deliver quicker access to
emergency department treatment, and shorter elective surgery waiting times in public
hospitals ($3.5 billion).
››
GP and primary health care services – to deliver high quality integrated care in the
community, and take pressure off public hospital services ($1.2 billion).
››
Workforce – to ensure there are more doctors, nurses and allied health professionals
across the country to meet the growing need for health and hospital services ($1.2 billion).
››
Aged care – to provide more aged care places and beds for older Australians
($813 million, including $533 million of new investment).
››
Mental health – to provide a foundation for better mental health care, and help young
people get access to mental health services ($176 million, including $123 million of new
investment).
››
E-health – to deliver a personally controlled electronic health record system ($467 million).
››
Prevention – to tackling the lifestyle related risks that cause chronic disease – targeting
smoking in particular.
A detailed breakdown of these investments is provided in Appendix B.
The Government’s substantial new investments will deliver better access to services now,
improve care for patients, and build the system’s capacity to meet the needs of the future.
Additional funding is provided consistent with the Commonwealth Government’s fiscal rules,
including holding spending growth to two per cent in real terms.
When added to the Government’s previous investments, the health and hospitals system
is benefitting from a major step-up in its funding – both now and into the future. This is
demonstrated in figure one below, which shows the combined impact of the Government’s
investments through:
››
a major increase in funding provided through the National Healthcare Agreement;
››
guaranteeing the Commonwealth’s increased contribution to growth in hospital costs by
becoming the majority funder of public hospital services; and
› › a further $7.3 billion in investments to build on the establishment of the National Health
and Hospitals Network, as outlined in this document.
Delivering better health and better hospitals 13

Figure 1: Additional Commonwealth Government health and hospital
expenditure under the National Health and Hospitals Network
30,000
25,000
Change of
Government
End of the
future forward
estimates
*Only base funding
shown beyond
forward estimates
$ million
20,000
15,000
10,000
5,000
2003-04 2005-06 2007-08 2009-10 2011-12 2013-14* 2015-16 2017-18 2019-20
Additional funding provided since the release of the National Health and Hospitals Network
Additional Benefits to all states from National Health and Hospitals Network
Other new Australian Government hospital funding announced to date
(including Emergency Departments, elective surgery and hospital capital funding)
Additional funding provided through the new National Health Care Agreement
Old Australian Health Care Agreements
Source: Commonwealth Budget Papers, Commonwealth Department of Health and Ageing and Department of the Prime
Minister and Cabinet analysis.
14 A National Health and Hospitals Network for Australia’s Future

2. Why we are acting: challenges facing our health system today
There is strong evidence demonstrating that the Australian health and hospital system is at a
tipping point. The time to act is now, and bold reform is necessary to ensure that Australians
can access a high quality health system that is sustainable into the future. Some of the major
challenges facing our health and hospital system are outlined below.
2.1 A system that isn’t prepared for future challenges
While Australia’s health system serves most Australians well, at a cost to the community
around the average of other advanced nations, it is facing a number of serious challenges:
››
An ageing population will substantially increase both health care needs and expenditure,
while further constraining our health workforce. The 2010 Intergenerational Report
forecasts the proportion of our population aged over 65 will increase from 14 per cent in
2010 to 23 per cent by 2050.
››
Population growth will create the need for more health services, new investment in health
infrastructure and an expanded health workforce.
››
Costs have increased sharply in recent years and are expected to continue growing. The
2010 Intergenerational Report projects health costs will increase from 15 per cent of all
Commonwealth Government spending now (4.0 per cent of GDP) to 26 per cent by 2050
(7.1 per cent of GDP).
2.2 Too much blame and fragmentation between governments
Australia currently has eight different state and territory health systems. The distribution
of responsibilities for health between different levels of government is blurred, resulting in
duplication, cost-shifting and blame-shifting. Patients find it hard to work out the level of
government accountable for their care, when all they want is the services they need.
Delivering better health and better hospitals 15

2.3 Too much pressure on public hospitals and health professionals
Our public hospital system is struggling to cope with growing patient demand and stretched
budgets. For more than half a decade, almost one in six elective surgery patients and one
in three people attending emergency departments have been waiting longer than the
recommended time for treatment.
Australia’s rates of hospital admission are above the Organisation for Economic Cooperation
and Development (OECD) average and significantly higher than comparable countries such as
the United States, New Zealand, and Canada. This pressure and constant strain on resources is
also felt in the everyday working lives of health professionals.
2.4 Shortages of doctors, nurses and health professionals
Large parts of Australia are experiencing health workforce shortages. Many of the problems
with our health system today arise because there are not enough health professionals to meet
the demand for services.
Workforce shortages are most acute outside Australia’s major cities. The number of GPs per
100,000 head of population varies from under 60 in very remote Australia through to almost
200 GPs per 100,000 people in major cities. The majority of allied health practitioners also
work in metropolitan locations. Only 64 allied health workers per 100,000 population work in
very remote areas of Australia, compared to 354 per 100,000 in major cities.
2.5 Gaps and poor coordination in health services that people need
Too many patients are either falling through the gaps or receiving uncoordinated care. Changes
that streamline the delivery of care and remove fragmentation in services are long overdue,
particularly for people living with chronic disease. In addition, not all Australians get the
services they need, and many people are unable to access out of hours GP services.
Limited planning for GP and primary health care services, including identifying and responding
to gaps in services, has contributed to this. The Medicare Benefits Schedule (MBS) – the
principal means by which GP and primary health care is funded in Australia – provides limited
support for health professionals to work together to improve patient care.
Access gaps and poor coordination between services contribute to high rates of hospitalisation
in Australia, a proportion of which could be avoided. The Australian Institute of Health and
Welfare has estimated that potentially preventable hospitalisations represented 9.3 per cent of
all hospitalisations in 2007–08.
16 A National Health and Hospitals Network for Australia’s Future

2.6 The large and increasing burden of chronic disease
Chronic diseases already represent a major challenge for Australia’s health and hospital system,
and are estimated to be responsible for more than 80 per cent of the burden of disease and
injury in Australia. More than 50 per cent of GP consultations are for people with a chronic
condition.
The burden of chronic disease is projected to dramatically increase into the future. By
2032–33 combined spending on cardiovascular and respiratory diseases is projected to be
around $40 billion annually, while spending on type 2 diabetes is projected to increase by 520
per cent between 2002–03 and 2032–33.
2.7 Insufficient alternatives to acute care beds
Many Australians are unnecessarily admitted or readmitted to hospital due to a lack of
palliative and sub-acute care services (such as rehabilitation, geriatric and psychogeriatric care)
in the community. This is a particular challenge for older Australians.
People with mental illness also experience a lack of community based sub-acute facilities,
which can be particularly important as a step up or step down between hospital and
community based care.
2.8 Inconsistent and inadequate access to mental health services
Australia’s community mental health system for people with severe mental illness remains
fragmented. The quality of services vary, and service coordination remains poor. This means
that many people with severe mental illness find it difficult to access the care appropriate for
their needs, or fall through the cracks between services. On discharge, patients may find it
difficult to access appropriate step-down or sub-acute care. Many will experience a ‘revolving
door’ of repeated crisis and admission to hospitals.
While young people are most in need of help, they are the least likely age group to receive it.
Only 25 per cent of 16–24 year olds with a mental illness have accessed treatment, compared
to 35 per cent of all people with a mental illness.
Delivering better health and better hospitals 17

2.9 Fragmented patient health information
Patients currently have limited access to and control over their own health information. Health
information is largely fragmented across the record systems of each health care provider they
have seen. Each health care provider usually only has an incomplete record of a patient’s
medical history and care needs. This means a patient’s critical health information may not be
available when and where they are being treated, especially in emergencies or when seeing
multiple doctors and health professionals.
As well as being frustrating for patients and their health care providers, this can also have
damaging effects on patients’ health and the quality of care they receive . Many adverse drug
events and poor transitions from one health care setting to another could be avoided with
better access to patients’ health information across care settings.
2.10 Challenges in ensuring our aged care system meets the needs of growing
numbers of older Australians
The aged care system is currently fragmented, with responsibilities for community care divided
between the Commonwealth and the states. This leads to overlap between the services
provided by different governments’ programs. It leads to care being too closely tied to program
and funding criteria and not responsive enough to people’s changing needs.
Older Australians, their families and carers find it hard to access the services they need and
often do not know what services are available. This is because different levels of government
and different programs tend to offer information on their own services rather than on the aged
care system as a whole.
The supply of high level residential care is not keeping up with increased demand from
population ageing. This has been accompanied by falls in recent years in the numbers of
registered and enrolled nurses working in residential aged care. In addition, too many older
Australians are unnecessarily admitted to hospital when better care in the community would
have kept them healthy and out of hospital.
2.11 An unsustainable funding model, with insufficient transparency
The cost of providing health care is expected to continue to increase into the future. But state
government revenue growth has not kept pace with growing health care costs in recent years.
In the five years to 2007–08, public hospital expenditure has grown at an average of close
to ten per cent per year. Projections show that by 2045–46, health spending alone would be
more than all revenue collected by state and local governments.
18 A National Health and Hospitals Network for Australia’s Future

Despite recent improvements through the National Healthcare Agreement, the transparency of
health care funding and spending at a local level is still relatively limited. This means taxpayers
and governments are unable to make robust comparisons across states or health services, and
easily identify where there is inefficiency.
2.12 Not enough local or clinical engagement
Many clinicians and citizens are not adequately involved in decisions about the delivery of
health services in their local community. Current arrangements fail to make the most of the
expertise and commitment of our clinical workforce. It also means that some services are
poorly tailored to community needs.
In addition, the National Health and Hospitals Reform Commission (NHHRC) indicated that
adverse events result in approximately 4,550 unnecessary deaths a year and add a cost of
around $2 billion annually to the health budget.
3. Building on strong foundations: what the Government has
already done
Since 2007, the Government has undertaken major reforms across health and hospitals to
tackle key pressure points in the system: increasing funding for public hospitals, targeting
key pressure points such as emergency departments and elective surgery and training more
doctors and nurses.
3.1 Increased funding for health and hospitals
In November 2008, the Government signed a $64 billion agreement for health and hospitals
funding, which delivered a 50 per cent increase on the previous Australian Health Care
Agreement. Additional funding was linked to a range of performance indicators across
prevention, primary and community care, hospital and related care, aged care, the patient
experience and sustainability. States and territories agreed to national outcomes and outputs,
challenging new targets, and increased service levels.
Delivering better health and better hospitals 19

The agreement also included:
››
$1.1 billion to train more doctors, nurses and allied health workers in the largest single
investment ever made by an Australian government in the health workforce;
››
$750 million to take pressure off emergency departments, with 37 hospitals around the
country receiving upgrades as a result of this investment; and
››
$500 million for sub-acute care facilities including rehabilitation, palliative care, geriatric
evaluation and psychogeriatric services.
In addition, the Government has invested $600 million in an elective surgery waiting list
reduction plan that has already delivered more than 62,000 additional procedures and new
elective surgery equipment and operating theatres for 125 hospitals.
3.2 More doctors, nurses and allied health professionals – and making smarter
use of our health workforce
As part of the November 2008 COAG agreement, the Government made an unprecedented
investment in training more doctors, nurses and allied health professionals. This includes:
››
raising the number of GP training places to a total of 812 by 2011;
››
73 additional specialist training places in the private sector each year;
››
additional funding to train nursing, allied health and medical supervisors; and
››
establishing Health Workforce Australia to plan for future workforce needs.
The Government is also working to make smarter use of our workforce by providing nurses and
midwives with access to the MBS and Pharmaceutical Benefits Scheme.
3.3 Comprehensive health care that is close to home through GP Super Clinics
To provide comprehensive services close to home, 36 GP Super Clinics are being built across
the country. GP Super Clinics bring together GPs, nurses, visiting medical specialists, allied
health professionals and other health care providers to provide integrated, multidisciplinary
care in a single convenient location. This infrastructure will particularly benefit Australians with
chronic and complex diseases.
20 A National Health and Hospitals Network for Australia’s Future

3.4 Focusing on prevention rather than cure
The Government has made an $872 million investment in preventative health programs to
be rolled out in schools, workplaces and local communities with a high incidence of chronic
disease. These programs will focus on reducing lifestyle risk factors such as smoking and
obesity and increasing physical activity and healthy eating.
To tackle binge drinking amongst young people, the Government has increased the excise on
ready-to-drink beverages and implemented a National Binge Drinking Strategy.
3.5 Closing the life expectancy gap between Indigenous and
non-Indigenous Australians
To help close the gap between Indigenous and non-Indigenous health outcomes, the
Commonwealth, states and territories are investing $1.6 billion in measures to reduce the
burden of chronic disease in the Indigenous population — the biggest contributor to the life
expectancy gap. These measures include support for tackling high rates of smoking in the
Indigenous community, and improving management of chronic diseases such as diabetes
through additional support for primary health care practices with Indigenous patients.
3.6 Addressing workforce shortages in regional and rural Australia
The Government has recognised the challenges faced by Australians living in regional and rural
areas in accessing basic health care services. As part of a $134 million investment, some 500
communities will benefit from a number of new initiatives, which means that around 2,400
doctors in rural Australia will, for the first time, become eligible for financial support to stay in
rural and remote areas.
3.7 Investing in hospitals, medical research and clinical training infrastructure
In the first ever major investment by a Commonwealth Government in state health
infrastructure, $3.2 billion has been invested in 35 infrastructure projects across the country,
including:
››
$1.5 billion to upgrade 18 hospitals around the country;
››
$1.3 billion over six years to modernise Australia’s cancer infrastructure — including two
comprehensive cancer centres in Sydney and Melbourne linked into a network of regional
cancer centres; and
››
$430 million to upgrade 12 medical research and clinical training facilities.
Delivering better health and better hospitals 21

3.8 Sustainable, high quality aged care
The Government is committed to sustainable, high quality aged care and to providing funding
for more services to older Australians. Since November 2007, more than 10,000 new aged
care places have become operational and the Government is making more than 12,000 new
aged care places available this year, with a strong focus on community care. Overall, the
Government has increased total funding for aged and community care from $8.3 billion in
2007–08 to $10.0 billion in 2009–10, an increase of around 20 per cent.
3.9 Improving access to dental care
The Australian Government is committed to expanding access to dental care in Australia.
The Medicare Teen Dental Plan was implemented on 1 July 2008 and to 31 March 2010 has
provided $116 million in benefits for 792,321 preventive dental check-ups.
The Government remains committed to providing $290 million to states to fund around one
million additional public dental services, including priority treatment for people who have
chronic conditions relating to their oral health. This would be funded by closing the chronic
disease dental scheme to make funding available for the introduction of a fairer and more
accessible Commonwealth Dental Health Program, but the Senate has prevented closure
of the scheme. This means the Government has not to date been able to implement the
Commonwealth Dental Health Program.
3.10 A more financially sustainable health system
The Government has undertaken reforms to health care spending to ensure our system
remains fair and sustainable into the future. This includes rebalancing support for private
health insurance, so that those with greater capacity to pay do so. This is expected to save
$100 billion over the next 40 years, with coverage expected to remain at around 99.7 per cent
of existing levels. At this time this savings measure has not been passed by the Senate.
22 A National Health and Hospitals Network for Australia’s Future

4. How we got here: listening to the community and experts, and
working with the states
At the same time as making investments to fix immediate gaps, the Government set in train
long-term, system-wide health reform. It commissioned the most comprehensive structural
review of Australia’s health and hospital system in 20 years, by establishing the National
Health and Hospitals Reform Commission. The NHHRC’s final report, which was released at the
end of July 2009, contained 123 recommendations for immediate and longer‐term reforms.
Following the release of the NHHRC report, the Government undertook an extensive
consultation process to test the report’s recommendations with patients, health professionals
and the Australian people. In 2009 and 2010, the Prime Minister, Health Minister, and other
Ministers conducted more than 100 consultations with patients, health professionals and the
public, as displayed in figure two.
Figure 2: Locations of Government’s health reform consultations
WA
NT
QLD
ACT
NSW
QLD
VIC
NT
SA
TAS
WA
National
TOTAL
2
28
15
17
2
10
6
12
11
103
SA
NSW
VIC
ACT
TAS
Delivering better health and better hospitals 23

The Government has listened carefully to the expert advice and views put forward by the
Australian community. Key feedback from consultations indicated a community desire for:
››
a stronger Commonwealth Government leadership role, coupled with higher standards and
increased funding for public hospitals;
››
reduced health sector bureaucracy, simplified governance and accountability, and greater
autonomy and flexibility at the local level;
››
better access to multidisciplinary primary health care;
››
better public hospital services and waiting times;
››
better access to health care in rural Australia and disadvantaged areas; and
››
improved integration of information technology across our health system.
A full response to the NHHRC’s recommendations is provided at Appendix C.
Another source of expert input has been the 2010 Intergenerational Report. This report
projected that growth in all categories of Commonwealth health spending would increase,
driven by population growth and ageing, increased demand for health services, and new
technology. It provides further evidence that reform is needed to ensure the ongoing
sustainability of health and hospital services.
The Government has also worked closely with states to develop and refine these reforms.
This included extensive discussions at the COAG meeting in December 2009, and intensive
negotiations in early 2010.
At the COAG meeting in April 2010, all governments, with the exception of Western Australia,
reached an historic agreement to establish the National Health and Hospitals Network. This
included reaching a comprehensive intergovernmental agreement – the National Health and
Hospitals Network Agreement – which provides policy detail for these reforms, and outlines
the responsibilities that governments have committed to in order to deliver the National Health
and Hospitals Network.
The Government is continuing negotiations with Western Australia to seek their agreement
to these reforms, to ensure people in Western Australia receive the full benefits the National
Health and Hospitals Network will deliver. Funding in this document reflects the establishment
of the National Health and Hospitals Network across all states. However, throughout this
document, the term ‘states’ does not refer to Western Australia unless otherwise specified.
24 A National Health and Hospitals Network for Australia’s Future

5. Building the National Health and Hospitals Network
The National Health and Hospitals Network will deliver an effective and efficient health system
that will deliver better health and better hospitals. It will be funded nationally and run locally.
Following these reforms, Governments and taxpayers can be confident that health and hospital
services are placed on a more financially sustainable footing into the future.
Improving care for those Australians who need it most
Health is a major indicator of inequity. Poor health contributes to disadvantage, and
disadvantage contributes to poor health. Indicators such as rates of diabetes, rates of heart
disease, early deaths and infant mortality are all clear markers of socio-economic status.
The greatest beneficiaries of these reforms will be those Australians who use these core public
services like public hospitals most frequently. The establishment of a National Health and
Hospitals Network will help reduce the impact of disadvantage on Australians’ access to health
and hospital services. For instance:
››
Better GP and primary health care will assist disadvantaged Australians, who experience
higher rates of avoidable hospitalisation than more well-off Australians.
››
Patients with chronic and complex conditions, such as people with severe mental illness,
will benefit from improved integration of care and smoother transitions between different
health services that they use.
››
Measures to increase support for the rural health workforce, and to increase access to
aged care services in rural and remote areas, will help address the disparity between health
outcomes for people living in rural and remote Australia, and for people in metropolitan
Australia.
››
Indigenous and disadvantaged Australians are proportionally much greater users of public
hospital services than other Australians, and will benefit from the Government’s reforms
to public hospital services and investments to deliver better access to public hospital care.
Nearly 93 per cent of hospital attendances by Indigenous people in 2007–08 were at
public hospitals, compared to 59 per cent for non-Indigenous Australians.
› › Coordinated care for patients with diabetes will be particularly important for improving
the health of Indigenous Australians, who suffer from diabetes at much higher rates than
non‐Indigenous Australians.
Delivering better health and better hospitals 25

Areas for future action
The Government will continue to work with states and other stakeholders to undertake
ongoing reform and investment which could be delivered in the future to support the
establishment of the National Health and Hospitals Network. In particular, the Government:
››
Will pursue reform and further improvements in improving access to mental health services
– particularly for young people – to build on the benefits that will be delivered through
investments in this package.
››
Recognises there is much more to be done to improve access to dental care, and is committed
to expanding access to dental care in Australia. Many Australians experience poor access to
care, often because there are not enough dentists and dental professionals. Current estimates
project there will be a shortfall of 2.3 million dental services in 2020. People who are socially
and economically disadvantaged are much more likely to have poor dental health.
››
Will continue to prioritise aged care reform, with further reforms to ensure the aged care
sector is equipped to meet the challenges of tomorrow following the outcomes of the
Productivity Commission Inquiry into Aged Care.
A strong focus on delivering reform – now and into the future
The Government is already working hard to deliver the National Health and Hospitals Network.
The Government will work closely with states, health professionals, service providers and other
stakeholders to ensure that these reforms deliver better health and better hospitals for all
Australians. The scale of investment, speed of rollout and interaction between a large number
of major reforms mean this will be essential. The Australian community will be given clear, up
to date information about progress of the reforms.
Many measures, including funding for additional public hospital services, will commence
on 1 July 2010. These will deliver immediate benefits while foundational reforms – such as
the establishment of Local Hospital Networks and moving to activity based funding – are
bedded down.
The impact of many reforms will extend and be realised in the long-term. For instance, the
health and quality of life benefits of prevention measures to reduce smoking will accrue over
decades to come.
The Government, in consultation with states and the health sector, will continue to work hard
to deliver these historic reforms. The Government looks forward to ensuring Australians can
access better services and more integrated care now, and a high quality health system that is
sustainable into the future.
26 A National Health and Hospitals Network for Australia’s Future

PART 1 – Reforming the funding
and governance of health and
hospitals
Funded nationally
The Commonwealth Government will become the majority funder of Australian public
hospitals. The Commonwealth will fund 60 per cent of the efficient price of public hospital
services, with this price to be determined by a new independent national umpire, IHPA. The
Commonwealth will also fund 60 per cent of capital, research and training in our public
hospitals; and 60 per cent of public hospital funding provided through block grants, including
for small rural and regional hospitals to meet Community Service Obligations.
The Commonwealth will also take full funding and policy responsibility for GP and primary
health care services, and aged care services.
To improve integration between the acute and primary health care sectors – and help patients
access more appropriate and cost-effective care in the community – the Commonwealth
will also move over time to fund 100 per cent of the efficient price of primary health care
equivalent outpatient services.
Having one level of Government – the Commonwealth – as majority funder across the health
and hospital system will ensure there are nationally consistent funding arrangements that
support the best allocation of health services throughout the system.
To support these new funding arrangements, around one-third of total GST revenue will be
retained by the Commonwealth and invested in health and hospitals through a National
Health and Hospitals Network Fund. This will provide an increasing benefit to states over
time, starting with a guaranteed minimum of at least $15.6 billion in additional growth costs
absorbed by the Commonwealth from 2014–15 to 2019–20. These reforms provide a secure
funding base for health and hospitals into the future. They respond to the risk that states will
not have the financial capacity to meet rapidly increasing health spending obligations in the
longer term.
Delivering better health and better hospitals 27

Run locally
To improve responsiveness to local communities’ needs and improve clinician engagement,
governance and management of local health and hospital services will be devolved to the local
level. New local institutions will work together to deliver better integration and improvements
across the entire health system:
››
Local Hospital Networks will be responsible for managing and delivering hospital services.
This will lead to increased autonomy and flexibility so that services are more responsive to
local needs.
››
Medicare Locals – independent primary health care organisations with strong links to
local communities and health professionals – will be established to provide better services,
improve access to care and drive integration across GP and primary health care services.
››
One stop shops located across the country will ensure Australians can more easily access
information and assistance in receiving aged care services.
These institutions will work together to integrate the health system to improve patient
transition between the acute, primary and aged care sectors.
To drive transparency and efficiency in funding of health services, Local Hospital Networks will
be paid on the basis of each service they provide to public patients under service agreements
with states. This will reduce waste and increase the number of services provided for each dollar
invested.
Reported transparently
The Government will introduce clear and transparent performance reporting against new,
higher national standards and other performance indicators. Hospital Performance Reports and
Healthy Communities Reports (on primary health care performance) will provide performance
information that is nationally consistent and locally relevant – including reporting on the
performance of every hospital and Local Hospital Network in every local community across
Australia. Transparent reporting will allow strong performance to be identified and transferred
across the sector and allow poor performance to be quickly and easily identified, so that
interventions can be made before problems become entrenched. It will also help Australians
make more informed choices about their health services.
The combination of national funding and standards, local management and service delivery,
and transparent reporting, is at the core of the new National Health and Hospitals Network.
The disparate performance and operating models of states will become a thing of the past
with this shift to a single national network.
28 A National Health and Hospitals Network for Australia’s Future

Chapter 1: FUNDED NATIONALLY:
Reforming FINANCIAL ROLES AND
RESPONSIBILITIES
The Commonwealth and states have agreed to major reforms to roles
and responsibilities, to ensure future generations of Australians continue
to enjoy universally accessible health care.
The Commonwealth Government will become the majority funder of the
Australian public hospital system.
The Government will fund:
››
60 per cent of the efficient price of every public hospital service
provided to public patients;
››
60 per cent of recurrent expenditure on research and training
undertaken in public hospitals currently funded by states;
››
60 per cent of capital expenditure, to maintain and improve public
hospital infrastructure;
››
60 per cent of public hospital funding provided through block grants,
including for small rural and regional hospitals to meet Community
Service Obligations; and
››
Over time, up to 100 per cent of the efficient price of ‘primary
health care equivalent’ outpatient services provided to public
hospital patients.
The Commonwealth will also have full funding and policy responsibility
for GP and primary health care services, and for aged care services.
In return for a secure funding base for public hospitals into the future,
the states have committed to becoming part of the new National Health
and Hospitals Network. They have committed to system wide reform to
devolve governance, report on performance transparently, and meet new
national standards.
Delivering better health and better hospitals 29

A fragmented and blame ridden system
The Australian health system is hard to navigate for both patients and health professionals. It is
characterised by different state and territory systems, with a variety of funding sources and funding
boundaries. A number of the problems within the current system can be attributed to lack of
transparency and cohesion, often arising from lack of clear financial leadership. This has resulted in
blame shifting — an issue that has dominated debates on health for a number of years.
At its most basic level, blame shifting centres on the relative financial contribution of different
levels of government. In the last two decades, the most contentious issue arising from
arrangements for hospital funding has been the slow decline over time of the Commonwealth’s
share of public hospital funding. In 1995–96, the Commonwealth’s share of public hospital
funding was over 45 per cent. By the final year of the previous Australian Health Care
Agreements, it had declined to under 40 per cent. Moreover, under present arrangements, if a
state decides to invest more in health and hospital services, the Commonwealth does not make
any contribution.
Cost pressures and excess demand within parts of the health system have also fed cost shifting
between different levels of government. This makes it very hard for Australians to tell which
level of government is responsible for their health care, and to hold it accountable.
Majority funding responsibility for public hospitals
To overcome fragmentation, blame shifting and cost shifting across the health system, the
Commonwealth will ensure that one level of government has majority funding responsibility for
the hospital system.
In a fundamental change to hospital funding arrangements, the Commonwealth will increase
its funding contribution to:
››
60 per cent of the efficient price of every public hospital service provided to public patients;
››
60 per cent of recurrent expenditure on research and training undertaken in public
hospitals;
››
60 per cent of capital expenditure, to maintain and improve public hospital infrastructure;
››
60 per cent of public hospital funding provided through block grants, including for small rural
and regional hospitals to meet Community Service Obligations; and
› › over time, up to 100 per cent of the efficient price of primary health care equivalent
outpatient services provided to public hospital patients.
30 A National Health and Hospitals Network for Australia’s Future

Under these new funding arrangements, the Commonwealth will meet its share of the efficient
price of all public hospital services provided to public patients under service agreements
between Local Hospital Networks (discussed further in chapter two) and states.
The Commonwealth will assume greater financial responsibility by progressively moving
from payment for public hospital services on the basis of recurrent expenditure to payment
on the basis of a national efficient price for each hospital service. An independent umpire
at arm’s length from Commonwealth and state governments, the IHPA, will set the national
efficient price. In doing so it will strike an appropriate balance between reasonable access to
public hospital services, clinical safety and quality, efficiency and effectiveness, and financial
sustainability of the public hospital system.
For the first time, this means that where the Commonwealth, on behalf of the community,
wants to improve public hospital performance, the Commonwealth will have a direct funding
mechanism to drive improvements, and will also be exposed to the cost of delivering on that
improvement. From 1 July 2014, the Commonwealth will bear 60 per cent of any increased
demand, increased standards and increased community expectations.
Blame shifting over declining shares, base funding and indexation rates will be replaced with a
stable, secure funding base.
Primary health care equivalent outpatient services
The Government will also fund 60 per cent of the efficient cost of outpatient services provided
to public hospital patients. The Commonwealth will work with the states to move to fund
100 per cent of the efficient price of those outpatient services that are better characterised as
primary health care services.
This reform will help improve integration between the acute and primary health care sectors,
and help patients access more appropriate and cost-effective care in the community.
Some outpatient services are more closely associated with admitted services, whereas others
can be more appropriately associated with primary health care. With the assistance of the
states, and the increased data that will become available as a result of these reforms, the
Government aims to distinguish between these different types of outpatient services, and over
time, move to funding them in a manner that better reflects the character of the service. In
doing this, the Government will ensure patients continue to receive public hospital services free
of charge.
Delivering better health and better hospitals 31

Support for small regional and rural hospitals
The Commonwealth recognises that in some circumstances, particularly in rural and remote
Australia, activity based funding will not be able to fully reflect the higher cost bases and
limited economies of scale that smaller hospitals face. This is particularly due to the need to
keep facilities staffed and available for patients to access, even when not delivering services, in
order to meet Community Service Obligations.
The Government will ensure new financing arrangements effectively support small regional
and rural hospitals. The Government will ensure funding reflects the higher costs associated
with delivering services in regional and rural areas of Australia, including providing block
funding where appropriate so that small rural and regional hospitals can continue to deliver on
Community Service Obligations.
Funding for research and training
Funding pressures in public hospitals have often resulted in limited funding for non-patient
services such as research and training, which are essential to building the specialist workforce
for the future and retaining expertise within the public hospital system.
The Commonwealth will pay 60 per cent of recurrent expenditure on research and training
undertaken in public hospitals. The Commonwealth will place strong conditions on this
funding to ensure it is spent consistently with the overall objectives of the National Health and
Hospitals Network. This will strengthen links with the research and training sector (including
universities) and the teaching hospital sector not only through funding arrangements, but also
through improved formal linkages. This is a critical component of the reform agenda, bringing
together research, clinical training and teaching together to improve care for patients and build
the health workforce of the future.
Funding for capital expenditure
State governments are currently responsible for meeting the full cost of major capital
investments in public hospital infrastructure. With the Commonwealth making a greater
investment in recurrent public hospital services, the Government faces strong incentives to
ensure that public hospitals have appropriate facilities and equipment to ensure that they can
continue to provide services efficiently.
The Commonwealth will fund capital on the basis of the ‘user cost’ of capital, where possible,
which consists of a stream of payments to cover both depreciation and the cost of capital.
32 A National Health and Hospitals Network for Australia’s Future

Major capital planning will continue to be a responsibility of states. The capital funding stream
directly paid to each state will vary over time to reflect:
››
the nature and location of hospital services;
››
service activity; and
››
size of the state’s capital program.
Local Hospital Networks will receive and manage payments for minor capital, including for
maintenance and small scale operational needs.
The role of states and territories
In return for the Commonwealth providing a secure funding base for public hospitals into
the future, states have committed to system wide reform to devolve governance, report on
performance transparently, and meet new national standards.
States will be responsible for state-wide system management, and for supporting Local
Hospital Networks. States will operate within a framework of unified national funding and
governance arrangements, and will be held to account for meeting strong national standards
– including standards backed by funding linked to performance. States will continue to be
responsible for meeting the remaining costs of public hospital services, including meeting any
costs over and above the efficient price, as well as the remainder of teaching, research, capital
and block grants. This creates a strong incentive for states to be as efficient as possible in
playing their ongoing role in our public hospital system.
States will also continue to own public hospital assets. They will work with Local Hospital
Networks to determine the range and number of public hospital services to be provided within
their jurisdiction, and to be responsible for all aspects of industrial relations policy.
Taking full funding and policy responsibility for GP and primary health care,
and aged care
The Commonwealth will take full funding and policy responsibility for GP and primary health
care services, and for aged care services.
This important structural change to roles and responsibilities within the health system means
that one level of government – the Commonwealth – will be responsible and accountable for
the strategic direction, planning and public funding of primary health care and aged care, as
recommended by the NHHRC.
Delivering better health and better hospitals 33

Currently, the Commonwealth and state governments share responsibility for primary health care
services. Over time, this has resulted in duplication of effort in some areas and has created gaps
in delivery in others. Consequently, the delivery of primary health care and aged care services are
not as effective as they need to be.
This means that many patients end up in hospital, when they could have received better care in
the community.
The Commonwealth will be responsible for setting national standards and policy. As a result
of taking full funding responsibility for all primary health care and aged care services, the
Commonwealth will be able to draw services together so they are better integrated, better
coordinated, and more responsive to the needs of patients.
New primary health care organisations – Medicare Locals – will be established to support the
delivery of primary care services, better integrate services and plan for local population needs.
Medicare Locals are discussed further in chapter two.
For the aged care sector, this change in roles and responsibilities will deliver a nationally
consistent aged care system that will enable older patients to seamlessly move from basic
help at home to residential care as their needs change. This will provide a greater platform for
integration and innovation.
Ultimately, these changes will allow services to be provided in the most appropriate care setting for
the patient, breaking down the artificial barriers that are created by having multiple funders. These
changes will:
››
improve the efficiency of the system;
››
reduce cost-shifting and blame-shifting, as the Commonwealth Government will clearly be
accountable for GP and primary health care, and for aged care services;
››
allow the Commonwealth to reduce duplication of services, improving efficiency and reducing
waste, while improving overall capacity in the primary care and aged care sectors; and
››
make it easier for patients to access care that is integrated around their needs.
At this point, Victoria has not agreed to the transfer of responsibility for aged care Home and
Community Care (HACC) services to the Commonwealth. The Commonwealth Government remains
committed to continuing discussions with Victoria and other stakeholders, so that Victorians can also
benefit from a unified aged and community care system. The Commonwealth recognises the unique
role played by local government in Victoria. References in this document to ‘states’ in the context of
reforms to roles and responsibilities to deliver a unified aged care system do not refer to Victoria.
Further information on the shift to full funding and policy responsibility for GP and primary health
care services, and aged care services, is provided in chapters six and seven.
34 A National Health and Hospitals Network for Australia’s Future

Chapter 2: Run Locally: local
governance institutions to drive
performance and responsiveness
Governance and management of local health and hospital services will
be devolved to the local level. New local institutions will ensure health
services respond better to the needs of their local communities right
across the system:
››
Local Hospital Networks will be responsible for managing and
delivering hospital services. This will lead to increased autonomy and
flexibility so that services are more responsive to local needs.
››
Medicare Locals – a network of independent primary health care
organisations with strong links to local communities and health
professionals – will be established to provide better services, improve
access to care and drive integration across GP and primary health care
services.
››
One stop shops located across the country will ensure older
Australians can more easily access information and assistance in
receiving aged care services.
These new local institutions will work together to deliver better
integration and smoother transitions for patients across the entire health
and hospital system, breaking down the artificial barriers between
different services.
Devolution of responsibility for health and hospital services will also
improve responsiveness to local communities’ needs and better support
and engage clinicians.
Delivering better health and better hospitals 35

A hospital system without enough clinical and local engagement
Public hospital governance structures vary across Australia, from highly centralised models to
those that are more devolved to the hospital level. In the Government’s consultations, many
clinicians and local communities made it clear they do not feel they have the opportunity to
be involved in decisions about the delivery of health services in their communities. This is a
particular issue in rural and regional communities.
The result is that services are not responsive to local needs and opportunities to improve
clinical safety and quality are lost.
Local Hospital Networks with the flexibility to improve performance
Local Hospital Networks will be single or small groups of public hospitals with a geographic
or functional connection, large enough to operate efficiently and to provide a reasonable
range of hospital services. They will be established by states in line with nationally agreed
characteristics, and in close consultation with the Commonwealth. Devolving decision making
to Local Hospital Networks will give communities and clinicians a greater say in how their
hospitals are run.
Local Hospital Networks will be responsible for making decisions on the day to day operations
of hospitals within their Network. This includes planning at the Network level to deliver on
performance standards and manage budgets. Networks will be responsible for delivering on
agreed services and performance standards, formalised through an annual service agreement.
The state will set out a target for the amount of hospital services to be purchased, and
the Network will set out the performance targets and benchmarks that it agrees to reach.
Service agreements will be set within a framework of unified national funding arrangements,
and will be required to deliver on strong national standards. In general, they will leave
significant flexibility for Networks to determine the most appropriate service mix to meet their
performance targets and the needs of their community.
Local Hospital Networks will be established as separate legal entities under state legislation,
in order to devolve operational management for public hospitals, and accountability for local
delivery, to the local level. Networks will avoid the fragmentation and duplication that would
come from individual hospitals operating independently from each other, and also avoid the
centralised controls and excess layers of bureaucracy that characterise some systems. The
Commonwealth and the states will work cooperatively to ensure, wherever possible, common
geographic boundaries with Medicare Locals.
36 A National Health and Hospitals Network for Australia’s Future

Local Hospital Networks will be consistent with the following broad characteristics:
››
Local Hospital Networks in metropolitan areas will comprise at least one hospital, built
around principal referral hospitals or specialist hospitals, and including smaller metropolitan
hospitals. They will take into account patient catchment and referral linkages.
››
Many Local Hospital Networks will have a geographic focus with responsibility for
particular areas, while other Local Hospital Networks will have a functional focus – for
instance specialist women’s and children’s hospitals.
››
In regional Australia, a flexible approach will be adopted to determine the regional, rural
and remote network structure that best meets the needs of these communities and best
takes into account the challenges of managing multiple small hospitals.
The Commonwealth and states have agreed that the National Health and Hospitals Network
should be delivered with no net increase in bureaucracy as a proportion of the ongoing health
workforce. The Commonwealth Government expects that Local Hospital Networks should be
established by states within current health department staffing levels.
Professional governance to drive local responsiveness and improve efficiency
Local Hospital Networks will have a professional Governing Council and Chief Executive Officer
(CEO), who will be responsible for delivering agreed services and performance standards within
an agreed budget. Governing Councils will include local health, management and finance
professionals, with an appropriate mix of skills, expertise and backgrounds. Members will
need to have the professional capability to run the large, complex organisations that most
Local Hospital Networks will be. Each Network’s CEO will be appointed by the Council and
accountable to the Council.
The devolution of management accountability, combined with paying hospitals for the services
they provide, places incentives on local managers and clinicians to increase service levels
and reduce costs. This will also mean that a local hospital should no longer have to seek the
approval of a large bureaucracy for matters that relate to the day-to-day delivery of hospital
services.
Delivering better health and better hospitals 37

The role of state health departments
State health departments will specialise in system-wide service planning and performance
management issues, and work with Local Hospital Networks to negotiate service agreements,
meet unanticipated challenges, transfer good practice and identify and remediate poor
practice. They will work within a unified national funding and governance framework, and
support Local Hospital Networks in achieving national performance standards. Local Hospital
Networks will be the employers of hospital staff, but with industrial relations negotiations
conducted by states. Current employment conditions will not change as a result of these
reforms.
In circumstances in which independent and transparent reporting concludes that Local Hospital
Network performance is good, Governing Councils and CEOs could expect relatively ‘light
touch’ management from states in an earned autonomy system. Conversely, where Network
performance is not meeting the performance standards outlined in the service agreement,
state health departments will take a more visible and intrusive role. As a last resort, the
Council may decide to remove the CEO, or the state minister may choose to remove the Chair
of the Council, or both.
Further detail on the distribution of roles and responsibilities for public hospitals services is
provided in figure three below.
38 A National Health and Hospitals Network for Australia’s Future

Figure 3: Roles and responsibilities for public hospital services in the National
Health and Hospitals Network
Decisions relating
to public hospitals
Determine efficient price, pay 60% for
each service provided, and pay 60% of
other costs including capital
Determine national governance
arrangements
Determine national performance and
accountability framework, including
requirements for transparent, local,
nationally consistent performance
reporting
Performance measures and target setting
Standards setting, guidelines, quality and
safety and national clinical leadership
Hospital workforce planning
Pay remaining costs, including any costs
above the efficient price
Capital planning and management
Capital ownership
Receive Commonwealth funding for
research, training, capital and block
funding
Performance management and
remediation
Industrial relations negotiations
Agree local activity targets, service
mix and provision for highly specialised
services
Procurement
Receive Commonwealth and state funding
for services under activity based funding
Provisioning services between facilities
Corporate services (human resources,
payroll, etc.)
Managing an operational budget
Local implementation of clinical guidelines
and pathways
Location
Local Hospital
Networks
Regions (e.g.
Area Health
Services) States National
Delivering better health and better hospitals 39

New primary health care organisations – Medicare Locals
The Commonwealth will build on its responsibility for GP and primary health care with the
introduction of primary health care organisations – Medicare Locals. Medicare Locals will be
responsible for improving integration of services and reducing access gaps so that their local
community can access care that meets local needs.
Medicare Locals will be independent entities (not government bodies) with strong links to
local communities, health professionals and service providers, including GPs, allied health
professionals and Aboriginal Medical Services. It is expected that the first Medicare Locals will
commence operations by mid-2011 with the rest to be rolled out by mid-2012.
Medicare Locals will be responsible for a range of functions aimed at making it easier for
patients to navigate the local health care system and to provide more integrated care. They
will be integral to the Government’s reforms to ensure communities can access GP and primary
health care after hours.
Medicare Locals will be responsible for improving primary health care service delivery at the
local level, to reduce service gaps and improve access to high quality integrated care centred
around patients’ needs. For instance, a Medicare Local, in consultation with local GPs, might
identify that there are a large number of diabetics in a particular area – and organise a roster
of allied health professionals such as nutritionists and diabetes educators to provide sessional
services to different GP clinics in that area.
Subject to final agreement with the states, Medicare Locals may play an increasing role in
delivering services currently funded by states but set to transfer to the Commonwealth through
the Government’s reforms. The Commonwealth and the states have already agreed to roll any
primary care coordination functions into Medicare Locals to reduce duplication. States have
agreed to align related programs with Medicare Locals as much as possible.
Over time, in conjunction with the Australian National Preventive Health Agency, Medicare
Locals will also drive an increased focus on local community based approaches to preventive
health, by identifying and managing risk factors in local communities.
Where possible, Medicare Locals will be drawn from those Divisions of General Practice that
have the capacity to take on the roles and functions expected under the new arrangements. A
key principle will be to minimise disruption to health practitioners and service providers so that
clinical care to patients is not affected during the transition or establishment phase.
40 A National Health and Hospitals Network for Australia’s Future

Helping older people to move seamlessly through the aged care system
To ensure that older Australians are served as best they can, the Government will establish
arrangements that help older Australians find and access the services that suit their needs and
better integrate aged care with other parts of the health system.
As a step towards achieving this outcome, the Commonwealth will invest $37 million over the
next four years to establish aged care one stop shops across the country. This will help older
Australians and their families more easily access information and assessment for aged care
services, connect with assessment services, and access services in the place that best suits
them.
Over time, the Government will work with aged care providers to ensure that they are:
››
supported in helping older Australians and their families receive the right services as their
needs change; and
››
supported in working with Local Hospital Networks and Medicare Locals to ensure that the
health and aged care system works seamlessly in the interests of patients.
The Commonwealth’s full funding responsibility across all aged care services will also provide a
platform to promote the development of a wider variety of services and allow more innovative
approaches.
Clear accountability across the National Health and Hospitals Network
The establishment of the National Health and Hospitals Network will clarify roles and
responsibilities in the Australian health system. For too long, accountability has been
fragmented, with no clear lines of accountability and blame shifting occurring between
different levels of government.
The Commonwealth will have responsibility for majority funding across the health system and
for overall governance and policy setting for the health system.
Responsibility for local service delivery will rest at the local level – through Local Hospital
Networks, GPs and other primary health care professionals, and aged care services.
System-wide issues for public hospitals will be managed by states, within a national funding
and governance framework, and working to meet strong national standards. States will also be
responsible for providing funding to Local Hospital Networks on top of the Commonwealth’s
majority contribution.
Delivering better health and better hospitals 41

Medicare Locals will be responsible for driving more integrated primary health care in local
communities, and reducing access gaps, likewise within a national funding, governance and
performance framework.
Clinical leadership to drive continuous improvement
Clinical leadership is an integral part of the National Health and Hospitals Network. The
Government will support clinicians to lead the drive towards continuous improvement in quality
and to safeguard high standards of care, as they are the experts in this field.
Providing a platform for clinicians to encourage the use of evidence based medicine, and help
shape nationally appropriate quality and safety standards, is a critical component of improving
health outcomes and encouraging best practice. The National Health and Hospitals Network
will build on other measures to improve hospital standards through increased levels of clinical
engagement.
Clinical engagement will be improved through:
1. Local Hospital Networks:
Networks will work with local clinicians to incorporate their views, especially on quality and
safety, into the day to day operation of the hospitals. The Government will also support
local clinicians to turn national clinical guidance into local practice, and guide improved
safety and quality outcomes for the Local Hospital Network.
2. A permanent Australian Commission on Safety and Quality in Health Care:
The permanent Commission will work with clinicians to identify best practice clinical care,
set national quality and safety standards, and take on a broader role in developing new
clinical safety and quality standards across the health system.
3. Medicare Locals:
Strong clinical engagement will be a key feature of Medicare Locals. The role of Medicare
Locals will be to support clinicians, not to get involved in clinical decision making about
individual patients.
The Government will also give clinicians more of a voice in planning and service provision,
and drive improvements in quality and safety, by continuing to build on the improved clinician
engagement that Local Hospital Networks will deliver. The Government will also introduce
measures to improve the evidence base available to clinicians, allowing for more effective and
efficient clinical care. Specific reform measures building on current Commonwealth and state
efforts to improve clinician engagement will be announced by the Government shortly.
42 A National Health and Hospitals Network for Australia’s Future

Driving integration across the National Health and Hospitals Network
Local Hospital Networks will work with Medicare Locals to improve patient care and the
quality of health and hospital services. Together they will ensure that GP and primary health
care and public hospital care are better integrated, so patients smoothly transition in and
out of hospital and continue to receive all the care they need. This could include working
with relevant providers to help patients manage their recovery and stay healthy as they are
discharged from hospital.
Local Hospital Networks and Medicare Locals will also work together to identify and address
particular local needs. To formally enhance cooperation between hospitals and primary care
services in a community, Medicare Locals will be expected to have some common membership
of governance structures with Local Hospital Networks, and vice versa. In addition, Medicare
Locals funding agreements will require them to work closely with Local Hospital Networks, and
vice versa. These linkages will help to drive more integrated care for patients.
Local Hospital Networks will need to develop a number of critical relationships with other parts
of the health and hospital system. Good communication between public and private hospitals
will continue to be necessary, as will care pathways and linkages with local primary health
care and aged care providers. Local Hospital Networks will be expected to strongly engage
with university clinical schools and research centres, and this engagement will be critical
to translating clinical research into clinical practice, ongoing professional development and
training the next generation of clinical leaders.
Medicare Locals will work with local GPs and Local Hospital Networks to improve patient
care and quality and safety of health services. They will also work closely with practitioners
and services in the primary health care, hospital, aged care and Indigenous health sectors to
support greater collaboration between service providers.
In addition, to ensure that older Australians are served as best as they can, the Government
will establish arrangements that better integrate aged care with the other parts of the health
system. This will help older Australians find and access the services that suit their needs.
Over time, the Government will work with the full spectrum of aged care providers – including
community and respite care – to ensure that they are supported to:
› › Help older Australians and their families receive different types of care services as their
needs change – for example, through more intensive or specialised community care
packages, respite care and residential aged care.
Delivering better health and better hospitals 43

››
Work with Local Hospital Networks to identify appropriate care options that best suit
the needs of older Australians and avoid unnecessary hospital stays, including through
sub‐acute and step-down care.
››
Work with Medicare Locals to improve access to and quality of GP and primary health care
services provided to older Australians in a local community, irrespective of where they live.
These arrangements will ultimately ensure that aged care is coordinated with hospitals and GP
and primary health care services, as shown in figure four. They will provide the foundation for
a community of services which work with one another to provide better integrated and more
efficient care across the entire health system. These arrangements will ultimately ensure that
aged care services are coordinated with hospitals and primary health care services and they
work with one another to provide better integrated care that is centred around patients’ needs.
Figure 4: An integrated National Health and Hospitals Network across hospital,
aged care and GP and primary health care services
National Health and Hospitals Network
Local Hospital Networks
Manage day to day delivery of
hospital services
Medicare Locals
Support GP and primary
health care providers, help
integrate services
Aged care services
One stop shops
Link with Local Hospital
Networks and Medicare
Locals
44 A National Health and Hospitals Network for Australia’s Future

Chapter 3: Strong National
standards and clear accountability
for performance
A core element of the National Health and Hospitals Network will be
strong national standards and transparent reporting that is nationally
consistent, and locally relevant.
Strong national standards will drive improved performance across
the health and hospital system, with funding increasingly linked to
performance.
For the first time, Australians will be able to access transparent and
nationally comparable performance data and information on their local
hospitals and health services — including emergency department and
elective surgery waiting times, bed occupancy rates and reporting of
adverse events and hospital acquired infections.
New Hospital Performance Reports and Healthy Communities Reports
(on primary health care performance) will help Australians make more
informed choices about their health services, and help ensure the
standard of care patients receive continues to improve.
A lack of transparency for a significant taxpayer investment —
particularly at individual hospital level
Although around $70 billion in taxpayer funding was spent on health and hospitals over the
last year, there is little nationally consistent and comparable information available on the
performance outcomes of individual health and hospital services. Patients and the Australian
community do not have sufficient information about the performance of their local hospitals,
GPs and other health care providers in the system.
While a substantial amount of system and government-level information is available,
less information is published about local health services, how they are delivered and how
they perform.
Delivering better health and better hospitals 45

Setting national standards to deliver a nationally unified system
The Commonwealth Government will use its position as the majority funder of health and
hospital services in Australia to drive strong national standards for health care and build a
nationally unified health system. The Commonwealth has secured states’ agreement to a new
performance and accountability framework to clearly state the high expectations all Australians
can have of their health and hospital services.
As part of its national leadership role, the Commonwealth will insist on higher national
standards of performance, more consistently applied across the country, with new targets
backed up by explicit financial rewards.
The Commonwealth has already begun to move to increase the link between health and
hospital performance and funding — particularly in critical pressure points such as elective
surgery and emergency departments. The Commonwealth has secured states’ agreement to a
four hour National Access Target for emergency department services, and an elective surgery
target and National Access Guarantee. The Commonwealth is providing $1.6 billion over the
next four years for the achievement of these new, higher national standards.
Other areas in which national standards will be developed include:
››
access to GPs and other health professionals;
››
safety and quality of care (for instance through reporting on adverse events and hospital
re-admission rates);
››
patient satisfaction; and
››
financial management.
A new National Performance Authority will monitor and report on the performance of Local
Hospital Networks, individual hospitals and Medicare Locals. This will provide clear and
transparent reporting on public and private hospital performance, as well as state performance,
and independent reporting on the Commonwealth’s primary health care performance.
A permanent Australian Commission on Safety and Quality in Health Care will set national
quality and safety standards and work with clinicians to identify best practice clinical care, to
ensure the appropriateness of services being delivered in a particular setting.
46 A National Health and Hospitals Network for Australia’s Future

Transparent reporting of performance against new, higher national standards
The Government will introduce clear and transparent performance reporting against these
strong national standards and other performance indicators to provide Australians with more
information than ever before about the performance of their health and hospital services.
For the first time, this performance information will be both nationally consistent and locally
relevant.
The Government will introduce clear and transparent reporting on the performance of every
Local Hospital Network, and the hospitals within it, and every private hospital, through regular
Hospital Performance Reports. This will show how all Australian hospitals perform against new
national standards and other performance indicators.
In addition, the Government will develop a Healthy Communities Report for each Medicare
Local’s geographic area. This Report will include, on a nationally consistent basis, local and
regional area information covering:
››
preventive health risk factors and other measures of community health and wellbeing;
››
access to GP services and out of hours GP care; and
››
the extent to which the health system is working in a coordinated way, for example through
the number of avoidable hospital admissions and trends in this information over time.
The Government will work with clinicians, states and other stakeholders to develop the
structure of these reports, and to identify what data is already available and what will need to
be developed over time.
Hospital Performance Reports and Healthy Communities Reports will help Australians make
more informed choices about their health services. They will clearly and quickly identify areas
of high performance, and support the spread of effective and innovative practices across the
country. They will help ensure the standard of care patients receive continues to improve.
Transparent reporting will also allow poor performance to be quickly and easily identified, so
that interventions can be made before problems become entrenched.
Delivering better health and better hospitals 47

Chapter 4: Transparent and efficient
funding arrangements
The Commonwealth Government will pay 60 per cent of the efficient
price of every public hospital service provided to public patients. The
national efficient price will be determined by a new independent umpire,
the Independent Hospital Pricing Authority.
For the first time, both Commonwealth and state funding for public
hospitals will be clearly identified, and will be explicitly linked to services
actually delivered to patients.
This will introduce new levels of transparency in funding for public
hospitals, and give taxpayers confidence that scarce health dollars are
going directly to hospital services. Commonwealth funding for each
service will be calculated and paid automatically, through National
Health and Hospitals Network Funding Authorities, to Local Hospital
Networks.
These Funding Authorities will be jointly governed by the Commonwealth
and the relevant state. Funding Authorities will transparently report on
the number of services provided and paid for.
This transparent system of activity based funding will provide Local
Hospital Networks with funding certainty, and give them flexibility to
shape the mix of services they deliver.
Some payments will be made to states for system-wide resource
allocation, including payments for research and training, and block
grants, including for small rural and regional hospitals to recognise
Community Service Obligations.
48 A National Health and Hospitals Network for Australia’s Future

Too much inefficiency and waste
Today, the Commonwealth supports the delivery of free public hospital services through block
grant funding paid to the states. Each state then determines funding for individual hospitals.
There is considerable variation in mechanisms for payment to individual hospitals around the
country, though many states are shifting to some form of activity based funding for acute care.
Improving their efficiency will allow hospitals to keep downward pressure on costs, and to free
up resources to meet increasing demand.
Reforming funding arrangements for public hospitals
The Commonwealth will create a National Health and Hospitals Network Fund comprising:
››
funding sourced from the National Healthcare Specific Purpose Payment;
››
an agreed amount of GST revenue, which would then be allocated to health and hospitals
reform; and
››
additional top-up funding to be paid by the Commonwealth, reflecting the
Commonwealth’s greater responsibility for financing growth in hospital costs.
Commonwealth funding for public hospitals will be made from this Fund.
Commonwealth and state funding for public hospital services will be clearly identified, and
delivered transparently and directly to Funding Authorities in each state. Jointly governed
by the Commonwealth and the relevant state, Funding Authorities will transparently report
on the number of services provided and paid for, introducing new levels of transparency in
how hospital funding is distributed, and giving greater confidence to governments and the
community that scarce health dollars are going directly to hospital services.
Commonwealth funding will flow automatically through Funding Authorities directly to
Local Hospital Networks based on services actually provided. States have also agreed to
be transparent about their funding contribution for each public hospital service, by making
payments on an activity basis through Funding Authorities. There will be no scope to divert
these funds for other uses, and no scope for health departments to use the money for
bureaucracy. This will give hospitals more funding certainty than ever before. Transparent
funding arrangements will also support transparent performance reporting and drive
continuous improvement within each public hospital.
Funding Authorities will have no policy or operational role, beyond receiving activity based
payments from governments and making payments directly to Local Hospital Networks.
Delivering better health and better hospitals 49

These arrangements will ensure each Local Hospital Network is funded for the services it
provides. This gives Local Hospital Networks a strong financial incentive to provide more
services and provide services more efficiently, subject to meeting safety and quality standards.
Local Hospital Networks will negotiate with states to determine the range and number of
services each Network will provide. The Commonwealth will fund 60 per cent of the efficient
price of each of these services and Commonwealth funding will be provided automatically for
each service provided under a service agreement. This represents a significant departure from
current arrangements, under which the Commonwealth contributes to public hospital funding
through block grants, which are not explicitly tied to delivery of services.
International experience suggests that activity based funding in concert with effective clinical
leadership and a strong safety and quality regime can support improvements in quality and
patient care. It also has the capacity to slow the rate of growth in hospital costs over time,
increasing the long-term sustainability of health care funding.
These reforms will help to ensure that hospital financing can dynamically adjust to:
››
shifting populations;
››
local demographic characteristics;
››
changing costs of delivering medical services from technological and clinical innovation; and
››
the complexity and location of delivering hospital services.
In addition to funding public hospital services through activity based funding, the Government
will ensure that the new financing arrangements effectively support small regional and rural
hospitals, and other services that are not suitable for activity based funding. The Government
will provide block funding to these services either instead of or on top of activity based
funding. This will reflect the higher costs associated with delivering services in regional and
rural areas of Australia, and ensure small rural and regional hospitals are funded to deliver on
Community Service Obligations.
An independent umpire to determine the efficient price
To ensure that the nationally efficient price is determined on a fair and equitable basis, a new
independent umpire, the IHPA, will set the national efficient price and advise the Government
on appropriate timelines and the path for transition for all hospital services. It will engage with
clinicians on technical issues to ensure that the efficient price continues to reflect the actual
cost of providing hospital services, and developments in best practice.
50 A National Health and Hospitals Network for Australia’s Future

The national efficient price will cover both the recurrent costs of patient services and the
operating capital required to deliver those services. The umpire will also advise on the mechanism
to provide the Commonwealth’s contribution to teaching and research, capital, and block grant
funding (as outlined in chapter one).
In setting the national efficient price, the IHPA will be required to strike an appropriate balance
between reasonable access, clinical safety, efficiency and fiscal considerations. Price loadings will
be established to recognise, for example, the particular circumstances and health care needs of
people living in rural Australia and Indigenous Australians.
The IHPA will also provide binding and independent arbitration on cost‐shifting and boundary
issues, both between the Commonwealth and the states, and cross-border charging between
states. The IHPA will be empowered to resolve cost-shifting issues in a definitive and nationally
consistent manner.
Driving efficiency — within Local Hospital Networks and across the system
Payments on the basis of an efficient price will help drive efficiency in all hospitals across
the country. This reform will give the Commonwealth and the community confidence that in
the future, additional investment of scarce new health funds is being used as efficiently and
effectively as possible.
It is estimated that activity based funding will be applied to at least half of all public hospitals.
These will mostly be larger hospitals in metropolitan areas but will also include many large
hospitals in regional areas. These hospitals account for around 90 per cent of all admitted patient
hospital services. The remaining hospitals – mostly small, rural hospitals – account for around 10
per cent of services. The Government will provide block funding to these services, either instead
of or on top of activity based funding.
Those Local Hospital Networks that deliver high quality services more efficiently will be able to
reinvest in further innovation or more services, and have the flexibility to shape local services
according to local needs. The need for payments to be passed through state and regional health
bureaucracies will be avoided.
The combination of funding for services actually provided and new national transparency
measures will mean communities have more information than ever before on how well hospitals
are performing, how their hospitals are funded, and what services are provided.
This increased transparency will also allow ready identification of high-performing hospitals, support
sharing innovative practices with other hospitals, and help to create a self‐improving hospital
system. Moreover, states will be able to easily identify hospitals that are struggling and make early
interventions to lift hospital performance.
Delivering better health and better hospitals 51

Chapter 5: A SECURE FUNDING BASE
FOR HEALTH AND HOSPITALS
The Commonwealth Government will take responsibility for an increased
share of health care costs by increasing its contribution to public hospital
services and taking full responsibility for funding GP and primary
health care and aged care. These changes will be financed through a
combination of:
››
funding currently provided by the National Healthcare Specific
Purpose Payment;
››
dedication of GST revenue (expected to be about one-third of total GST);
››
top-up funding of at least $15.6 billion between 2014–15 and 2019–20
to be paid by the Commonwealth, reflecting its greater responsibility
for financing health and hospital expenditure growth.
This will also improve the long run productivity of the Australian
economy: the level of government with the most stable and efficient
revenue base will now be the majority funder of the fastest growing area
of public expenditure.
A health system under financial pressure
The cost of health care has risen significantly in past decades and will continue to rise into
the future. Health costs are projected to increase from 15 per cent of all Commonwealth
Government spending now (4.0 per cent of GDP) to 26 per cent by 2050 (7.1 per cent of GDP)
— an increase in 2049–50 of around $200 billion from today’s spending.
Population ageing will be a major contributor to this: from 2009–10 to 2049–50, real health
spending on those aged over 65 years is expected to increase around seven-fold, and around
twelve-fold for those over 85 years.
The costs of providing health care have increased sharply in recent years: health spending was
45 per cent more in 2005–06 than a decade before, even after adjusting for inflation.
52 A National Health and Hospitals Network for Australia’s Future

On the basis of current spending and revenue trends, there is a real risk that state governments
will not have the financial capacity to meet health spending obligations in the longer term,
placing our health system and services at risk.
In the five years to 2007–08, public hospital expenditure has grown at an average of close to
ten per cent per year. As shown in figure five below, if current spending and revenue trends
continue, health spending alone is projected to absorb more than the entire revenue collected
by all states by 2045–46 – and earlier in some states.
Figure 5: Health funding responsibility as a proportion of own source tax
revenue (illustrative)
Per cent
120
Per cent
120
100
100
80
80
60
60
40
40
20
20
0
0
2008-09 2013-14 2018-19 2023-24 2028-29 2033-34 2038-39 2043-44 2048-49
State and local All governments Commonwealth
Source: Treasury projections based on data from the Australian Institute of Health and Welfare. Tax held constant as a share of
GDP. Based on current arrangements at the time of the 2010 Intergenerational Report.
Part of the answer to this challenge will lie in achieving greater system wide efficiencies —
these are central to the reforms to establish the National Health and Hospitals Network.
These gains will be driven by better clarification of roles and responsibilities (see chapter one),
the devolution of hospital management (chapter two), national standards with improved
accountability for performance (chapter three), and the introduction of activity based funding
(chapter four). However, fundamental reform of federal financial relations is also necessary if
we are to address the challenge of growing health care costs.
Delivering better health and better hospitals 53

Financing the National Health and Hospitals Network
The Commonwealth has secured states’ agreement that these reforms will be financed through
a combination of:
››
funding sourced from the National Healthcare Specific Purpose Payment;
››
an agreed amount of GST revenue, which would then be allocated to health and hospitals
reform; 1 and
››
additional top-up funding to be paid by the Commonwealth, reflecting the
Commonwealth’s greater responsibility for financing growth in hospital costs.
From 1 July 2011, an agreed amount of GST revenue will be retained and allocated by the
Commonwealth to health and hospital services. Each state’s retained GST will be allocated to
health and hospital services in that state. The amount of GST to be retained and allocated to
health and hospitals will then be fixed from 2014–15, based on 2013–14 costs.
This reform will provide an increasing benefit to states over time, as the gap widens year on
year between the growth of general consumption – the GST revenue base – and increasing
health costs. The Commonwealth will guarantee that the ‘top-up’ payment during the period
2014–15 to 2019–20 will be at least $15.6 billion. The benefits to health and hospital services
in each state will grow significantly beyond this period. As a result of the Commonwealth’s
retention of GST, all states will be no worse off in the short term, and significantly better off
over the longer term.
Should the Commonwealth’s responsibility for health system growth be less than the predicted
$15.6 billion, states will be required to spend the residual on any health service that will
assist in ameliorating the growth in demand for hospital services, including programs for
chronic disease management, preventive health, mental health, hospital admission avoidance
programs and hospital early discharge programs.
This change represents a significant shift in financial responsibilities, not least because
hospital costs have been growing at close to ten per cent per annum, and are expected to
continue to outpace growth in GST of around six per cent per annum over the medium term.
The Commonwealth’s enhanced funding responsibility will commence as the foundations
of a new health and hospital system — particularly reformed roles and responsibilities,
national standards, activity based funding, and local management of hospital services — are
established.
1 For a discussion of the specific circumstances of Western Australia see page 24.
54 A National Health and Hospitals Network for Australia’s Future

A secure funding base for health and hospitals into the future
The Commonwealth Government taking a greater share of funding for our nation’s health
system will help to secure the funding base for health and hospital services into the future.
It will reduce the reliance on less efficient state taxes to finance health services. The
Commonwealth Government is better placed to take responsibility for the future growth across
health and hospitals, due to its stronger budget position, characterised by revenue sources that
are better able to handle fiscal adjustment over time. This will also yield productivity dividends
across the national economy, and better alignment between spending responsibilities and
revenue-raising capacity in both Commonwealth and state governments.
These reforms will reduce future pressure on the states to raise more revenue to finance health
services through their less efficient taxes. Figure six below shows an estimate of the significant
financial benefits that each state will receive from these reforms. The difference in gains for
each state reflects their different population sizes and growth.
Figure 6: Expected improvement in budgetary position on a population share
basis (by state, 2014–15 to 2019–20)
5,000
$million
$million
5,000
4,000
4,000
3,000
3,000
2,000
2,000
1,000
1,000
0
NSW VIC QLD WA SA TAS ACT NT
0
Source: Treasury projection. Based on current arrangements. Note inclusion of WA assumes agreement to these reforms. Final
distribution of guaranteed top-up to states subject to further discussion between Treasurers.
Delivering better health and better hospitals 55

Fiscally responsible reform
This reform is consistent with the Government’s fiscal strategy to return the budget to surplus,
and is fully funded over the upcoming forward estimates.
The Government has already delivered $56 billion in savings in the 2008–09 and 2009–10
Budgets. The Government is prepared to make further savings decisions in order to ensure the
long term sustainability of the health system and the delivery of the fiscal strategy.
The Government recognises that additional investments will be required over time to meet
increased demands on the health system. The investments outlined in this document, as well as
any additional investment in our health system, will be consistent with the Government’s fiscal
strategy. The Government has already undertaken significant reforms in order to place health
costs on a more sustainable footing.
56 A National Health and Hospitals Network for Australia’s Future