Wednesday, April 21, 2010

Unpacking the Rudd Government health care changes

I wondered whether or not to attempt any analysis of yesterday's Australian Council of Australian Government's (COAG) agreement on health care. However, the COA communiqué on the meeting went on-line last night, so I thought that I might have an initial look at it for my own interest.

While the money involved plus the theatre have grabbed headlines, I am especially interested in the machinery and structures involved. What might all this actually mean for service delivery on the ground?

The analysis will obviously be partial. The devil with these things always lies in the detail and subsequent implementation.

Western Australian Position

The agreement presently involves the Commonwealth and all states and territories with the exception of West Australia. One thing that I had not sufficiently realised is that WA has a very particular present problem with the distribution of GST revenues. In addition, there is a deeply held view in WA that the Commonwealth and eastern states do not understand WA's special needs. 

Mr Rudd seemed confident that he could resolve the WA position one way or another, so that it can be put aside for the present.


The agreement provides that:

  • the Commonwealth will have funding and policy responsibility for GP and primary health care services, and aged care services.
  • the Commonwealth will become the majority funder of Australian public hospitals, by funding 60 per cent of the efficient price of all public hospital services delivered to public patients.

The focus in discussion has been on the public hospital system. However, acceptance that the Commonwealth has policy responsibility for GP and primary health care and aged services is quite important. This includes the transfer except for Victoria of responsibility for home and community care activities. The communiqué explains the changes in this way:

COAG, with the exception of Western Australia, agreed the Commonwealth will have full funding and policy responsibility for GP and primary health care, as defined in the National Health and Hospitals Network Agreement, including community health centres, primary mental health care, immunisation, and cancer screening programs. The Commonwealth will build on its responsibility for general practice and primary health care with the introduction of primary health care organisations. These bodies will be responsible for improving integration of services and reducing access gaps so that their local community can access care that meets local needs. Existing service delivery arrangements will be maintained for a period of five years unless otherwise agreed by governments.

COAG, with the exception of Western Australia, further agreed the Commonwealth will have full funding and policy responsibility for aged care. These reforms include a transfer to the Commonwealth of current resourcing for aged care services from the Home and Community Care (HACC) program (except in Victoria). In aged care, these reforms will support the development of a nationally consistent aged care system, covering basic home care through to nursing homes. Transition to the new aged care arrangements will occur in a way that ensures there is no disruption to the current recipients of these services, including younger people with disabilities who are currently receiving care in aged care services.

All States, with the exception of Western Australia, will work with the Commonwealth on system-wide primary health care policy, including where coordination is required to improve system integration or service planning.

Having one level of government responsible for the majority of hospital funding and all of primary health care and aged care will create strong incentives to support a healthier community and reduce pressure on hospitals. This will also help reduce cost-shifting and blame-shifting.

The role of the new primary health care organisations is not defined, nor are exact arrangements for aged care services.

If I read the arrangements correctly, agitation for improved services at local or regional level will now need to address the Commonwealth. One interesting side-effect of all this is that Commonwealth MPs are now going to have the joy of handling all the minutiae of electoral matters in these areas previously the preserve of their state colleagues!

Public Hospitals

The proposed arrangements in this area involve a standard's based funder-purchaser-provider model. I find the changes a little complicated.

The overall change is summarised in this way:

 COAG, with the exception of Western Australia, agreed that the Commonwealth will fund 60 per cent of the national efficient price of public hospital services delivered to public patients. The national efficient price is an independent and objectively determined calculation of the cost of providing public hospital services. The Commonwealth will also fund 60 per cent of capital, research and training in public hospitals, and over time move to fund 100 per cent of the national efficient price of ‘primary care equivalent’ outpatient services.

Now when we break the changes down, I think that we find the following:

Local Hospital Networks will be:

the direct managers of single or small groups of public hospital services and their budgets through a professional Governing Council, in order to devolve operational management for public hospitals and accountability for delivery to the local level. They will be held directly accountable for hospital performance. Local Hospital Networks will engage with the local community and local clinicians to incorporate their views into the day-to-day operation of hospitals, especially regarding the quality and safety of patient care. Local Hospital Networks will work with new primary health care organisations to support more integrated care and help ensure patients experience smooth transitions between sectors of the health system.

   Present health delivery structures vary between the states. In the NSW case, the present area health services will have to be broken up or at least heavily restructured to create 18-25 local hospital networks. This has a range of implications for things such as current doctor training arrangements that will need to be worked through in detail.

Activity based funding will be used to fund the new networks based on a " nationally efficient price" for each service provided to a public patient. Provision will be made for block funding to smaller local or regional hospitals that might otherwise be severely disadvantaged by the new arrangements. The networks will be responsible for funding minor capital works.

A new Independent Hospital Pricing Authority will be established to determine the "nationally efficient price". This will also be responsible for determining the Commonwealth’s payments for block funding and will be empowered to make binding determinations about cost-shifting and cross border issues in the health and hospital system.

Quality and Reporting Issues

COAG agreed:

to transparent performance reporting against high national standards and other performance indicators to provide Australians with more information than ever before about the performance of their health and hospital services.

To this end:

  1. There will be Hospital Performance Reports and Healthy Community Reports (on primary health care performance)
  2. A new independent National Performance Authority will be responsible for local level performance reporting. The Hospital Performance Reports prepared by the Authority will show how Local Hospital Networks, the hospitals within them, and private hospitals perform against new national standards, and other performance indicators
  3. New clinical safety and quality standards will be developed by a permanent Australian Commission on Safety and Quality in Health Care. The independent National Performance Authority will be responsible for reporting on performance against these standards, across both primary care and public hospitals.

Funding Arrangements

The funding arrangements in all this are quite complicated and actually a bit difficult to work out just based on material to this point. The key elements appear to be:

  1. The Commonwealth's contribution to health funding will be paid into a new National Health and Hospitals Network Fund
  2. In each state or territory, joint intergovernmental authorities will be established. These will be tri-partite bodies made up of a jointly selected independent chair plus one Commonwealth and one State nominee.
  3. Each authority will receive Commonwealth funding from the new National Health and Hospital Networks Fund plus the State's GST share and will then pay the money to the local hospital networks. The exact mechanics have still to be defined.
  4. The National Health and Hospitals Network Fund will also direct payments to States for the Commonwealth’s contribution to 60 per cent of the cost of research and training undertaken in public hospitals, large-scale capital investment, and block funding for agreed functions and services and community service obligations required to support small regional and rural public hospitals. The National Health and Hospitals Fund will also provide a stream of funding to States for the continued delivery of GP and primary health care services for which full funding and policy responsibility is being transferred to the Commonwealth. Criteria and mechanics have still to be defined.

State Roles

If  we ignore transition arrangements, the future role of the states in health care appears to be limited to that of systems manager as defined by the Commonwealth from time to time. In return, they have gained a present cap on health care costs that might otherwise have totally destroyed their limited remaining financial flexibility.


The changed arrangements agreed to at COAG are going to take years to implement. In political terms, the gain from extra funding and the drama of the changes themselves will, I think, certainly aid the Government at the next election. All the detail and the problems flowing from the detail will emerge in the subsequent term.

I literally don't know how the new system will perform. We can make some guesses, but that needs to matter for further posts. 

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