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We need to discuss national priorities in Commonwealth-State health reform

With the Commonwealth and state governments re-examining the National Health Reform Agreement, there is an opportunity to consider the role and scope of agreement, extending it beyond the remit of hospital funding.

In this piece, which originally appeared in Pearls and Irritations, health economist Professor Stephen Duckett looks at some possible ways forward for the major health agreement between the Commonwealth and the states.


Stephen Duckett writes:

The prospects for significant health reform looked good at the end of 2023. A mid-term review of the main Commonwealth-state agreement – the National Health Reform Agreement (NHRA) – had recommended that the focus of a new agreement, due mid-2025, should be broader than public hospital funding. States seemed to be on board and the Commonwealth put big money on the table at the National Cabinet meeting on December 6.

Commonwealth funding to the states flows in a tortuous path, but the NHRA provides that overall, the Commonwealth commits to meeting 45 percent of the cost of growth in public hospital services, with two caveats.

Firstly, the growth in funding assumes that the states are providing services efficiently and the Commonwealth share is paid at what is called the national efficient price. This incentive for efficiency should be maintained in any new Agreement and states should not complain if the Commonwealth share drops because they are not good managers of their hospital systems.

The second caveat is that the previous Liberal Commonwealth government unilaterally and illegitimately capped its funding growth at 6.5 percent per annum. State spending over 6.5 percent does not attract any Commonwealth matching.

Mathematically, if the Commonwealth share is to increase over time, then the cap needs to be relaxed and the Commonwealth share of the costs of growth must increase faster.

The Commonwealth could also agree to share in the costs of services excluded from the NHRA in the past or the states could agree that new Commonwealth spending – which benefits states – might be counted towards the NHRA commitment. Funding for some state preventive activities might be example of the former, expanding after hours telehealth services might be an example of the latter.

Ways forward for reform

In addition to describing public hospital funding formulae, the NHRA has symbolic and political functions, including by identifying directions for reform.

The mid-term review called for the next NHRA to be truly about health and reform, not simply hospitals and the status quo which characterised previous iterations. But asking the Commonwealth and state negotiators to address big picture reform seems a bridge too far and they appear to have slipped back into their comfort zone of squabbling over money, but more of that later.

But what big picture reforms should we be looking for? Commonwealth Health Minister Mark Butler has nominated mental healthcare and primary care as his two priorities, and these seem logical places to start.

Most states have recognised the parlous situation of their mental health systems and have committed to grow funding and restructure to emphasise community mental healthcare. The NHRA could facilitate harmonising Commonwealth and state efforts by committing some of the increase in Commonwealth funding to mental healthcare.

The new agreement might reward states for investing in community mental health services by ensuring that they are captured and counted in the new agreement, and growth in activity in state community health services might attract a higher rate of matching. Mental health reform would be accelerated if, for example, the Commonwealth were to meet 75 percent of the costs of growth in activity for the first three years of the agreement, rather than the 45 percent applying to other services.

The Commonwealth has commenced a major transformation of primary care with phasing in of the MyMedicare program. There are many areas of overlap between the Commonwealth and states in primary care which are ripe for reform.

The Commonwealth’s new Urgent Care Centres seem to be welcomed by the public and nearby hospital emergency departments, and perhaps an expansion of these could count as Commonwealth NHRA spending.

Similarly, a move towards a ‘single employer model’ in rural and remote Australia could be hastened by increased Commonwealth expenditure in this area which could also count toward the NHRA commitment.

Addressing specialists’ costs

In addition to those two priorities, the next NHRA could also address high out-of-pocket charges which make access to medical specialists difficult for many.

The public alternative – public hospital outpatient clinics – often involves very long waits. An increased Commonwealth share of growth – again perhaps 75 percent – could encourage states to expand provision here.

The new NHRA might also increase investments in new workforce models and increase training placements to ensure a fit-for-purpose health workforce supply into the future. Again, the next NHRA might provide for the Commonwealth to meet 100 percent of the cost of increases in clinical placements, and training in public hospitals.

As with any Commonwealth-state agreement, there are many technical details to be negotiated. As is appropriate, the Prime Minister, Premiers, and Chief Ministers, signed off on the big picture: the Commonwealth share of public hospital funding will increase to 45 percent by 2035, from its current base in the low 40s.

The immediate question is: 45 percent of what? Is it 45 percent of all public hospital funding, or 45 percent of government funding? This seems to be the issue that has derailed progress on broader reform. There is an agreed intermediate target of 42.5 percent ‘before 2030’, but this leaves the details of the predicted share in each year still to be determined, leading to unproductive fiscal squabbles and stymieing reform.

The new NHRA should be explicitly about reform as the midterm review suggested. It potentially could usher in a new era of Commonwealth-state cooperation in healthcare. The Commonwealth has made a down-payment and committed a substantial increase in its funding over the next decade which will help address existing problems in the health system.

Contrary to the current lackadaisical approach, there is some urgency to identify what the spending priorities should be. The new agreement starts in 15 months, and there is a federal election between now and then.

Health ministers should immediately start a national conversation about what the key gaps in care are, and where new investments need to be made, and hopefully, what the public should expect in terms of outcomes for this new investment.

• Stephen Duckett is an Honorary Enterprise Professor in General Practice and in Population and Global Health at the University of Melbourne, Chair of the Board of Eastern Melbourne Primary Health Network, and a member of the Strengthening Medicare task force.


Previously at Croakey

Croakey (February, 2024): What will it take to unlock big health reform?

Croakey (December, 2023): The National Health Reform Agreement has been under review. Why the secrecy?

Croakey (December, 2023): National health reform – what’s beneath the hood?

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