Recent Reforms in the Australian Health System

National Health Reform

The National Health Reform Agreement was achieved in August 2011 after lengthy negotiations between the Commonwealth and the States. This is the key document which sets out the goals and strategies for a major reform program, described by the Prime Minister as the most significant reform since the introduction of Medicare in 1984.

The process of reform began in 2007 with the election of a new Labor Government, under the Prime Ministership of Kevin Rudd. At that time, there was a great deal of concern about the state of public hospitals, with perceptions of overcrowded emergency departments, long waiting lists for elective surgery, and major issues with safety and quality. The States and Territories blamed the Federal Government for insufficient funding to match their growing population needs, and in turn, the Federal Government blamed poor management at the State level. Many commentators wished that just one level of government managed all health responsibilities. In response, the new Government established the National Health and Hospitals Reform Commission to develop a blueprint for reform. The Commission’s Final Report was published in August 2009, but it took a further two years for the arduous process of negotiations across all the governments involved; which resulted in major departures from the Commission’s recommendations.

The key principles underlying the reform are

  • local decision making within overall management of the system
  • activity based funding (case mix funding) for hospitals
  • public performance reporting.

Local decision making is being implemented by establishing Local Health Networks which will be responsible for managing and delivering public hospitals and other State health programs. The States generally already had some form of regional structure for coordinating and administering public hospitals; and the new Local Health Networks, therefore, represent varying degrees of reorganization. Of course, reflecting State differences they have been given different names in different States. What is different is the level of management autonomy and responsibility. The Local Health Networks will receive their share of Commonwealth funding directly rather than through State health departments; they will be responsible for managing their own budgets, and delivering the required services, which will be determined by performance agreements negotiated with the State health department. This is changing the States’ responsibility from directly operating their public hospitals, to oversight and managing the system.

Activity based funding has been in use across the States though in different forms. In no State has there been a total reliance on activity based funding. Establishing a national system involves selecting the appropriate classification coding scheme, ensuring consistent national data collections and then determining the nationally efficient price. The Independent Hospital Pricing Authority (IHPA) has responsibility for determining the nationally efficient price. The move to ABF was implemented on July 1, 2012 for acute inpatients, emergency department services, and hospital outpatient services; and from July 1, 2013 for sub-acute and mental health services.  However, not all hospitals or all hospital services will be activity funded. The large geographic landmass of Australia and the sparse population beyond the major cities has resulted in many small facilities serving a small population, hence with low volumes of services and high fixed costs. The Agreement allows for block funding of facilities and services where activity based funding is inappropriate. IHPA also has the responsibility of determining efficient block funding.

Both Commonwealth and States will continue funding public hospitals. The Commonwealth share, a share that will increase over time, will be based on the nationally efficient price applied to the volume of services actually provided. The Commonwealth has no direct control of volume. For the first two years, the Commonwealth has guaranteed that no State will be worse off financially than they would have been under previous Commonwealth-State agreements; the effect of that is to ensure a transition period, allowing volume and to adjust to the new arrangements.

The States, as hospital system managers, will be responsible for setting service volumes in agreements with the Local Hospital Networks.  States also will continue to part-fund these services. However, the State contribution can be above or below the nationally efficient price as determined by the State, and not necessarily on an activity basis. This makes for a very complex situation.

Public performance reporting is the responsibility of another new agency, the National Health Performance Authority (NHPA).  The performance of public hospitals is reported through the myhospitals website; and the Authority is developing a series of other reports, commencing with primary care. Again, there already is public performance reporting to varying degrees across the States. Again, the challenge is national consistency, and the extent to which this will establish new incentives.

Medicare Locals are new organizations, geographically based, with the responsibility for primary care. There are now 61 Medicare Locals, with the first nineteen commencing operation in July 2011. Their precursors are the Divisions of General Practice, organizations which served primary care physicians, acting as a conduit for practice incentive payments (but not other payments). Medicare Locals have a broader remit, encompassing all primary care providers not just physicians, identifying service gaps and strategies to address them, developing integrated and coordinated services. There is much development of tools and strategies to assist Medicare Locals, as well as an evaluation of their progress. There is currently a review of Medicare Locals underway, and at this stage further developments are not clear.

The Australian Commission on Safety and Quality in Health Care, while not a new body, is also central to the Reform Agreement. It is leading and coordinating improvements in quality and safety. All of these agencies welcome the opportunity to host a Fellow.

While the main focus and activity of the reforms so far is the public hospital system, there is also increased provision for preventive activities. Other developments have resulted in bilateral support for a national disability scheme which will provide nationally consistent cover for accommodation, treatment and income support; a new aged care strategy which will require the better off to pay more towards the costs of their care and will expand the support for home care. There is also continuing interest in the expansion of Medicare to cover dental care.


For more information:

Recommended sources for more information about the Australian health care system and the current reforms:

Australian Institute of Health and Welfare. 2012. Australia's Health 2012: The thirteenth biennial health report of the Australian Institute of Health and Welfare. Australian Institute of Health and Welfare: Canberra.

Deeble JS. 2008. Medicare: Where have we been? Where are we going? Australian and New Zealand Journal of Public Health 23: 1-7.

Duckett S, Willcox S. 2011. The Australian Health Care System.  Oxford University Press.

Hall J. 1999. Incremental change in the Australian health care system. Health Affairs 18: 95-110.

Hall J, Savage E. 2005. The role of the private sector in the Australian health care system, in The Public-Private Mix for Health, A. Maynard, ed. Nuffield Provincial Hospitals Trust: London.


The following websites will also be useful:

Commonwealth Department of Health

Independent Hospital Pricing Authority

National Health Performance Agency

Australian Institute of Health and Welfare

Australian Commission on Quality and Safety in Health Care

National E-Health Transition Authority

State and Territory Health Departments

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