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Australia Announces Healthcare Shake-up

Friday, March 5, 2010

In what he called the most significant reform since the introduction of Medicare, Australia’s Prime Minister, Kevin Rudd, announced that the government would take over 60% of the funding of the country's hospital system in exchange for about one-third of the Australian states’ goods and services tax (GST) revenue.

The government, he said, would “build a new national health and hospital network to deliver better health and better hospitals by establishing a national network that is funded nationally, and run locally.” The eight state-run systems will become part of one national network. There will be one set of national standards to drive and deliver better hospital services.

Whereas all revenues currently raised by the GST are re-distributed to the states, the government would take around one-third of those revenues, he disclosed, and “place it in a new National Hospital Fund to be spent only on health and hospitals.”

In exchange, he added, the government “will take on the dominant share of funding future demands on the system. At the moment, we pay around 35 cents in every dollar of public hospital growth funding. Under our reform plan, we will be funding around 60 cents in every dollar.”

“We will fund 60% of recurrent expenditure on research and training functions undertaken in public hospitals,” he reiterated. “We will fund 60% of capital expenditure - both operating and planned new capital investment - to maintain and improve public hospital infrastructure. Over time, we will also pay up to 100% of the efficient price of ‘primary care equivalent’ outpatient services provided to public hospital patients.”

He confirmed that the revenue from GST in the new fund - in the order of AUD90bn (USD81bn) over the first five years of the new arrangements - would be dedicated entirely to hospital investments. He also disclosed that the government has estimated that there would be an additional cost to the federal budget of AUD15bn over the next decade which would otherwise be borne by the states.

He expressed the opinion that this reform would address a fiscal imbalance in the federation. “If we fail to address this imbalance,” he said, “the level of government with the least efficient tax base will continue to bear the burden of the fastest growing area of public expenditure (that is, hospitals) - with detrimental effects for the national economy.”

In exchange for relieving pressures on state budgets from hospital funding, the government will require system-wide reforms to “create a better integrated, unified national health and hospitals network, with national standards, national transparency and national accountability.”

He will put the health reform package the states on April 11 at the next meeting of the Council of Australian Governments. If the states and territories do not sign up to the reforms, the government will take the package to the next election due later this year.