Australia needs a new deal on health

9 minute read

The next National Health Reform Agreement should include the standards, the schedule, and the money to get it done.

The National Health Reform Agreement between the federal and state governments is the biggest deal in Australia’s health system, determining where more than $60 billion a year goes. As well as directing where the money goes, the Agreement is supposed to reform the health system, making it better, fairer, and more efficient.

But the Agreement has had mixed results and it’s getting stale. It was first signed in 2011 and has been updated and extended twice since then. The need for reform has only grown, as chronic disease has increased, hospital costs have surged, and pressure on healthcare providers has grown.

With the Agreement expiring next year, Australia’s health ministers commissioned an independent Review. The Review was released last year and proposed 45 recommendations that amount to a total overhaul. An overview of the findings and recommendations is here. (Charles Maskell-Knight has previously raised concerns about the lack of transparency and accountability around the review.)

National deal needed to unlock big health reform

Before considering how a new national deal can supercharge reform, it’s worth considering why that’s even necessary. Can’t governments just get on with it?

There are three reasons that a national deal can make a big difference.

First, health is an area of shared responsibility between the federal and state governments. While each government can make lots of improvements independently, systemic change will often require cooperation. For example, governments must work together to join up care for patients, build up the health workforce for the future, or establish new care platforms that sit between primary care and hospitals.

Secondly, deals create commitment. Reform is usually hard. There are more urgent problems that take priority, and the benefits of reform take years to appear.

And Medicare’s 40th birthday is a reminder that reform is often fiercely resisted by industry groups. Doctors’ groups opposed the introduction of universal health insurance and doctors even went on strike in NSW (more Croakey coverage of the anniversary is here). All that gives governments plenty of reasons to kick the can down the road. National agreements can be a good way to get formal commitments that are an impetus for change.

Third, national agreements can push reform up the priority list in another way: with money. It’s a good lubricant for reform, especially in a country where there is a mismatch between where taxes go and where the money is spent.

It took a cash splash to get many national reforms over the line. New money helped roll out a new public hospital funding model under the first iteration of the National Health Reform Agreement, back in 2011. Child vaccination, a public health triumph, included a national deal with payments for the states. And we’ve seen the same thing across portfolios everywhere, from competition policy, to the introduction of the GST and the NDIS, to the recent deal on housing.

By contrast, ambitious reform agendas disconnected from funding agreements between governments can languish unfulfilled. The National Health and Hospitals Reform Commission made some excellent proposals 15 years ago, but few have made their way into policy.

Current agreement is narrow, vague, and lacks ambition

But the National Health Reform Agreement isn’t doing its job of reforming the system. The Review found that the Agreement is too narrow, with too little focus on structural change. Many experts told the Review it is really a technical hospital financing agreement masquerading as a health system agreement.

The Agreement did help make each hospital visit cheaper, but it didn’t do enough to address systemic problems such as fragmentation of care and data, too little prevention to keep people healthy, and stark disparities in healthcare and in health outcomes between advantaged and disadvantaged groups.

One of the Review’s recommendations is to broaden and deepen the agreement through a set of reform ‘schedules’. These sections, or mini-agreements, would be on themes such as Aboriginal health, rural health, digital systems, and the health workforce.

The schedules would include reform goals, agreed actions, milestones, data changes, and funding reforms. There are schedules in the current agreement, but, as the Review suggests, they need to be much more ambitious and specific.

The schedule on ‘long-term reform’ nominates six important areas: technology assessment, paying for value, joint local planning and funding, health literacy, prevention, and health data. But it is light on specifics and low on ambition. For the most part, it lays out goals and principles and commits governments to develop work plans on each theme.

The Review found that progress in these long-term reform areas had been limited, lacked ambition, and has been constrained by lack of funding and resources. While the COVID pandemic was no doubt a big reason, so were vague commitments that were detached from the resources needed to achieve real change.

Ambitious schedules

The next Agreement needs to aim higher. As the Review recommends, reform schedules should have specific, ambitious actions linked to performance measures and funding. They should also paint a picture of the future that can mobilise clinicians, patients, and the community.

Those core requirements should be built into the Agreement. There should be a clear standard, with any reform schedule required to explain what will be achieved and commit governments to meaningful changes to funding and accountability, as well as new initiatives on the ground.

That adds up to a lot of work. The Review proposes schedules in areas where urgent reform is needed, and where governments must work together to make progress. It nominates Indigenous health, digital systems, rural health, workforce, and prevention. Another good contender would be climate change, where national coordination is needed to help the health system reduce emissions and adapt to new health needs. And there should be a schedule allowing federal and state health departments to pool their resources to jointly fund and manage the health system in a region (as we have proposed for rural areas with too little primary care).

The Agreement should include a timeline which shows when each schedule will come online. Perhaps two or three could be agreed on each year, with the initial batch agreed on at the same time as the Agreement itself.

That way, there would be enough time to meet the new standard for ambitious schedules, along with an explicit commitment to get that work done. But even then, getting ambitious reforms agreed on will be a tough task, and it has probably become tougher since the Review was released.

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Show me the money

The federal share of public hospital spending has been falling in recent years, and the states have long argued for the federal government to pick up a bigger share. The Review supported this position, and at National Cabinet in December a massive expansion was agreed. The federal share of public hospital funding will rise from 40.3 percent today to 42.5 percent by 2030, and 45 percent within 10 years.

Hospitals do need more money, and there are good arguments for the federal share of spending to increase. But making this commitment before the negotiations on the next funding deal could make national reform a harder sell.

The schedules would increase accountability for results, reduce policy flexibility, and be challenging to implement. The states have secured a big funding boost, so there is less room for the federal government to use money as a sweetener to convince them to take on those challenges.

In case we needed another example that money matters, the Review noted that most of the progress on the long-term reform themes was funded by a $100 million, one-off ‘sign-on’ bonus for the states – a side-deal to help get states over the line. The result was a scattering of projects that are mostly small, and mostly marooned without ongoing funding. Unsurprisingly, a small amount of money got a small amount done.

All this suggests that getting serious about improving the health system will take serious money. Another big boost of overall federal funding might be off the table, but there is still time to link that new funding to reform.

A fixed proportion of the growth in funding under the Agreement should be set aside to provide ongoing funding for the reform schedules. For example, this could be five percent of growth in funding under the Agreement from both the Commonwealth and the states.

Of course, that amount of money won’t fix everything. In some areas where there are big, structural gaps in funding, such as dental care, additional funding will be needed. But a guaranteed and growing funding stream is necessary to get the holistic and ambitious national health deal that the Review envisions, and that Australia needs.

Bringing together the plan and the payment

It’s not all about the money, and a national plan is only a first step on the road to improving the system. But the money and the plan are necessary. Long-term national healthcare reform may never be a high priority without guardrails to get governments on track, and money to grease the rails.

The Review criticised the reform impact of the Agreement in recent years, but in its early years the Agreement did transform public hospital funding. It created a national system for activity-based funding by setting out the parameters, setting up institutions to do the technical work, and putting billions of dollars behind it.

Now Australia needs the same approach for the most pressing areas of health reform. The next Agreement should include the standards, the schedule, and the money to get it done.

Peter Breadon is the Health Program Director at Grattan Institute. He has worked in a wide range of senior policy and operational roles in government, most recently as Deputy Secretary of Reform and Planning at the Victorian Department of Health.

This article was originally published by the Grattan Institute here.

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