Rudd’s destructive intervention

Contrary to the impression created by the initial announcement it now appears that the Rudd government is not planning to control hospitals and thereby create a single national mega monopoly – at least in the short run. Perhaps this is to be expected in view of the Commonwealth’s inexperience in the hospital sector.

What then is the significance of the intervention; was it necessary and what should happen next?

Stripped of the wrapping, the key to the reform is a significant increase in Commonwealth funds (net of any unannounced or hidden claw backs). The most important COAG announcement on Tuesday was that Commonwealth monies for hospitals will be paid into separate State and Territory Funds which will be administered by the States. While the monies may be determined by case payment it is not clear whether the States will be coerced into reimbursing hospitals or the hospital networks in this way or have discretion over disbursements. Either way, this is somewhat less dramatic than initially foreshadowed.

The maintenance of State influence significantly alters the consequences of the intervention. While we may be spared from the deadening hand of a monopoly there will be no administrative or financial incentive for – in COAG’s words – ‘helping patients receive more seamless care across sectors of the health system’. Nor does anything in the announcement suggest systemic change which will improve quality. Rather the tantalising promises made will be achieved by the old team, that is, State and Commonwealth bureaucrats answerable to different masters.

Why then has the intervention occurred?

Queues in State hospitals are undesirably long. However no conclusion can be drawn from this single fact. Queues are the outcome of demand and supply where supply depends upon the availability of doctors (Commonwealth responsibility), nurses (Commonwealth responsibility), money (Commonwealth dominated) and the extent to which private insurance and private hospitals divert the workforce away from the public sector (Commonwealth policy). It depends upon the bed supply, where Australian States provide almost exactly the OECD average number per 1,000 population (3.6 versus 3.8) despite a younger population. With these, slightly more discharges are achieved per 1,000 population (162 versus 158) and with a shorter length of stay (6.2 versus 7.4 days per patient) (OECD 2009).

It is easy to build mental models in which the Commonwealth government is superbly efficient in comparison with recalcitrant States. However there is little evidence to suggest this is true. To the contrary the Commonwealth has a track record of multiple failures – the health of Indigenous Australians, adverse events, workforce planning, program integration, equity of access, the integration of Private Health Insurance into the system.

Why then has the intervention occurred?

Median waiting times have increased, as asserted in the publicity surrounding the intervention – from 28 in 2003-04 to 34 in 2007-08. But this has occurred in all States (except Tasmania) irrespective of the funding formula.

The real problem can be seen from a quick perusal of the State financial position. In 2003-04 the balance of their financial accounts was a surplus of $33.2 billion. By 2008-09 it was a deficit of $46.5 billion. Over the same period the Commonwealth brought its financial deficit from $71 billion to a small surplus. The Commonwealth has squeezed the States financially through a failure to transfer funds. One consequence has been the decline in Commonwealth share of public hospital funding from 44.6 percent (2003-04) to 39.1 percent (2007-08). During the same period the State commitment rose from 47 to 54 percent.

That is, Commonwealth intervention was necessary because our system of taxation and financial transfers does not match the historical responsibilities of the jurisdictions and the problem has been worsening.

An alternative to the present reforms would have been the rebalancing of fiscal powers and responsibilities and perhaps the need for this intervention foreshadows disappointment in this respect in the Henry report.

Where to next?

The Rudd reform was preceded by neither a detailed public inquiry into the governance of the health system nor cogent arguments for any particular form of intervention. The NHHRC failed in this respect. It did not consider issues of governance seriously.

The best that may be hoped for, therefore, is that the present intervention represents a holding position. For the country’s largest, and for many, most important industry, a detailed inquiry is justified and long overdue. Perhaps intentionally Rudd is establishing at least one plank required for what I believe to be the most desirable form of health system. The State and Territory Funds to be established lay the institutional foundation for the type of Fund envisaged in the Scotton plan and in other proposals for a diversified health system.

But this needs considerable thought and development. As I have argued elsewhere (Richardson 2009) it is unrealistic and undesirable to contemplate a jump to competitive Managed Competition. However we could achieve many of the benefits of diversity by the establishment of ‘an Australian Institute of Health Performance and Research’, a statutorily independent body for the provision of the information necessary to run, evaluate and improve a diverse system.

The other major reform we require is the depoliticisation of governance. Again, I have sketched out such a structure elsewhere (Richardson 2010).


OECD (2009). Health at a Glance 2009: OECD Indicators, OECD Publishing.
Richardson, J. (2009). “Steering without navigation equipment: The lamentable state of Australian health policy reform.” Australia and New Zealand Health Policy 6(27).
Richardson, J. (2010). Essay 3 Is there a better alternative to a Commonwealth monopoly in the he sector? in Three Essays in Disagreement with the Rudd Health System Intervention, Research Paper 49. Melbourne, Centre for Health Economics, Monash University, Melbourne.