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Hospital cuts cloud reform outlook

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The states are seeking to exert increasing pressure on the Federal Government over its $57 billion cut to public hospital funding amid speculation of a radical overhaul of Commonwealth-State health arrangements.

Queensland Health Minister Cameron Dick told a meeting of the nation’s health ministers last month that the Coalition Government’s decision to rip up the National Partnership Agreement on health services and reduce the indexation of Commonwealth hospital payments to population plus inflation would cut $11.8 billion from the State’s hospital system – the equivalent of 4500 doctors, nurses and allied health professionals.

This follows claims from the Victorian Government that the Commonwealth’s decision will rip $17.7 billion from its health system over the next decade, while New South Wales has figured a $16.5 billion loss, South Australia $4.6 billion, Western Australia $4.8 billion and Tasmania $1.1 billion.

Victorian health officials told a Senate inquiry the impact of the Federal Government’s cuts would be equivalent to shutting down two major hospitals and axing 23,000 elective surgery procedures every two years.

“[It] would equate to the level of service delivery of two health services the size of Melbourne Health [which operates the Royal Melbourne Hospital],” acting Victorian Health Department Secretary Kym Peake told the inquiry.

The big cuts form a challenging backdrop for discussions of reform to Federal-State relations that include proposals for Commonwealth public hospital funding to be replaced by a “hospital benefit payment” that would follow individuals, similar to Medicare.

Government discussions of changes to the private health insurance industry have included reference to option two in the Reform of the Federation Discussion Paper, which proposes a Medicare-style payment for hospital services, regardless of whether they are provided in the public or private system.

Under the arrangement, the price of hospital procedures would be set by an independent body and the Commonwealth would pay a proportion. For patients in the public system, the states would be expected to make up the difference, while in private hospitals the gap would be covered either by insurers or the patients themselves.

States would retain responsibility and operational control of public hospitals and would be able to commission services from the private sector, while the Commonwealth would discontinue the private health insurance rebate.

But the Federal Government is likely to encounter significant resistance to such a change from the states unless it comes up with more money.

The revenue raised from the GST, which is funnelled directly to the states, has been growing far more slowly than expenditure, tightening the squeeze on state budgets and their health funding.

When it was introduced in 2000, GST applied to 55 per cent of spending, but since then its share has shrunk to 47 per cent this year, and consultancy Deloitte Access Economics estimates it will apply to just 42 per cent by 2024-25.

The squeeze on funding has shown up in disappointing public hospital performance.

The latest report from the Australian Institute of Health and Welfare shows that hospitals are struggling to make headway in the face of increasing demand for emergency care.

The proportion of urgent patients receiving treatment within the recommended time fell back in 2014-15 to just 68 per cent – well short of the target of 80 per cent.

The goal for all emergency department visits to be completed within four hours, which was meant to be achieved this year, has also been missed.

The results bear out warnings made by the AMA earlier this year that the Commonwealth’s funding cuts for hospitals would undermine the delivery of care.

Launching the AMA’s annual Public Hospital Report Card, President Professor Brian Owler said the Federal Government’s cuts had created “a huge black hole in public hospital funding”.

“It’s the perfect storm for our public hospital system,” he said. “There’s no way that states and territories can even maintain their current frontline clinical services under that sort of funding regime, let alone build any capacity we actually need to address the shortfalls now.”

Health Minister Sussan Ley rejected the warnings at the time, but the latest evidence of declining performance are likely to make it increasingly difficult for the Government to win State backing for an overhaul of funding arrangements without more money on the table.

Adrian Rollins