3. Remodelling Australia’s Health-Care System

Australia's health-care system has been through a period of change over the past decade that involved a refashioning of arrangements between the Commonwealth and the states and the introduction of a regionalized struc­ture within each jurisdiction.

3.1 Federalism Reform.2007-9

Momentum for reform accelerated during the 2000s, prompted by tensions over public hospital funding. The 1999 Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations hypothecating total net revenues of the newly introduced gst to the states and territories had prom­ised the states ‘secure funding for essential services, such as schools, hospitals and roads'. While annual average growth in gst revenues was around 8.9 per cent between 2000 and 2007, public hospital costs were increasing by 12 per cent. State governments increasingly had to find ways to bridge this gap: from 1998-9 to 2008-9, their contribution to public hospital funding rose from 48.4 to 51.2 per cent of total spending, while the Commonwealth's contribution fell from 44.3 to 39.2 per cent.

It was against this backdrop that the federal Labor Opposition led by Kevin Rudd promised to ‘fix' the health-care system as part of its 2007 elec­tion platform. Labor's proposal involved a $2 billion funding injection for states to address waiting lists and raise hospital performance, with the threat of a referendum and Commonwealth takeover of public hospitals if agreed benchmarks were not met by 2009 (Wanna 2010). Under coag oversight, an energetic period of fiscal federal and intergovernmental relations reform fol­lowed the 2007 election. In 2008, governments signed the Intergovernmental Agreement on Federal Financial Relations (iga-ffr), replacing dozens of individual specific-purpose payments with a handful of block grants (Fenna and Anderson 2012; Treasury 2009). One of those was for health.

3.2 Health-Care Reform

In pursuit of a blueprint for sweeping change to the system, the Rudd govern­ment established a commission of inquiry, the National Health and Hospitals Reform Commission (nhhrc). While collaborative federalism under the aegis of coag reached a frenetic highpoint in the early period of the Rudd govern­ment, this was a unilateral Commonwealth initiative. The Commission's final report recommended a set of options for reform of public hospital funding and governance whose proclaimed goal was ‘one health system' for the coun­try (Bennett 2009; Boxall and Buckmaster 2009; Hall 2010; nhhrc 2009). The ‘vast majority' of those recommendations were accepted by the government (Health20i0).

Following on from the nhhrc report—after intense coag negotiations— the National Health and Hospital Network Agreement (nhha) was introduced in April 2010 and signed by the Commonwealth, both territories and five of the six states. Western Australia rejected the proposed trade-off between a greater Commonwealth contribution and a clawback of one-third of the gst revenues. After an unceremonious change of prime ministers, this Agreement was superseded by the National Health Reform Agreement (nhra), which backed down on the financial clawback. Signed by all jurisdictions in July 2011 (Anderson 2012, pp. 256-66), the nhra introduced two sets of changes: at the service-delivery level, it mandated a shift to new modes of organization, and at the system level, it introduced a suite of collaborative institutions to operate at arm's length from Commonwealth and state departments. While financial issues dominated public debates surrounding the nhha and nhra, perhaps the most novel and significant feature of both Agreements was the unprec­edented expansion of a formal, legally enshrined, intergovernmental archi­tecture in Australian health care through these new organizations.

3.3 The New Structure

Four national bodies are specified in the Agreements: the Australian Commission on Safety and Quality in Health Care; the Independent Hospital Pricing Authority; the National Health Funding Body; and the National Health Performance Authority (subsequently absorbed into the Australian Institute of Health and Welfare). These national bodies share key traits of being estab­lished as independent statutory authorities under Commonwealth legislation, with the governing board members jointly appointed by the Commonwealth, states and coag. The nhra includes prescribed roles and responsibilities for these bodies.

The Agreements also provided for two new types of local governing orga­nizations: Medicare Locals (subsequently refashioned as Primary Health Networks—mls/phns), established as companies incorporated under the Corporations Act 2001, with configuration and funding determined by the Commonwealth; and Local Hospital Networks (lhn s), established under state legislation with a governing body appointed by the states.

The rest of this chapter focuses on this new system of decentralized gover­nance, and in particular, on the state-managed lhn s and their relationship with the Commonwealth-funded mls/phn s. These new governing organiza­tions are intended to play a significant role in addressing a fundamental weak­ness of the Australian health system, namely fragmentation, a long-standing criticism of the current model of cooperative federalism for health care. The proposition is that stronger working relationships between lhn s and mls/ phn s will help to bridge, at a local community level, the much-discussed inter­governmental divide between primary health and aged care, on the one side, and the hospital system, on the other—these different parts of the health sys­tem being the separate responsibility of the Commonwealth and the states, respectively.

Two of the three authors of this chapter recently conducted a national research project on the form, functioning and effectiveness of lhn s.^[LIII] This included a survey of lhn board members (across New South Wales, Victoria, Queensland, Western Australia and Tasmania) and interviews with a selec­tion of senior officers from state and territory health departments, lhn board chairs and ceo s (across the country). We draw from that exploratory study, as well as existing literature on mls/phn s, to examine how intergovernmen­tal workings have changed since 2011. This is also where federal theory— and past practice—might predict state autonomy to be retained, or at least defended more vigorously, given the inherently greater knowledge and opera­tional responsibilities of states through their ownership and control of public hospitals.