Experts are warning that there’s no more time to waste in reaching an agreement over how public hospitals should be funded. The situation is urgent, they say.

While states and territories are responsible for running Australia’s public hospitals, funding is provided by the Commonwealth and state and territorial governments. 

A new funding agreement for public hospitals was achieved in principle in 2023. It would have seen the federal government increase its share of funding to 42.5% by 2030 and to 45% by 2035. In exchange, states would help to ease the pressure and co-fund new disability services outside the National Disability Insurance Scheme (NDIS). But subsequent negotiations stalled.

Two years on, the federal government and states are at loggerheads over the Commonwealth’s contribution to the next 5-year funding agreement. The Commonwealth has offered an additional $20 billion over 5 years, as well as additional top-up payments and $2 billion extra to address older patients who are staying in the hospital for extended periods. The states reply that this amount is equivalent to just 35% of costs, which “will impact the states’ and territories’ ability to provide the hospital services that Australians rightly expect.” According to the latest data available, in 2023-24, the Commonwealth’s share of funding was 38%.

What can be agreed upon is that public hospitals are struggling with staff shortages, bed shortages, rising healthcare costs, stranded patients, long wait times, more complex cases (thanks to an aging population), and emergency departments flooded with cases that are not emergencies.

‘Disconnected, Fragmented, and Broken’ 

Danielle McMullen, MBBS, general practitioner and head of the Australian Medical Association, told Medscape News Australia she wanted the government to keep its word. “We want the Commonwealth to stick to its previous promise of 45% funding, but by 2030. Our health system can’t wait,” she said, adding that the organization was also calling for the 6.5% cap on annual funding growth to be lifted.

“Hospital funding needs to meet demand. Asking people to do more with less isn’t the way to generate effective change. The urgency is real. The strain on public hospitals is palpable on the ground.”

Structural issues within the healthcare system are at the heart of the disagreement, Francesco Paolucci, PhD, professor of health economics and policy at the University of Newcastle, told Medscape News Australia. “The system is completely disconnected, fragmented, and broken. Public funding can’t keep up. States don’t have the ability to raise taxation, so they’re trying to manage a system with fewer and fewer resources and high prices,” he said.

“For me, there needs to be structural change,” Paolucci continued. “If you want everyone to access a service, you need to fix it. To do that, you need to make it equitable in access and fund it in a progressive way. We need to look at the system and understand it's broken in funding and provision, and come to some hard decisions.”

A primary concern for public hospitals across the country is that they are filled with hundreds of aged care and NDIS patients who are supposed to be looked after by the federal government. Instead, they’re stranded in a hospital, waiting for a bed to be available in residential aged care or disability services. 

State governments have reported that as much as 10% of their bed days are taken up by patients waiting to be discharged somewhere else. The average NDIS participant waits 16 days in hospital after they are ready to leave.

A report commissioned by the Australian Board of Treasurers last year found that the protracted length of stay in public hospitals “increases cost by significantly impairing the productivity of public hospitals to deliver core acute services, increases the labor intensity of their care (relative to providing appropriate care in an alternative setting), and requires health services to access costly alternative care pathways in order to maintain access for other patients.”

“We’re watching this tsunami of people getting older, and we’re not prepared,” McMullen said. “It’s a big contribution to our hospital logjam. We need more aged care beds, and we need better home care support, with better integration of general practitioner (GP) and care teams so people aren’t bouncing in and out of hospital.”

Prioritizing Preventive Care

Australia should follow countries such as England, Sweden, and Norway in imposing financial penalties for keeping people stranded in hospital, said Peter Breadon, health program director at the Grattan Institute, an independent think tank in Carlton. “In Australia, the federal government could pay for a patient’s extra days in hospital after they are ready to leave, plus the cost of temporary accommodation arranged by hospitals or state governments. The rules could be set out in the National Health Reform Agreement, and there might be a role for the independent pricing authority to monitor implementation,” he told Medscape News Australia. “Studies have shown it can have a big impact on getting healthy patients home sooner.”

For Paolucci, part of the issue is cultural. Australians are used to sending their aging parents or loved ones to residential care, when a lot of care could be provided in the home if adequate structures were in place.

“We need to find solutions that are home-based because the old system is obsolete. We can treat people at home. We can learn from countries that do this efficiently. And rewarding family members for providing informal care may be another attractive way to look at the problem,” he said.

“But until we look at all the different formal models of care, which are clearly done for reasons other than the health of Australians, we need to come in with a huge investment to try and take pressure off the system and move as much as we can to home-based care,” Paolucci added.

Adequate funding could give rise to innovation such as “hospital in the home” programs and same-day hip and knee replacements, which public and private hospitals in Brisbane and Perth are now performing, said McMullen. 

Same-day surgeries are one of the biggest opportunities for reducing costs while helping patients, according to Breadon. But fewer than one in every 100 Australian hip replacement patients head home on the same day they arrived. In Canada, it’s around one in every three.

“It’s not just about hips,” said Breadon. “For a wide range of surgeries, we are far behind most other countries when it comes to sending people home the same day. Thousands of bed days could be freed up by sending patients home sooner while also protecting patients from infections and falls in hospital and helping them recover faster.”

Many other countries have adjusted the prices that hospitals are paid to promote same-day care, which would show the federal government “that value for money will improve, giving them more confidence to tip in the billions of dollars of extra funding the system needs.”

To further reduce the strain on hospitals, McMullen encouraged more focus on and resources for preventing patients from getting sick in the first place. “GPs are the bedrock of prevention. We need, as a health system, to invest in longer consultations and to allow GPs to work more effectively with teams of nurses and allied healthcare professionals. There’s lots to do, but we have to do it. What’s more important than investing in people’s health?”

McMullen, Paolucci, and Breadon reported having no relevant financial relationships.