The deal brokered with Victoria not only leaves the states with substantial financial responsibilities, but with exclusive responsibility for managing the funding and oversight of the hospitals, writes Andrew Podger.

While I know it is essential now to make the most of the many initiatives announced by the government over the past two months, there is no avoiding the deep disappointment about the final deal negotiated with the Victorian Premier, John Brumby.

There will be (and had better be) substantial benefits from the injection of new money, some of which is well directed, but the extent of real reform in terms of sustained improvements in value for money falls well short of what seemed to be possible, and even likely a couple of months ago.

The main purpose of moving to a single government funder was the opportunity to achieve more patient-oriented care by breaking down the barriers between types of care and ensuring clearer accountability for health outcomes. This was not just about making the Commonwealth take more financial responsibility for a truly national system (though this is important): it was about the ability to redirect funds between hospitals and primary care and aged care to achieve the best value for money, preferably through a coherent system of funder, purchasers and providers.

The deal brokered with Victoria not only leaves the states with substantial financial responsibilities, but with exclusive responsibility for managing the funding and oversight of the hospitals.

There is no mechanism for re-allocating funds at the local or regional level between the sectors, nor for shifting funds between regions on a national basis. As yet, there is also no sign of increased capacity at the national level to analyse variations in financial risk among groups of people with different health risks or to identify the most cost-effective balance of services for them that might provide guidance to health care providers and health service managers.

Nonetheless, the main focus now must be to get the most out of what has been agreed. This means more than just rolling out the new, notwithstanding the considerable work that will entail.

First and foremost, health ministers and their departments must take back the initiative from the central agencies and develop a coherent architecture of local and regional responsibilities, which will facilitate better allocation of resources and improved accountability for results.

I suggest the states take the lead in proposing regional boundaries given their greater understanding of “place management”, but with the Commonwealth having final say, particularly around state and territory boundaries (e.g. in south-east NSW, along the Murray, around the Gold Coast).

This can then guide the states and territories on the design of local hospital networks within these regions, and guide the Commonwealth on the design of its primary health organisations (Medicare Locals, for goodness sake) and aged care regional planning arrangements.

Hopefully, it will also assist the Commonwealth and the states clarify how these regional arrangements might interact, with the “independent” primary health organisations in particular working closely with the national department, building their capacity for reporting on overall health system performance and guiding any necessary re-allocation of resources between and within regions.

There are potential benefits also within each of these main sectors. The now national hospital pricing authority should not just determine the so-called “efficient price” of hospital episodes, but be a centre of excellence guiding the states (and the joint Commonwealth-state boards) on their policies for purchasing services from the local hospital networks.

The Commonwealth’s national responsibility for all primary care should also be used to explore more moves to blended payments and other innovative ways to encourage more comprehensive and efficient primary care (I remain sceptical about the likely success of the government’s reliance on its super clinics model).

The Commonwealth’s full responsibility for aged care needs to be exploited to develop a more coherent framework of community and residential care packages for people with different levels of care need. The successful “ageing in place” approach could be made more cost-effective and responsive by relaxing some supply-side controls and increasing demand side controls (including the introduction of accommodation bonds for low-level residential care).

It will also be essential that the Commonwealth and the states redesign their bureaucratic arrangements to clarify policy and administration responsibilities and avoid simply adding new overheads without rationalising existing structures.

Clearly, the important issue of rationalising co-payments has been put off indefinitely.

Sadly also, sorting out PHI policy seems simply too hard for this government. I would love to think the Henry Report on tax might cause a rethink about the wisdom of the Medicare levy surcharge and about the best way to get value from the PHI rebate, but I am not holding my breath.

I have highlighted many times that the government’s PHI proposals are just a silly way to raise the taxes of higher income people whether insured or not; they are equally just a silly way of replacing the subsidy for PHI for higher income earners by an even greater subsidy through the higher Medicare levy surcharge mechanism.

There really are better ways to save money that would yield real reform through genuine competition and greater accountability.

*Andrew Podger is national president of the Institute of Public Administration Australia and a former Health Department Secretary and Public Service Commissioner