This article was first published at The Conversation.

Robert Wells writes:

Health professionals and patients alike breathed a sigh of relief yesterday when Prime Minister Julia Gillard announced she had struck a final deal with the states to reform the nation’s hospital system.

After two years of very public negotiations, the final agreement includes a significantly greater share of Commonwealth funding for public hospitals and this level of funding will continue through to 2020.

This amounts to nearly $20 billion more than would otherwise have been contributed over that period, so it’s a substantial contribution to fund the growth in demand for hospital services.

In return, the states have signed up to more transparent hospital funding system based on an independently determined “efficient” price for operations and procedures.

States have also committed to an independent performance and accountability arrangement. Legislation to establish the national pricing and performance agencies is currently before the national parliament.

The deal with the states has been criticised as total capitulation by the Commonwealth to the states, with no real reform other than providing longer term funding certainty.

The other elements are seen as window dressing or, worse, “more bureaucracy”.

This criticism stems from comparisons with the original health reform package put to states by Prime Minister Rudd in March 2010.

In that plan, the Commonwealth offered to pay 60% of hospital costs, based on the “efficient price” – that is, the actual operation or treatment costs.

That plan also involved a Commonwealth funding takeover of all primary care services. This was a dramatic departure from the existing framework, whereby the Commonwealth funds visits to general practitioners only.

In return, the states agreed to meet performance targets for elective surgery and emergency care, and forego a third of their GST revenue. All states except Western Australia signed up.

In an attempt to get all states and territories on board, Prime Minister Gillard put forward a revised health reform proposal in February 2011 which focused on hospitals.

It didn’t involve a GST clawback and retained case-mix (activity-based) funding and performance targets for elective surgery waits and emergency care.

In this version of the plan, patients who waited longer than the target treatment times for elective surgery would qualify for treatment in private hospitals at no charge to the patient.

In July, we saw further revisions to the agreement, most notably, the guarantee that patients who didn’t receive their elective surgery on time would be treated in private hospitals.

Yesterday’s agreement is certainly a watering down of the February proposal, but it’s hardly a total cave in.

Importantly, it includes funds for:

  • 2.9 million extra cases in emergency departments,
  • 2 million additional in-patient services, such as major surgery or treatment for severe conditions such as kidney failure or a heart attack, and
  • 19 million more outpatient consultations, such as minor surgery or physiotherapy.

Elective surgery waiting times are notoriously subject to error and manipulation. So taking the focus away from waiting times is probably a positive step.

The retention of the performance reporting and accountability mechanisms from the original deal is a key win for the Commonwealth.

The final agreement is a great step forward in Australia’s attempt to implement real health reform. It might take a few years for the improvements to filter through the system but it’s likely to bring about improved patient care in the long term.

The Gillard Government should be congratulated on finally reaching agreement with states on hospital funding reforms.

• Robert Wells is Director of the Australian Primary Health Care Research Institute (APHCRI) and Menzies Centre for Health Policy at The Australian National University