No big bang health reform, just realism

THE historic mandate Kevin Rudd won in the 2007 election to make the national government the dominant funder of public hospitals, backed by the threat of a referendum, now lies in ashes. It is a lost Labor dream.

Julia Gillard has retained much of Rudd's April 2010 reform deal with the states, notably the new system of local hospital networks. Indeed, Gillard is correct in saying her reform stands on Rudd's shoulders. But the Gillard package marks the demise of the fusion Rudd sought between health reform and greater national government financial powers.

Joint architect of Medibank and health economist John Deeble says: "The idea of the commonwealth takeover of public hospitals has disappeared from this package and I think it has probably gone forever. I believe Gillard's package overall is more sensible and pragmatic."

In a long negotiation with the premiers on Sunday, Gillard steered the Council of Australian Governments to a new health deal, more modest yet viable. Talk of this deal falling over is exaggerated. While many details are to be finalised there is no obvious game-breaker. The agreement, unlike the 2010 model, should stick.

Interviewed by The Australian, Health Minister Nicola Roxon said: "I am proud of what we achieved in April 2010 but I am also practical about the outcome. I think we have kept an enormous amount of the reform deliverables we finalised under Kevin Rudd, about 80 or 90 per cent. But the philosophical shift in this package is also big, from being the dominant funder to being an equal partner with the states."

The view in Gillard's cabinet, though not unanimous, is that Labor's revised position is better in policy terms and superior in political terms since the national government is far less exposed to the risk of full political responsibility for public hospitals. Gillard has embraced the concept of equal partnership. It will become the new Labor mantra.

The weekend heads of agreement endorses "a nationally unified and locally controlled health system" but stresses "the states' role as system managers for public hospitals services" and affirms "the states' lead role in public health".

Roxon said the new package contained an extra $7 billion across the forward estimates. Guaranteed to put the budget under offsetting savings pressures, this involves $3.4bn to the states for hospital support (emergency departments, elective surgery, sub-acute hospital beds) with the rest for primary healthcare support (e-health, GP training, Medicare Locals).

The main hospital funding, like the Rudd scheme, begins only in 2014-15 with an extra $16.4bn over the following five years. This means that by 2017-18 the growth in hospital costs is established on the national-state 50-50 basis.

Note the word "growth". Under Gillard, the actual proportion of total public hospital costs met by the national government at 2020 will be 43-44 per cent, compared with the 38 per cent low mark of recent years.

It is far short of Rudd's ambitious yet flawed goal of Canberra funding 60 per cent of the efficient price for all public hospital services delivered to public patients.

This time, significantly, all states and territories have signed up. By contrast, in April 2010 under Rudd the communique began: "COAG, with the exception of Western Australia, reached an historic agreement on health." Australia is six states, not five. Rudd never carried the west. Gillard's package is a victory for the Liberal Party premiers, notably WA's Colin Barnett who refused to surrender one-third of state GST revenue to the national government. The rising Liberal tide in Melbourne under Ted Baillieu and in Sydney under Barry O'Farrell made Gillard's re-think essential.

The process was elemental: Rudd's 60 per cent benchmark depended on Canberra taking one-third of the GST revenue and once Gillard conceded this was lost she had to erect the concept of equal partnership in place of Canberra funding dominance. Roxon says she has "a very strong view" that the new model of shared responsibility is superior.

In the end, Gillard moved with a rush. As a minority PM with lots of battles ahead she needed to terminate the protracted deadlock over hospitals policy. Gillard wanted a permanent "fix" on the issue and on Sunday night a triumphant PM told the media that "a heads of agreement is a signed deal."

When health was raised in cabinet last Thursday afternoon there was no written cabinet submission. The cabinet was given a short oral briefing that could not suffice for proper decision-making. Rudd was not the only minister at that point to press the issue.

Rudd told cabinet he accepted the reality on the GST but he had two concerns; he believed the concept of national government as dominant funder should be retained and he believed Canberra should retain funding and policy responsibility for primary care to maximise prospects for patient treatment outside hospitals. Rudd told cabinet that in these two areas he could not support the position but he had to leave to catch a plane. This stance, given his previous commitment as PM, was predictable. Its leaking was a serious embarrassment for Gillard.

Rudd, after all, had enshrined his 2010 package as the boldest since Medicare. He had declared "the time for incremental change has long passed".

This was basic to his planned re-election strategy and it was the occasion for Rudd's most impressive performance last year when he defeated Tony Abbott in the televised great health debate.

The loss of the GST revenue had another consequence. Because the GST was tied to Rudd's pledge to fully fund primary health care (services outside the hospital system) Gillard had to qualify this pledge. This is pivotal because reform depends on reducing Australia's excessively high hospitalisation rate by running a more efficient primary care model outside hospitals.

Overall Gillard can argue legitimately that her package is a modest step on the reform path.

Her model, like Rudd's, backs more local control of hospitals, devising a fair and efficient price for each service and greater transparency.

The biggest challenge facing health is that hospital costs are rising faster than state revenues and the solution advanced by this package is greater efficiency or, as Roxon says, "to ensure each dollar is well spent".

One message from this saga is that "big bang" health reform is dead. Future reform will be incremental. Deeble says: "A model where the states run the hospitals and Canberra provides most of the funds doesn't work. Rudd tried to do too much. I think Gillard's new model is the only model that can work."

This package displays Julia Gillard as realist. She wants 2011 to be the year of delivery and she will make compromises to achieve this goal, prove she can govern and make minority government work.