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05 Jun 2020

Public Hospital Funding – The Facts

The big announcement late last Friday afternoon (29 May 2020) was that all the States and Territories had signed onto the 2020-25 Public Hospital funding agreement.

But was it news? In fact, the Heads of Agreement was first finalised in February 2018. By December 2018, the Government announced another $1.25 billion to be shared among the States for the Community Health and Hospitals Program but, until last Friday, not all the States had signed on. They now have. That is the news.

A new public hospital funding agreement for 2020 to 2025 – what will it mean for public hospital doctors and their patients

Despite some muted media headlines last week touting additional Commonwealth funding, the Heads of Agreement for public hospitals funding 2020-25 confirms the new agreement will continue the same method of determining Commonwealth funding contributions as the existing agreement.

Growth in Commonwealth funding remains capped at 6.5 per cent per annum.

Public hospitals will still be financially penalised for adverse safety and quality events.

The quantum of Commonwealth funding increase in any year will continue to be tied to service volume. But the Commonwealth contribution for each additional public hospital service (with the exception of some specific areas) will be calculated as 45 per cent of the national efficient price, adjusted for Diagnosis-Related Group (DRG) complexity. State Governments are responsible for all remaining costs for each separation. 

Under these arrangements, Commonwealth expenditure growth in the year 2016-17 to 2017-18 increased in real terms by just 2.1 per cent, and just 3.9 per cent on average each year over the decade. In comparison, State Governments’ spending increased by 6.7 per cent in the year 2016-17 to 2017-18, and just 3.6 per cent on average each year over the last decade[1].

The methodology for calculating the price indexation applied to Commonwealth contributions remains unchanged. For 2020-21, the indexation rate is just 2.1 per cent[2]. Nursing salaries alone are increasing by around 2.5 per cent per annum.

The new agreement is supposed to make it easier for hospitals to provide flexible, high quality care irrespective of care setting. This is not new[3]. Similarly, private patient elections are still permitted, albeit with promises of greater transparency and obligations that access is based on clinical need. These obligations always existed.

This latest announcement about the new 2020-25 public hospital agreement is a missed opportunity, with just one new Commonwealth funding component to share the cost for high-cost immunotherapy for childhood cancers with States and Territories, and a continued commitment to pay 50 per cent of public hospital COVID -19 costs[4] [5].

In all other aspects of funding, it is a big vision for public hospitals to ‘improve efficiency and ensure financial sustainability, deliver safe high quality care, drive best practice and performance using data and research … without additional Commonwealth funding to pay for it.  

Therefore, we could reasonably expect the new agreement to be limited in providing an answer to the current public hospital funding crisis, long waiting times for access to public hospital elective surgery, bed block on wards that cause emergency patients to wait too long before they can be transferred to an appropriate ward bed for ongoing care, and overcrowded emergency departments. The consequences of delayed patient care are very serious, and include increased risk of patient complications, delayed pain relief, and longer length of stay, and even patient death.


As of 4 June 2020, the full text of the 2020-25 Hospital funding agreement was not yet publicly available. The above summary is based on the Heads of Agreement on public hospital funding and health reform dated February 2018, and the joint press release of the Prime Minister and Health Minister, dated 29 May 2020.

Medical Practice Section

Federal AMA


[1] Australian Institute of Health & Welfare (2019) Health expenditure Australia 2017-18, Table 4.3

[2] Independent Hospital Pricing Authority (2020), National Efficient Price Determination 2020-21

[3] ibid

[4] Commonwealth Government(2020), Prime Minister and Minister for Health Press Release, 29 May 2020

[5] Council of Australian Government (2018), Heads of Agreement on Public hospital funding and health reform, February 2018


Published: 05 Jun 2020