John Menadue. Making the Federation work better.

May 20, 2015

Fairness, Opportunity and Security
Policy series edited by Michael Keating and John Menadue.

State governments spend about 25% of their budgets on health and another 25% on education. A cooperative arrangement between the commonwealth and state governments in one of these areas would greatly improve the operation of our federation. This article will focus on possible cooperation in health.

A State handover of health services to the Commonwealth, as suggested by Tony Abbott many years ago, would be one way to overcome the waste and buck-passing between the Commonwealth and State governments in health. Kevin Rudd suggested that his government might take over state hospitals. Opinion polls suggested that the public would support this approach. But Kevin Rudd backed away. In passing it should be noted that the Commonwealth has no recent experience in running hospitals. It is not an easy task.

But as a Commonwealth takeover is most unlikely, an alternative would be to establish a Joint Commonwealth/State Health Commission (Joint Health Commission) in any State where the Commonwealth and a State government can agree – a coalition of the willing, a Commonwealth/state partnership on a state by state basis.

It is envisaged that the joint commission, with shared Commonwealth/State governance would be responsible for funding, planning and integrating all health services in that State. Consistent with an agreed plan, the Commission would then buy health services from existing providers – Commonwealth, State, local, NGO and private.

A political agreement between the Commonwealth and any State is essential. If this political agreement is achieved, we would see a more cohesive and integrated health service, delivered much more efficiently. Once the benefit was clear in one State, hopefully other States would follow.

I believe that this proposal would have strong public support. We are tired of the blame game.

Either the Commonwealth government or any State government could initiate the breaking of the impasse.


The Commonwealth Government provides about 43% of national health funding and the State Governments and territories 26 %. Another 31% of funding is from non-government sources (mainly individual users of health services).

In both the NSW and SA health reviews that I chaired some years ago, a view was widely expressed that it’s all very well for State governments to review their health systems, but a major problem is the inefficiency, fragmentation, gaps, cost and blame shifting which results from the different roles of the Commonwealth and State governments in health’. This view was expressed, not only by those working in the health system, but also by the community generally. It was also frequently expressed by the media. The problem of divided responsibilities is well understood. The public doesn’t really give a hoot who plans and delivers health services. The public’s real concern is that the services are provided efficiently and equitably.

Integration of commonwealth and state health functions are essential. Professor John Dwyer, in this blog, estimated   that more than 600,000 state hospital admissions per year could be saved if there was more timely community intervention which is funded by the Commonwealth.

A solution requires a political agreement between the Commonwealth government and at least one State. The political issue cannot be avoided and attempts to get around this issue are likely to be unsuccessful, time-consuming and cumbersome. A bureaucratic or organisational response to a political problem will be unsatisfactory. The issue must be addressed politically. If there is political agreement, governance, financial, administrative and other issues could be successfully managed.

Such an approach would not produce a unified national health system, but six (excluding the territories for the moment) joint health systems which are State-based. Nonetheless, this would be superior to the present division and fragmentation. The six State-based joint commissions may also better reflect the different history and needs of respective States. One size doesn’t necessarily fit all.

The states may also be now more interested in what is proposed here because the 2014 budget suggests that over the next 10 years the Commonwealth will contribute $ 50 b less to state hospitals than the outgoing Labor government proposed. There was no certainty that this 10 year funding would have remained in place but I don’t think there is any doubt however that the Abbott government will attempt to shift more responsibility to the states for hospitals and schools.

A Joint Health Commission in any State where the Commonwealth and the State could agree would have the following characteristics.

1. Coverage of Joint Health Commission

The wider the coverage the better to ensure real and comprehensive resource allocation and integration of services across the full continuum of care. The following programs should be included as the planning responsibility of the Joint Health Commission.

  • State Health (including Health Care Agreement)
  • High level residential aged care
  • Department of Veterans’ Affairs (DVA)
  • Home and Community Care (HACC)
  • Commonwealth Regional Health Services in rural and remote areas.
  • Medical Benefits Scheme (MBS)
  • Pharmaceutical Benefit Scheme (PBS)
  • Aboriginal Health
  • Local Government health
  • NGOs (e.g. nursing services)
  • Public health

State Health, HACC, etc. would tender for the provision of services to the Joint Health Commission. Similarly, local government and NGOs would tender, although allocations to them would probably need to be made through the State Health department.

Private hospitals could probably be excluded from this coverage, as they depend on private contributions rather than direct government funding – except for occasional seed money. But provision should be made for private hospitals, along with local government and NGOs, to tender for supply of services to a Joint Health Commission, (see 3 below). The private delivery of health services should be encouraged where it is consistent with the state-wide plan and is delivered efficiently.

Importantly, existing providers would continue to operate and provide services, and where appropriate, ministers – both Commonwealth and State – would continue to be responsible for their own services. But those services would be purchased by the Joint Health Commission as part of a state-wide plan, which I refer to under ‘functions’ below.

2. Pooled Funding of Joint Health Commission

The Joint Health Commission would receive a negotiated pooled allocation of funds from the Commonwealth and the State government. which reflected the coverage of programs for which it would be responsible (see 1 above), with appropriate population growth and cost indexation add-ons. As a starting point the shares of the two governments would reflect their current funding shares. Changes in the shares and total funding would be subject to the advice of the National Health Performance Authority (NHPA). That Authority would provide public advice to the two governments. The two governments would need to agree on annual funding arrangements.

Whilst confidence in the funding formula is developed, it might be useful to consider shadow funding in the first 3 years and move to actual pooling of funds thereafter.

3. Functions of Joint Health Commission

  1. a) Shared Resource Allocation through the purchase of various services from providers – Commonwealth, State and local government, and NGOs as part of a joint strategic plan.
  • In this case, shared resource allocation can be achieved through the establishment of a minimum set of Commonwealth and State programs.
  • The major changes associated with the JHC would provide an opportunity to move from producer dominated health care delivery to an output/patient focussed delivery system. So many of our health programs reflect provider interests; the MBS reflecting the interests of doctors and the AMA, the MBS reflecting the interests of the Pharmacy Guild and Big Pharma and public hospitals reflecting the interests of their providers, state governments. Patients are a secondary concern. We need to shift to a patient focussed health system in such key areas as chronic, acute and occasional care.
  • Funding would be allocated with agreed short and long term integrated outcomes, rather than siloed program outcomes, with specified standards and levels of performance.
  1. b) Shared Performance Management

Oversee continuous improvement of the health system, monitor progress and establish reform targets and timelines:

  • Development of standard measurement
  • Benchmarking
  • Patient-centred best practices

The NHPA provides an excellent opportunity for the establishment of a system that can meet the needs of consumers, community and health services. The NHPA can provide an approach that examines health status and outcomes, determinants of health, and health system performance.

The NHPA should facilitate the mapping of progress for the population of a State, region or service. It could also be used to examine progress in tackling a particular health problem (e.g. aboriginal health), and to take a wider look at the interface between health and other government departments, the private sector and non-government organisations.

4. Joint Health Commission Governance

The following features could be included, and would ensure full Commonwealth and State government input into the state-wide plan:

  • Membership of the board should be high level to enable strategic decision-making on broad and longer-term issues.
  • Maximum transparency and disclosure of the Joint Commission’s work and final recommendations in order to neutralise special pleading and vested interests and to ensure public understanding and support.
  • The board of directors must have clear ‘governance’ responsibility and not a junior role. They should reflect the broad interests of the whole community and not be seen as representative of the Commonwealth or State or ‘insider interests’ that so dominate health systems in Australia.
  • Independent chair appointed by the two Ministers from a short list provided by the respective Commonwealth and State Health CEOs. It might be useful to have the chair from another State.
  • Apart from the chair, no jurisdiction to have more than 50% representation.
  • Representation could include other Commonwealth and State jurisdictions (e.g. Indigenous Affaires) and people having experience in the private sector.
  • The board would appoint the CEO who would be responsible to the board and not the two jurisdictions.
  • The board would approve the strategic plan and budget.
  • A constitution may be useful to provide more user-friendly objects, role, function and operating procedures, including engaging the private sector.
  • Subsidiarity should be an important principle for governors in developing the state-wide plan. Management and service delivery should be driven down to the lowest and most local level possible, consistent with state and nation-wide standards.
  • The Board should have a small secretariat, but rely on Joint Health Commission for planning etc. It must avoid a new level of bureaucracy.
  • Board costs would be shared by Commonwealth and State.
  • The Commonwealth and State minister would be responsible for negotiating high-level policy principles, including overall funding on the advice of the board. This would help reduce the risk of the board dividing on Commonwealth/State lines. Ministers must reach broad agreement if the Joint Health Commission is to work.
  • The board should be responsible to the Commonwealth and State minister, with one financial report to both. If there is not agreement between the two ministers, there would be a public dispute resolution procedure which would encourage cooperation and dialogue between the two ministers. This would encourage public trust in the integrity of the process. I would expect that this would produce an agreement in almost all cases. If resolution is not possible, the Commonwealth minister would prevail; given the need for a stronger national role and that the Commonwealth Government provides 43 % of national health funds compared with 26 % by the states.

These governance arrangements could be reviewed in 5 years.


A Joint Health Commission established upon agreement of any State with the Commonwealth would be a substantial improvement on the present arrangements. It would help break the impasse on federalism and better integrate health services. It requires a political decision between the Prime Minister and premier.

The public is tired of the blame shifting and fragmentation in health and would respond to a sea change such as this. Such a joint health commission in any State that agreed would help achieve what both of them are seeking in health – a better integrated health system and a favourable community response, A committed Commonwealth government could use its financial leverage to make such an offer attractive to the states.

A Joint Health Commission in any one State could begin to address the ‘big ticket’ problems in health delivery – the Commonwealth/State fragmentation, an eroding primary health care system, an antiquated workforce structure and obvious system failures in safety and quality.

Of course, the fragmentation in health is not just caused by Commonwealth-State fragmentation. The two big Commonwealth programs – MBS and PBS – are not effectively integrated.

All these big-ticket issues are lost sight of in the argy-bargy of Commonwealth/State blame and cost shifting.

Not only would a Joint Health Commission in one State be a substantial improvement, it would also be very symbolic, demonstrating that governments can address hard political issues in a cooperative way.

We must stop asking continually for more money or tweaking the health dollars, when many problems are structural. A lot of health spending is counter-productive – throwing money at problems to get them out of the media or for short-term political gain, rather than solving systemic problems. Any increase in health dollars must be accompanied by system change. A Joint Health Commission starting in one State is a sound way to begin breaking the impasse.

The key is political will by ministers. If there is the political will, the governance problems can be resolved.

There is no reason that the principles proposed above in health could not be applied in other fields such as education.

John Menadue AO was formerly Secretary Department of Prime Minister and Cabinet, Secretary Department of Trade, Ambassador to Japan and CEO of Qantas.

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