The final report of the National Health and Hospitals Reform Commission (NHHRC), published in June 2009,1 provides a blueprint for major reform of the Australian health system — reform that is long overdue and that is vital if we are to meet the future health care needs of the Australian people.

The release of the Australian Government’s national health reform plan2 on 3 March 2010 marks an important milestone. After much listening, thinking, debate and deliberation, it is now time to start taking action. This, the first in a series of announcements by the Australian Government, focused on proposed changes to governance and public financing structures. Public hospitals, general practice and primary health care, health workforce and e-health were flagged as key further elements of the reform plan to be released over the coming weeks and months.

As pointed out in the NHHRC report, “we have a fragmented health system with a complex division of funding responsibilities and performance accountabilities between different levels of government”.1 The current separation of responsibilities means that no level of government has a detailed understanding of all aspects of the health system. It is therefore not surprising that this first part of the plan sets out “major structural reforms to establish the financing and governance foundations of a National Health and Hospitals Network for Australia’s future”.2

However, high-level structural changes alone cannot and will not rectify all the current problems and emerging challenges faced by our health system. The NHHRC concluded that fundamental structural reform is required to remove obstacles and enable the system-wide reforms presented in its final report.

A key message of the NHHRC’s work on governance is that we need to move beyond the blame game and create “one national health system” with local flexibility and innovation in delivery. The NHHRC presented a pathway, similar to that described by the government, with clearer roles and accountabilities for governments, and with the Australian Government taking greater financial responsibility, which could be increased over time. This would enable the states to continue to plan and operate public hospitals and health services. Local clinical and community engagement were emphasised, and system-wide clinical governance and a teaching and research-led quality agenda were recommended.

A number of these features are reflected in the national health reform plan’s approach to restructuring governance and financing arrangements. Under the new arrangements, public hospitals and health services would be funded nationally and run locally. The Australian Government would be the dominant funder of health care, with responsibility for 100% of public funding of primary health care, and 60% of hospital activity, including teaching, research and capital costs. This represents a significant exposure for the Australian Government, which is important in sustaining public financing of the system.

The reform plan’s clear statement about state government revenue growth not being able to keep pace with growing health care costs is critical, not only as one of the reasons why greater federal funding responsibility makes sense, but also to acknowledge the financing pressures that states, and therefore public hospitals, have faced and will continue to face without such change.

The planned Local Hospital Networks provide a mechanism for local flexibility and innovation, with greater clinical and community engagement and control. States would have a key role in service and capital planning, determining network structures, and appointing the governing council. The size, range of services and geography of Local Hospital Networks would be determined by the states with consideration of local needs and circumstances. One “size” will not fit all.

A hospital activity-based funding system will contribute to consistency, transparency and efficiency. The proposed “arms-length” expert pricing body that will be responsible for determining a nationally consistent approach to hospital funding is a welcome feature. The establishment of this body recognises that a range of issues will need to be addressed, including cost weighting for rural and Indigenous health care needs, and establishing funding mechanisms for areas of service not suited to an activity-based funding approach.

Direct payment to Local Hospital Networks, as flagged in the NHHRC report, will increase transparency and radically change the dynamic of public hospital management, from one of avoiding activity to contain costs to one of optimising activity to attract direct payment.

National standards should also offer greater transparency, increase accountability, reward good performance and better inform the community about the quality and outcomes of our public and private health services. The NHHRC recommended that these standards be developed with clinical, economic and community participation, and that they should cover all aspects of the health service continuum — such as getting access to a general practitioner, timely response in a mental health crisis, and getting to see a specialist or access a rehabilitation service — so that surgical and emergency waiting times alone do not dominate the agenda.

These reforms would arguably be the most significant changes to governance and public health financing in Australia over the past 30 years. While good governance and sustainable funding are critical enablers, they are not the whole reform story. The next chapters of the reform plan must demonstrate that this framework will ultimately translate into better, connected health care across all settings and for all Australians.