How would a reformed health system work in practice, particularly at the regional level? It goes without saying that it would mean institutional reform, but not constitutional reform, as it would rely on an existing range of familiar institutions. Even at the national level, there would be the need for new institutional infrastructure, rather than simply entrusting an increased range of responsibilities to the existing Commonwealth department.

The national administrative framework needs to be designed to meet a number of key requirements:

The scale of these responsibilities would demand a number of separate agencies performing key roles, while working together within the policy framework set by the political leadership. The options for the national structure might include:

This national-level arrangement could draw very heavily on existing organisations, which would all be best placed in one portfolio, to aid policy coherence and coordination.

At the other end of the system – the local level – many institutional arrangements would not be substantially changed, even though the availability and quality of services should continually improve. At this level, the focus is on service provision. Most doctors and other professional health providers would continue to operate as independent private businesses and hospitals and aged care providers would continue to operate with a degree of independence as private or charitable organisations, or as public institutions with substantial management autonomy. However, some important changes could be expected over time. For example, a more integrated and patient-focussed approach will require further strengthening of primary care arrangements, with GP practices becoming increasingly multi-skilled, supported by nursing staff and linked more closely with allied health professionals as well as specialist medical practitioners. GP practices might effectively exercise increasing responsibility for the health care budget for their patients within the framework developed by regional purchasers. In rural and remote areas and for Indigenous communities, primary care services may be provided in more flexible and community-responsive ways, to address their particular needs and/or their unique problems in attracting skilled workers.

Similarly, while hospitals would need to comply with minimum national standards and supervision, and be supported by the simplicity of uniform national purchasing requirements, they could ultimately be managed more flexibly according to the needs of the particular region. In community aged care services, there would be increased opportunity for regional purchasers to negotiate prime contracts with organisations responsible for networks of service providers delivering services in line with individuals’ care assessments and customer-responsive authorisation. Over time, there would be opportunities for closer integration of community and residential aged care, and for services that allow more ‘ageing-in-place’ including more choice for the individuals concerned about their accommodation and services. For all major local publicly-owned facilities, there is a choice of governance models for delivering greater local responsiveness. The management of public hospitals should involve some direct interaction with the community, and ensure good community access; it should have the full confidence of clinical and professional staff; it needs to have sufficient critical mass to deliver acute care services safely and efficiently; and it needs the flexibility to go with the accountability for delivering services efficiently and effectively. The options include trusts within the framework of the national operations agency, with executive boards that include health expertise, business acumen and local community representation; or separate agencies each managed by a CEO appointed by the national operating organisation and responsible to it, with a strong advisory board. Indeed, governance models might vary between regions. Major local facilities might be Commonwealth-owned, regionally-owned, locally-owned or indeed privately owned; in any case, they would be subject to clear national regulation and their roles and requirements as service providers determined by contract with the regional purchasing authority.

The crucial link in obtaining the gains envisaged by a truly Commonwealth public health system of this kind, is at this regional level. The regional purchasers of health services would carry much of the responsibility for the increased flexibility under the new system. They provide the key to improving allocational efficiency in the system, through the incentive framework created by these regional purchasers having responsibility for the health objectives for their own population, and the flexibility to allocate funds according to their most cost-effective use. There would also be constraints: for example, national policy requirements such as co-payment limits and safety nets, nationally negotiated prices for particular services and oversight to guard against risks of poor management or inefficient responses to short-term pressures. However, consistent with these constraints is the clear scope for regional authorities to provide:

A crucial factor is that the regional population would be large enough for the authority to accept responsibility for the vast majority of health risks, thus driving the development of a holistic regional health strategy and integrated approaches to service design and purchase. The actuarial evidence is that purchasers could cover most variations in health risk if the population they are responsible for is around 200,000 or more. Given the variations in Australian demography, there is the possibility of around 20-30 regional purchasers, with the possibility of sub-regional arrangements to assist community responsiveness. This also has the advantage of being not too great a number of purchasers for the national operational agency to oversee.

There are a number of options for the constitution of this regional health authority. My own preference would be for each regional purchaser to be under the direct control of the national operational agency, but with each also having a strong advisory board involving, in particular, the relevant GP Division(s) and other regional providers, and community organisations, possibly including local government representation. Some individual nominees selected by the Minister could also ensure a consumer voice and a sensible balance, without unduly politicising the board. The precise structure could draw heavily on current state regional health authorities and state and Commonwealth regional planning arrangements (e.g. for aged care); and draw upon – and, in time, influence – the structure and role of Divisions of GPs.

In time, the manner in which the regional purchaser is constituted might be influenced by, or evolve in line with, other regional governance arrangements within the federal system. It is not necessary, however, for the regional purchaser to be a constitutionally-recognised regional government in order to capture the benefits of competitive federalism, in which you still get the advantage of competition between different regions to provide better services to citizens. The efficiency and performance of regional health purchasing authorities, designing and contracting for services on behalf of the Commonwealth, would still be monitored and reported in the same way that the Productivity Commission now reports on the performance of state governments. It is, therefore, not clear that the purchaser needs to be a level of government, provided it is an agency with both flexibility and authority.

Clearly the staff of the regional authority would need to include health expertise as well as management expertise. The purchasing authority would have responsibility for paying for all services provided to residents in the region, wherever those services are provided (including, for example, high level acute services in a national centre outside the region). It would have a ‘soft-capped’ total budget based on the population’s risk profile, with access to some specific national risk pools where the region cannot be expected to manage the risk on its own. The soft cap would also allow budget over-runs if necessary, where the consequences would be some form of performance review rather than penalising the regional population. The regional budget would identify estimates for component parts, but with specified levels of discretion where the regional purchaser can substantiate claims of savings in one component that might be better employed elsewhere, or can substantiate claims of the positive impact of a proposed investment on both health and costs. The degree of discretion might be widened in the light of proven performance over a period of several years. Regional purchasers could be expected to develop increasingly sophisticated approaches to managing the risks of sub-populations, particularly the various categories of chronically ill, drawing on the nationally developed protocols of best-practice, cost-effective care. Substantially increased funding of Indigenous communities could be expected, subject to monitoring improved health performance.

Regional purchasers would be required to publish annual reports on performance including health outcomes, service levels and financing, preferably supplemented by broader information reports by the national health statistics organisation for all regions.

As outlined earlier, the key advantages delivered by this arrangement would be not simply increased efficiency but, more importantly, increased responsiveness and flexibility. The regional authority might consider contracting with Divisions of GPs not only to provide support for GPs and for primary care planning in the regions, but also to manage the delivery of some allied or specialist services where the local (private) supply is not adequate. The regional purchaser may find it cost-effective to establish (or re-establish or restructure) associated primary care services such as maternity and child health clinics. It would be expected to move reasonably quickly to consider options for ‘contracting out’ or for ‘centres of excellence’ for particular procedures and activities to improve efficiency. It would explore with GPs, hospitals and other non-hospital providers the options for reducing the need for hospital care and building, or rebuilding hospital outreach services as a more cost-effective way of supporting patients. This may lead to reversing the decline in rehabilitation services, and in various outpatient services particularly in fields such as dialysis and cancer remediation.

What would this new or reconstituted regional level mean for the current state governments? In most cases, there would no longer be particular purpose or value in the state government attempting to own or run hospitals or other major health services, when these can be more efficiently run either privately, locally or as Commonwealth-owned facilities within the streamlined national system. Section 51 (xxiiiA) of the Constitution not only provides the Commonwealth with the power to make laws with respect to the provision of sickness and hospital benefits, but with respect to the provision of medical services, including owning and managing hospitals itself. Indeed its powers would extend to compulsory acquisition of state facilities for this purpose. However it would clearly be wise for the Commonwealth to negotiate the transfer of responsibility from the States, either to itself or to alternative local or regional providers, rather than attempting a compulsory take-over. The objective of a more seamless patient-oriented system would also suggest the transfer not only of hospitals, but other elements of state health systems. Of course, new boundaries would arise between the Commonwealth system and ongoing state and local community services systems, but these boundaries would not generally be as disruptive to patient care as the boundaries that currently exist within health. The model does not preclude the States from delivering health services purchased by a (Commonwealth) regional purchaser, and particularly in the medium term there could be benefit in drawing on state expertise in establishing the regions and supporting the planning work of regional purchasers. But, over time, the state role could be expected to fall away.

Importantly, the system would not be managed entirely from Canberra. It would have regional purchasers with the responsibility and flexibility to purchase the mix of services most appropriate to the region. They would be required to work closely with local community leaders and providers such as the GP Divisions. They would, however, work within the policy framework established nationally. Most services would be provided locally with a considerable degree of professional independence; services such as public hospitals would have management boards or trusts. Geographically large regions would need to have sub-regional planning structures and associated flexibility to allocate resources within the local area.

The potential benefits are clear, especially for rural and remote communities (see Podger 2007), but also less-advantaged urban communities. There would be transparency about the allocation of resources across regions and the ability to highlight regions receiving significantly less than their population needs deserve (relative to other regions). There would be greater flexibility to find local solutions to regional problems, blurring the current boundaries between hospitals, general practice and other forms of primary health care, and between medical services and aged care services. There would be room for informed choice by communities about services to be provided locally, and those to be accessed from specialist providers outside the area – making the trade-off, for example, between access and quality. These are all advantages that should be considered standard in a modern world-class health system. In Australia’s case, strategic investment in orderly change and new institutions is needed to achieve them.