Pandemic sends health costs soaring as brawl rages over who has to pay

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An “unprecedented” capacity crunch was reported in north Queensland’s public-health service while Adelaide faces an ambulance “ramping” crisis that has lasted months.

Things are about to get even more difficult, the states warn, with demand for mental health services outstripping supply and the nation entering “the most critical phase of the COVID-19 pandemic response for our hospital systems”.

So what do the states want?

The states desperately want an immediate “funding solution”, saying the national model of “activity-based funding” will take years to start repaying hospitals the cost of their high-intensity COVID-19 response.

The states and territories also want the Commonwealth to temporarily return to the pre-2015 system where it pays half the cost of running of public hospitals – not the 45 per cent Canberra currently kicks in – along with lifting the 6.5 per cent cap on spending growth.

Victorian health minister Martin Foley’s signature was among those on the letter to federal Health Minister Greg Hunt pleading for more money.Credit:Getty

The jurisdictions want the deal struck with the Commonwealth last February – whereby the cost to hospital systems of managing COVID-19 would be split 50-50 between Canberra and the states – to be locked in until the middle of 2023 instead of ending when the pandemic emergency is declared over.

And they want an amnesty from financial penalties for failure to provide services such as elective surgery to be guaranteed until 2024.

What’s Canberra’s position?

In his response to the states and territories on Thursday, Mr Hunt in effect told his counterparts that the Commonwealth had no interest in further renegotiation of funding deals. He argued that Canberra had already kicked in $30 billion in health support, much of which would continue to flow, including the 50-50 cost split and paying for all the nation’s vaccine supply.

Mr Hunt repeated in his letter his assertion that Commonwealth funding of Australia’s public hospitals had grown by 71 per cent since the Coalition government came to power, compared to 44 per cent from states and territories.

“The Australian government would warmly welcome it if states and territories were to match the increase in Australian government funding since 2012- 2013,” the minister wrote. Mr Morrison said on radio this week that states running short of cash for hospitals could borrow to cover the costs.

What do the experts say?

Associate Professor Kim Dalziel, head of Melbourne University’s health economics unit, said the states had presented a long list of complaints to Mr Hunt, with some issues more pressing than others. The economist had some sympathy with the states on the “the main issue”: hospitals trying to pay for an expensive unfolding pandemic emergency under the deferred payment national funding model.

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“The problem hospitals are facing right now is that it’s more expensive to deliver care, and they’re having to absorb extra expenses within their current operating budgets, with no extra funding coming in,” Associate Professor Dalziel said.

The Grattan Institute’s Stephen Duckett, a former federal Health Department secretary, cited Australian Institute of Health and Welfare data showing states were consistently paying slightly more than the agreed levels for their public hospitals.

“The states’ proportion of government expenditure on public hospitals is around 56 or 57 per cent,” Professor Duckett said.

“There’s no evidence that I can see that the states are shirking their responsibilities.”

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