This week, the federal government announced^[1] it will pay states and territories an extra, one-off, A$1.7 billion for public hospitals.

This has been billed as a way to fix some ailing hospitals, and shorten waits for care in emergency departments and for elective surgery. But will it really make a difference?

How are hospitals funded?

Australian public hospitals are funded through a collaborative arrangement involving state, territory and federal governments. The federal government provides 37% of public hospital funding^[2] annually, primarily through the National Health Reform Agreement^[3]. States and territories fund nearly all the rest.

Most federal government funding for public hospitals is determined by an “activity based funding^[4]” formula. Funding is based on the number of patients treated and the price of treatment, the latter calculated from average public hospital costs.

State and territory governments manage public hospitals. The federal government has little say on how public hospital money is spent. The exception is when funding relates to something specific, like a new hospital ward.

How the extra funding compares

The federal government will spend $30.19 billion on public hospitals^[5] this financial year. The extra funding will grow its public hospital spending by 12% in 2025–26.

Extra funding will likely impact Northern Territory hospitals the most. It will receive $51 million more, a 30% increase.

While larger states will receive additional funding, they have more public hospitals and patients. For example, New South Wales will receive $407 million, but this equates to only an 11% increase from the federal government.

The extra funding is less impressive when compared to total public hospital spending. That was $86 billion^[6] in 2022–23, suggesting the extra $1.7 billion will represent less than 2% in additional total funding to public hospitals in 2025–26.

But this extra spending is not in isolation. The federal government has already committed nearly $600 million^[7] to establish 87 urgent care clinics^[8] around Australia. Their primary purpose is to alleviate pressure on emergency departments and fill gaps in access to after-hours primary care.

Public hospitals are funded mostly by the states and territories, but receive some funding from the federal government. khuncho24/Shutterstock^[9]

Pressure in public hospitals

Public hospital pressure has been building for over a decade. Emergency departments are often clogged, leading to long wait times, mostly because of staff shortages. Around 10% of patients wait more than two hours^[10]. There is little slack in the system^[11] to counter unpredictable surges in demand for care.

The proportion of emergency department patients seen on time has declined since COVID. The proportion of patients requiring urgent emergency department care seen on-time, for example, has decreased^[12] from 67% to 61%. More non-urgent and semi-urgent patients are also not receiving care on time.

Patients are also waiting longer for elective public hospital surgery since COVID, despite an increase in the number of admissions from elective surgery waiting lists.

Proportion of patients seen on time in public hospital emergency departments

Australian Institute of Health and Welfare^[13] Waiting times vary by state and territories. Queensland has the lowest proportion^[14] of patients waiting more than 365 days for public hospital elective surgery at 3.9% in 2023–24, while the ACT had the highest at 8.9%. Encouragingly, waiting times decreased for nearly all elective surgeries^[15] compared to 2022–23, suggesting public hospitals may be making inroads into the post-COVID load. Proportion of patients waiting more than 365 days for public hospital elective surgery

Will the money help?

While additional funding will help, there is no magic wand. Public hospitals need to substantially reorganise their staff, workflows, beds and buildings. This in an environment that has workforce shortages, burnout^[17], and wage pressures^[18], making major health system changes particularly difficult.

Some hospitals may reduce their waiting times substantially, if states and territories allocate their extra funding to poor performers.

However, poor performance can be related to systemic issues out of the hospital’s control, such as workforce shortages. Without an increase in total health-care workforce size, these poor performing hospitals may look for additional staff from other public hospitals, worsening their performance.

Whether any improvements last is another question.

Public hospitals face increased demand for emergency department care, only mitigated by the potential success of urgent care clinics^[19].

Read more: Labor’s urgent care centres are a step in the right direction – but not a panacea^[20]

Public hospitals also face an increase in demand for elective surgery, as the population ages and chronic disease prevalence increases.

The extra $1.7 billion is only a one off. Funds to reduce waiting times will mostly be spent on more staff, such as nurses, clinicians and administration staff.

Public hospitals will need additional, ongoing funding to keep up with demand, otherwise any initial improvement will dissipate.

What else needs to happen?

All governments need to invest more in prevention programs to slow the growth in public hospital demand.

More Australians are obese, as a proportion of the population, compared to other OECD countries^[22]. This has created a heavy burden.

Reducing financial waste in the health-care system is of huge importance. Savings could be used for long-term improvements in waiting times once the extra funding runs out.

Around 40% of health care^[23] is of low value or causes harm. Reducing unnecessary medical tests, speeding up discharges, and reducing avoidable admissions is a good start.

Other changes that could help^[24] include:

• setting national performance targets for states and territories to reduce their waiting lists
• stronger monitoring of performance
• holding public hospital managers more accountable for achieving their waiting time targets.

A new National Health Reform Agreement is due to take effect in 2026. Whoever wins this year’s federal election will have to finalise this agreement with the states and territories.

The Commonwealth and states are yet to commit to all of the recommendations from the mid-term review of the current agreement^[25] released in October 2023. The extent to which governments accept these recommendations has the potential to create a much greater, long-term impact on waiting times than this extra, one-off payment.

References

1. ^{^} announced (www.abc.net.au)
2. ^{^} 37% of public hospital funding (www.aihw.gov.au)
3. ^{^} National Health Reform Agreement (federalfinancialrelations.gov.au)
4. ^{^} activity based funding (www.ihacpa.gov.au)
5. ^{^} $30.19 billion on public hospitals (www.pm.gov.au)
6. ^{^} $86 billion (www.aihw.gov.au)
7. ^{^} committed nearly $600 million (www.anao.gov.au)
8. ^{^} 87 urgent care clinics (www.ausdoc.com.au)
9. ^{^} khuncho24/Shutterstock (www.shutterstock.com)
10. ^{^} wait more than two hours (www.aihw.gov.au)
11. ^{^} little slack in the system (theconversation.com)
12. ^{^} decreased (myhospitalsapi.aihw.gov.au)
13. ^{^} Australian Institute of Health and Welfare (www.aihw.gov.au)
14. ^{^} lowest proportion (www.aihw.gov.au)
15. ^{^} decreased for nearly all elective surgeries (www.aihw.gov.au)
16. ^{^} Australian Institute of Health and Welfare (www.aihw.gov.au)
17. ^{^} burnout (theconversation.com)
18. ^{^} wage pressures (www.abc.net.au)
19. ^{^} urgent care clinics (theconversation.com)
20. ^{^} Labor’s urgent care centres are a step in the right direction – but not a panacea (theconversation.com)
21. ^{^} Gorodenkoff/Shutterstock (www.shutterstock.com)
22. ^{^} compared to other OECD countries (www.oecd.org)
23. ^{^} Around 40% of health care (bmcmedicine.biomedcentral.com)
24. ^{^} Other changes that could help (theconversation.com)
25. ^{^} mid-term review of the current agreement (www.health.gov.au)