Labor faces green 'Grinch' hospital funding accusations with a budget in the red

There are billions of reasons why the going is proving tough in negotiating a new funding deal for the nation's public hospitals.

About $121 billion, to be precise.

That's the combined total of the forecast deficits of state and federal governments over four years, according to the latest National Fiscal Outlook.

Their floundering bottom lines speak to the reluctance to spend more on a hospital system with an insatiable need for funds, groaning under the strain of a rapidly growing population with older and sicker patients.

Within this realm, party allegiance counts for little.

Labor premiers in debt-laden Victoria, South Australia, NSW and the ACT are driving as hard a bargain as the kindred spirits of the Liberal and National stripe in Queensland, Tasmania and the Northern Territory.

On a unity ticket, the states and territories have formed an opposition of sorts — posing more of a threat than the depleted federal Coalition — and fighting to hold the government to account for a commitment it made in 2023.

A complicated deal

The deal was complicated, even as far as public hospital agreements go.

Firstly, the federal government would increase its share of funding to 42.5 per cent by 2030, and 45 per cent by 2035.

At the moment, the Commonwealth puts the brakes on how much it contributes to public hospitals by constraining annual growth to 6.5 per cent, with the states and territories on the hook for any additional expenses beyond that.

But because the growth in hospital costs has been more than the cap, the Commonwealth's overall share of hospital expenses has dropped over time.

The national cabinet communique noted the current annual growth cap would be replaced with a "more generous" approach.

But under the current offer on the table, the cap will settle at 8 per cent in the medium term, with the federal government arguing its commitment to pick up 42.5 per cent of funding by the end of the decade hinges on the states and territories staying under the cap.

The federal government insists caps encourage efficiency and were always part of the deal.

The states have accused the Commonwealth of walking back its promise, arguing it is out of touch with the reality of hospital budgets growing exponentially and will leave them billions short of what is needed.

They also feel particularly aggrieved they are being asked to shoulder the load, given hospitals are filled with thousands of aged care patients — who are medically fit for discharge but have nowhere suitable to go.

Complicating matters even more, the states and territories agreed to co-fund some new disability services outside the National Disability Insurance Scheme (NDIS) to ease some of the pressure on the rapidly growing scheme. But progress on this has been slow, with some states arguing the complicated addition to an already complex agreement has slowed down negotiations.

An additional vulnerability

Squabbling over public hospital funding is not new, but as the states balance budgets deep in deficit, they have sniffed extra vulnerability from a government that campaigned heavily on healthcare in the lead-up to its 2025 victory.

Last week they rejected a "new" offer — a marginal improvement on the deal already on the table.

The states and territories categorically said no. LNP Queensland Health Minister Tim Nicholls called the government the "Grinch".

And the federal government now finds itself fending off accusations of being the grouchy, green recluse who stole Christmas, while seeking to protect a budget deep in the red.

It knows that states will wear the blame for ailing and overburdened public hospital systems. Many state and territory ministers have reflected on this privately, saying the prime minister or federal health minister are not forced to answer daily questions about public hospitals under pressure.

But the ongoing deadlock over who pays for what will do nothing to solve the underlying causes of rising costs in a system facing ever-increasing demand.

Straddling heightened expectations with budget deficit

Having been returned to power partly on the strength of its health promises, the second-term Albanese government now finds itself straddling heightened expectations about fixing an overburdened and complex health care system, and the reality of its own budget deep in deficit.

Australia's healthcare system is often heralded as the envy of the world, but individual experiences vary greatly and the sector is facing compounding challenges.

Public hospitals and emergency departments are overstretched, there are widespread workforce shortages, private hospitals are closing and the value of private health insurance is eroding, the mental health sector is in crisis, private specialist fees are rising, people are waiting years to see public doctors or have surgery. Meanwhile Australia's population is getting older with more complex and chronic conditions.

Many of these issues have long proved intractable, and the federal government does not want to pour billions more dollars into problems which might not yield tangible and, crucially, sellable results.

You can't cut a ribbon celebrating Australians waiting one year to see a specialist rather than six, nor can you host a media conference saying public hospitals are slightly less under strain.

With limited resources, this has left them with two main choices.

Two options on the table

They can seek to lessen the expectations they spent months building ahead of the last two elections — and potentially pay the price at the next, or they can continue to narrow their focus to a particular area of healthcare where they feel they can make a difference.

And that's where a multi-billion dollar bulk-billing package comes into play.

In the lead-up to the May election, the federal government identified that healing an increasingly sickly bulk-billing rate could help return them to power.

One of its major pre-election announcements was an $8.5 billion health package, mainly consisting of incentives to help doctors bulk-bill.

Polling indicates finding bulk-billing GPs is an issue that's very important to punters, and the federal government already knew incentives would help shift the dial: when Labor tripled them in 2023 for children and concession card holders, bulk-billing rates stopped falling.

And so it pursued a broader incentive, alongside a commitment to bolster its ever-popular Urgent Care Clinics, which also served to skewer an opposition that did not specifically endorse all additional clinics promised.

Of course, bulk-billing rates do not tell the whole story. The fact that the national rate is about 80 per cent would confuse many Australians used to paying out-of-pocket at the GP.

The rates are not indicative of how many people are being bulk-billed, but rather how many services. They are inflated by children and elderly people who are bulk-billed at a much higher rate, and represent an average of all types of consults.

But politically it is a smart move, and the message has been sold cleverly by Health Minister Mark Butler and the prime minister with — if we are being generous — a half truth: "All you will need is your Medicare card."

To try to mitigate the risk of over-promising and underdelivering, the government has repeatedly refused to reveal any interim bulk-billing rate targets between now and 2030 — which is well beyond the next election.

This allows them to celebrate any wins when data shows an uptick — like it did in the first month the changes came into effect — and dismiss any drops as years away from their ultimate decade-end target.

But the reality is even if bulk-billing rates do hit 90 per cent — and it's worth noting there's scepticism in the sector about whether they will — it will not be a magic pill alleviating all of the sector's ailments.

The premiers and chief ministers will also show little patience waiting for more "free" visits at GP clinics; they've got hospitals to run.

Collectively pushing Anthony Albanese to cut them a more generous funding deal is about the only hope they have to stem the cash haemorrhaging from their health systems.