States and territories are facing a significant conflict with the Commonwealth regarding public hospital funding. Health ministers have expressed strong dissatisfaction with a recent letter from Prime Minister Anthony Albanese. In the letter, Albanese requested that states and territories reduce spending if they wish to secure a funding agreement for public hospitals.

In September, Albanese wrote to state and territory leaders, stating that to achieve a Commonwealth contribution of 42.5% of public hospital costs by 2030-31, they must work to lower growth in hospital activity and costs. The letter has sparked outrage among health ministers, particularly in Queensland.

"Upon reading the letter, my immediate response was that it was almost beyond belief that the prime minister would write to us saying we have to work to reduce growth in hospital activity," said Queensland Health Minister Tim Nicholls. He questioned whether the prime minister expected states to limit access to emergency services amid rising demand due to an aging population.

Other health ministers, who requested anonymity, echoed Nicholls' frustration, stating that the letter was poorly received. "To say they were frustrated is underselling it … they were exercised," one minister remarked.

In 2023, the National Cabinet reached an agreement for a new funding deal for public hospitals, which are primarily managed by states and territories but partially funded by the Commonwealth. The deal included a commitment from the federal government to increase its share of funding to 42.5% by 2030 and 45% by 2035. In return, states and territories agreed to co-fund new disability services outside the National Disability Insurance Scheme (NDIS). However, negotiations have stalled, with state leaders recently criticizing the federal government for not honoring its initial commitments.

Federal Health Minister Mark Butler is now tasked with navigating these tensions as the government aims to finalize a deal by the end of the year. Tasmanian Health Minister Bridget Archer emphasized the need for the Commonwealth to engage more actively in negotiations. "If there's to be a deal by the end of the year, the federal government is really going to have to step up their negotiations and have to sharpen their pencil," she said.

South Australian Health Minister Chris Picton highlighted the importance of certainty in public hospital funding, noting that the federal government's share has been declining over the years. "States and territories just can't agree to a deal which would see that continue to decline, particularly as we face increasing demands and increasing aging of the population," he stated.

New South Wales Health Minister Ryan Park stressed the necessity for the Commonwealth to fulfill its financial obligations. "The Commonwealth has deeper pockets than the states," he said. "Unless the Commonwealth honors its commitments, hospitals will be left underfunded and overstretched. Families in NSW deserve timely, quality healthcare, and that requires both levels of government pulling their weight."

Currently, public hospital funding is based on patient treatment numbers and types, adjusted for cost increases. However, the Commonwealth has capped annual funding growth at 6.5% of the previous year. The 2023 agreement aimed to replace this cap with a more favorable approach, but it was revealed that the cap would increase to 8% after a one-time catch-up year of 13%. Health Department Secretary Blair Comley indicated that the federal government's commitment to the broader deal depends on states managing costs effectively.

ACT Health Minister Rachel Stephen-Smith criticized the cap, stating it places an increasing burden on states. "The Commonwealth is contributing nothing to a significant proportion of our activity, in effect," she said. She expressed skepticism about reaching the agreed funding levels under the current cap.

Nicholls described the cap as unreasonable, questioning whether it meant denying care to patients in emergencies. A report commissioned by state and territory treasurers indicated that the 6.5% funding cap is disconnected from inflationary pressures, leading to states bearing more of the public hospital funding burden.

The report identified persistent cost drivers, including high inflation, workforce shortages, and an increasingly complex patient population. It suggested that the Commonwealth should take greater responsibility for ensuring timely access to healthcare services.

In response, a federal government spokesperson stated that the Commonwealth's latest offer included an additional $20 billion over five years for public hospitals. They emphasized the importance of collaboration among all governments to address the growing pressures in the public hospital system.