Overcoming Governance and Cost Challenges for Australian Public Hospitals: The Foundation Trust Alternative

Australia will face problems funding its public hospital and other publicly funded health services if cost increases continue at the current rate in the context of ever-increasing use and an ageing population. The challenges of sustainably financing the cost of health will be exacerbated by inefficiencies in the public hospital sector—unless productivity improvements reduce the quantity of public resources consumed by public hospitals.

This report identifies and discusses some of the major governance issues that impede public hospital performance and that can be revised within the existing Medicare framework via state government-initiated reforms, principally by adopting quasi market-based initiatives.

Alternative governance arrangements for public hospitals can address existing management problems and also mimic the key factors that international studies show account for better management and superior hospital performance.

The Foundation Trust hospital management and service provision model was introduced into the National Health Service (NHS) in England by the Blair Labor government.

Foundation Trusts combine true managerial independence with genuine financial accountability. Trust hospital boards of directors and CEOs are responsible for managing the hospital’s budget, setting the employment terms and conditions of staff, and overseeing all other operational matters.

Adapting the Trust model to the Australian health system can improve the performance of public hospitals—especially if ‘corporatisation’ is complemented by a broader microeconomic reform agenda encompassing competitive pricing and selective privatisations. This would help control the escalating health expenditure and substantially contribute to the long-term sustainability of the health system as demand rises and population ages.

Peter Phelan is Professor Emeritus of Paediatrics, University of Melbourne. He was Head of the University’s Department of Paediatrics from 1983 to 1997 and a member of the Board of the Royal Children’s Hospital. From 2004 until 2010, he was a member of the Board of Cabrini Health, a large Melbourne not for profit private health care group, serving as Chairman for the latter 4 years. He has also held a number of consultancies for government and the public and private health care sectors, and was Planning Dean for the Bond Medical School.

Dr Jeremy Sammut is a Research Fellow at The Centre for Independent Studies. He has a PhD in Australian Political and Social History from Monash University. Jeremy’s research reports on health policy include The Coming Crisis of Medicare: What the Intergenerational Reports Should Say, But Don’t, About Health and Ageing (2007), Why Public Hospitals are Overcrowded: Ten Points for Policy Makers (2009), and How! Not How Much!: Medicare Spending and Health Resource Allocation in Australia (2011).