Funding the Medical Profession Australia 1941-1949

Dec 12, 2000Health Funding, Paper

WWII Labor Government
A Nationalised Health System?

This was to be the first time that a nationalised health system with a salaried medical service was proposed by government. Previously, a national insurance scheme was the main line of thought.

From this time onwards the politics of health has been characterised by conflict between government and the medical profession over their differing emphases regarding primary aims, value systems, and special interests. Government have been concerned to increase the equity and availability of health care to the citizenry; doctors have been concerned to maintain the quality and ethical standards of health care and to avoid being conscripted into government service. Doctors focus has been on professional autonomy and individual patient care; governments’ focus has been on the cost of care across the total population and electoral response.

Ann Daniel, Medicine and the State, 1990 comments:


“Throughout this century, governments everywhere have taken on more and more responsibility for provision of services; governments in Australia, traditionally the providers of economic infrastructure, have extended welfare-oriented services… It is only in recent years that economic difficulty and political wavering have stalled the Australian welfare state.

In the vanguard of the push towards more welfare state activities has been an enlarging concern for the health of the people and the provision of health services on an equitable, efficient and effective basis.

Welfare-oriented activities in the area of health services bring governments into a province that has long been dominated by the medical profession. That dominance has become a matter of authority legitimated by a demonstrable command of special knowledge and expertise and a publicised concern for standards of good practice and care for the individual… As government intervention has grown, confrontation with the profession has intensified.”


  • The Curtin-Chifley Labor Government was elected with a declared commitment to a national health service, free at the point of access.
  • The previous Menzies” government had appointed a Commonwealth Joint Parliamentary Committee on Social Security to formulate national policy. The Committee continued under Labor. Four of the Committee’s nine reports related directly to health matters. The NH&MRC set up a sub-committee to study how health services might be organised to deliver more effective service and equity to the community. The BMA in Australia also considered the issue. All acknowledged that pre-war provision was inadequate, but they disagreed on solutions. At issue were the scope of services that would be preformed by government agencies, eligibility for access to health services, method of financing the scheme, and the method of remunerating the doctors and administrators.
  • Before Labor was elected, the Menzies Government, supported by Labor, established a national scheme of child endowment. This resulted from a Basic Wage Inquiry by the Conciliation and Arbitration Commission. It found that the basic wage was adequate for a family unit of three persons only, but too meagre for families of four or more. Child endowment was introduced. It was not means tested nor based on insurance concepts of a contribution. It was funded by payroll tax on employers.


  • Labor introduced the National Widows” Pension Scheme which was means tested.


  • Labor set up the National Welfare Fund to finance the new national welfare scheme. The scheme covering invalid pensions, funeral benefits, and non-means tested maternity allowances. It was financed out of general revenue from income taxes. Later, in 1945, Labor divided income tax into two separate levies, one of which was to be used exclusively for financing social services through the National Welfare Fund. The principle of the special purpose tax levy -designating some portion of income taxation for a specific purpose, such as financing of social services, was instigated to act as a deterrent to governments, preventing them from diverting public funds away from one specific area to another for some political-electoral purpose.
  • Commonwealth Serum Laboratories produced penicillin, the first antibiotic, in commercial quantities. CSR made Australia the first country to make the antibiotic commercially available to civilians.


  • The Pharmaceutical Benefits Act was passed. This was considered Labor’s first legislative move towards a nationalised health service. Pharmaceutical drugs were to be provided free at the point of service on a doctor’s prescription.
  • The BMA (Australian branch) agreed in principle with the provision of free prescribed pharmaceuticals but not to government determining which medicines should be listed in the free list, nor how doctors should write out prescriptions (PBA prescriptions were to be acceptable only if written by doctors on a form supplied by the government).
  • Doctors claimed the PBA impinged doctors autonomy in regard to their right to prescribe. They refused to co-operate in implementing the scheme. Conferences between the Government and the BMA failed to end the doctors” boycott.
  • Negotiations also broke down between the BMA, the NHMRC and the Labor Commonwealth government over group clinics. These were to be staffed by government-paid doctors. Government would not agree to doctor control of these clinics.
  • The Health Minister in the Chifley government said the government’s intention was to introduce a salaried medical service. The Prime Minister confirmed this later. Chifley’s declaration provoked intense opposition from the medical profession.
  • Queensland started a free public hospital service, with salaried, full-time or part-time medical officers.


  • The Hospital Benefits Act 1945 was passed. This was the first successful step by the Commonwealth government in financing institutional care on a national basis. The Labor government agreed to pay the States six shillings a day for each patient occupying a bed in a public or private hospital subject to the waiving of all charges to those accommodated in public beds in public wards. It helped ease the serious financial difficulties of hospitals.
  • Labor introduced the Tuberculosis Act – a national scheme to pay those with TB so as to encourage them to submit to the long treatment regime required to protect public health.
  • The Victorian Attorney-General, on behalf of the Medical Society of Victoria, challenged the Pharmaceutical Benefits Act in the High Court. The High Court struck out the PBA as ultra vires on the grounds that the Constitution did not empower the Commonwealth to pay for free medicines, let alone regulate doctors’ way of prescribing.
  • The Australian Institute of Hospital Administrators was founded (later to be the Australian College of Health Service Administrators ).


  • National referendum instigated by the Labor government successfully sought power to legislate on social welfare matters. Paragraph XXIIIa was added to Section 51 of the Constitution empowering the Commonwealth Parliament to make laws with respect to: The provision of maternity allowances, widows pensions, child endowment, unemployment, pharmaceutical, sickness and hospital benefits, medical and dental services (but not so as to authorise any form of civil conscription) benefits to students and family allowances.
  • The anti-conscription clause protected doctors and dentists from any compulsion to undertake particular work, to work in a particular way, or to work in any particular occupation. The clause was achieved by the BMA approaching Opposition Leader Menzies who got the Attorney-General Dr Evatt’s acceptance for the inclusion.
  • With its new head of power the Commonwealth government was on the path to ever extending intervention in health matters. Fundamental change resulted to the federal role in health and social welfare, and led to introduction of hospital and pharmaceutical benefits schemes and public health campaigns.
  • The constitutional amendment empowered the Common-wealth, with its virtual monopoly of taxing powers, to provide financial assistance for health and other welfare purposes, but only through agreements negotiated with the states.
  • Agreements with the states over the following years enabled the Commonwealth not only to provide cash to hospitals but to effectively impose conditions. One was that public ward accommodation and treatment would be provided free of charge. This provision lapsed temporarily with the fall of the Labor government, but was revived by conservative governments which introduced means testing. Coalition governments limited free hospital care to pensioners and the very poor. Doctors providing the free services were paid by Commonwealth funds on a fee-for-service basis at concession rates.
  • After the referendum, the Labor government advised the BMA of its plans for
  • “a complete medical service, comprising medical practitioners, specialists, pathologists, radiologists and other ancillary services available to every person without any direct charge, and without regard to his economic status”.
  • The BMA was invited to nominate representatives to committees to develop the scheme, but it refused.


  • The Minister for Health in the Labor government informed the BMA Federal Council that: “The government’s aim was the eventual abolition of private medical practice”.
  • The BMA Federal President informed doctors that they were “being invited to indulge in consideration of professional euthanasia”.
  • Parliament passed the new Pharmaceutical Benefits Act 1947. Over ninety per cent of doctors refused to cooperate in its implementation.
  • One thousand NSW doctors each donated ten pounds to establish the Medical Benefits Fund in an effort to forestall the Federal Labor government introduction of a national health scheme. The MBF was opened to public subscription and offered subscribers reimbursement of medical expenses for doctor treatment on a fee-for-service basis. This concept was later to become the basis for the Earle Page national health insurance scheme in the early 1950’s – as well as for a variety of insurance schemes.
  • The Australian Regional Council of the Royal College of Obstetricians and Gynaecologists was founded.
  • The Commonwealth Bureau of Dental standards was formed to set standards and tests dental equipment, materials and procedures.
  • Australia passed the World Health Organisation Act committing Australia to the WHO Constitution.


  • The National Health Service Act empowered the Commonwealth to take over, provide or arrange for virtually any health facility or service.
  • This Act was Labor’s retaliation over the BMA in Australia’s refusal to enter a negotiated agreement. The Labor government did not implement it, but the Menzies Liberal government did.
  • The 1948 Act was the Labor’s response to ongoing opposition by the BMA to anything they suspected led to a nationalised medical service.
  • The Act empowered the Commonwealth to provide or arrange for general medical or dental practitioner services, consultant and specialist services, ophthalmic services, maternal and child welfare services, aerial medical and dental services, diagnostic and therapeutic services, convalescent, after-care and nursing services and medical and dental services in schools, colleges and universities.
  • It also enabled the Commonwealth to take over or establish maintain and manage hospitals and other health facilities and services, participate in health education research and training, manufacture medical and dental supplies including visual and hearing aids, and to pay a portion of doctors” fees if doctors charged prescribed or scheduled fees.
  • A new Tuberculosis Act (1948) was passed as the original 1945 Act had proved inadequate.
  • The Mental Institutions Benefits Act (1948) was passed by which the Commonwealth paid the states a benefit equal to the charges upon the relatives of mental hospital patients – in return for free treatment. This marked Commonwealth entry into mental health funding.


  • Frustrated by doctor resistance, the Labor government provoked a trial of strength by adding Section 7A to the Pharmaceutical Benefits Act, making it an offence for doctors to write a prescription for a listed medicine on other than on the official form. The BMA claimed civil conscription in a writ to the High Court. By a majority decision, the High Court declared the amendment invalid. Most doctors continued their campaign of non-cooperation with the PBA.