Funding the Medical Profession Australia 1968-1972

Dec 12, 2000Health Funding, Paper

Drive For Compulsory Universal Health Insurance

1968 -1972

The Rise of the Health Economists

Existing ideas and schemes for making health services more available and affordable to the bulk of the population were proving unsatisfactory. Heath costs and government health expenditure was rising. Pressure mounted for a health cover scheme that would be insurance-based but entail compulsory contributions. In the 1960s total health expenditure in Australia rose from $683 million in 1961 to $1.7 billion in 1971 – a rate of increase well above that for GDP.


  • Responding to growing public dissatisfaction with the Page Plan, the ALP Opposition, which favoured a system of compulsory health insurance, succeeded in setting up a Senate Select Committee on Medical and Hospital Costs to review virtually the whole of health delivery arrangements.
  • In response, the Coalition government appointed a three man Committee of Inquiry into Health Insurance to consider the problems of health insurance – but only in the context of a voluntary scheme and the existing arrangements with State governments. Justice J.A.Nimmo chaired the government committee.
  • Health economists made their appearance. Drs Scotton and Deeble, health economists from the Melbourne Institute of Applied Economic and Social Research make proposals which were to form the basis of the ALP health policy platform for the 1969 election. The proposals included:
    • A National Hospitals and Health Services Commission: to cooperate with States in planning, upgrading and extending public health services, and to develop peripheral district hospitals and community health centres,
    • A national Aboriginal health program,
    • A universal health insurance system,
    • Nursing home and home-based services,
    • A national school dentist program,
    • Upgraded preventive, occupational and rehabilitation services,
    • New community mental health services and psychiatric hospital care integrated into general hospitals,
    • Institutionalised on-going evaluation of all programs.
  • Australia’s first heart transplant operation was performed at St Vincent’s Hospital in Sydney.


  • The Gorton Coalition government introduced a new Health Benefits Scheme. It included a copayment by patients for any one service (a maximum of $5). It also introduced the notion of the most common fee (ie. a median fee for each service, on which to base medical benefits for health insurance purposes. The most common fee was based on the fees most commonly charged for over 1000 medical services. Each benefit was set so that the fee charged to patients should not exceed $5. For GP services, the patient was expected to pay 80c and $1.20 respectively of the common fee for consultations and visits).
  • Many doctors objected, fearing the common fee was a step towards their conscription into a de facto nationalised health service. Many GPs objected not only to the AMA Federal Council’s approval of the common fee, but also the AMA Council’s support of higher fees for specialists than for GPs. Some thought this would lead to the deskilling of GPs and their utilisation by patients merely as referral agents. GPs warned the AMA Federal Council that its stance threatened the unity of the AMA.
  • The General Practitioners Society of Australia (GPSA) was formed (1968-69) in reaction to the AMA’s cooperation with the Commonwealth government over the common fee, and fee differentials for GPs and specialists. Anti-government sentiment increased among doctors.
  • Soon after the introduction of the Gorton government’s new system, the media began reporting that doctors where charging more than the common fee for their services, and that doctor fee increases were well above increases in the consumer price index. For example, the Sydney Morning Herald (6.7.71) claimed that the medical benefits scheme was acting as a perverse incentive because there was no legal obligation on doctors to charge the common fee:
  • “But the common fee which was a reasonable basis for estimating benefits at the beginning of the scheme, has now become the minimum fee. The Federal government is whistling in the wind if it thinks a subsidised health scheme can be maintained without control of doctors’ fees”.
  • The National Times (13.9.71) reported that, “particularly in wealthier areas, fewer than a third of doctors are still charging the most common fee… Patients are again being forced to pay what the traffic will bear”.
  • Dr William Refshauge, later to be associated with the Doctors Reform Society and to become a NSW Labor Minister of Health commented on the health costs issue. He claimed that in Australia individual doctors now had greater authority to spend public funds than government officials. He said, for example, that doctors were “completely free to write any prescription for a patient and the bulk of it would be paid under the Pharmaceutical Benefits Scheme”.
  • Others claimed the rise in costs and government expenditure was due to a variety of factors affecting all developed countries irrespective of their health systems. These included higher expectations of hospitals in regard to food, comfort and amenities, together with rising prices, higher salaries, a shorter working week, a rising workload, changes in the technology and practices of medicine, and so on.
  • The Nimmo Report found the existing scheme was:
    • too complex,
    • the benefits received were too low,
    • the contributions were beyond the capacity of many,
    • bureaucratic red tape was causing serious and widespread hardship,
    • too much of contributors” money was being absorbed by the operating expenses of the insurance funds,
    • many health services were not covered by the scheme. eg nursing, dentistry, optometry.
    • Page had regarded the voluntary insurance scheme as a form of partnership between the Commonwealth, State hospital authorities, the medical profession and the health funds. The Nimmo inquiry saw the failure of the Page scheme as resulting from the failure of this partnership to develop. It claimed that each was focussing on their sectional interests and not the common good. Others saw it as a Commonwealth scheme dominated by the Health Department bureaucracy, rather than a cooperative partnership.

    Nimmo recommended a more independent body to administer the scheme – a National Health Insurance Commission. The NHIC was to have five members: an AMA appointee, someone representing hospitals, a representative of contributors and patients, and someone experienced in financial management. The Commonwealth Director General of Health was to be its Chairman. Nimmo said the NHIC should have powers to conduct research into hospital and other health costs, investigate complaints, publicise benefits, and report to Parliament annually on the scheme’s effectiveness.

  • Another inquiry, the Commonwealth Committee of Inquiry into Health Insurance, appointed by the Coalition government, also found serious inadequacies. It made 42 recommendations about the standard public ward charges schedule of doctors fees. It also recommended that larger commercial and industrial firms and all government authorities should be encouraged to establish closed health insurance funds for their own employees, that competition between funds should be permitted, that employers should be encouraged to collect insurance premiums from their employees, and that organisations should be free to include among their benefits, payments for ancillary services.
  • The Coalition introduced subsidised medical service arrangements to enable certain Social Services Act beneficiaries (eg. recently arrived migrants and low-income families) to buy health insurance. Medical benefit claims showed, for example, that doctors charged from $35 to $180 for appendix operations but the highest benefit was $145.
  • Handicapped Children’s Benefit was introduced. This was the first Commonwealth intervention in the institutionalised care of physically and mentally handicapped children.


  • The final report of the Senate Select Committee on Medical and Hospital Costs was tabled. It confirmed and added to the inadequacies reported by the Nimmo Committee. It made 59 recommendations. A minority report recommended a completely new national system based on a levy on taxable income.
  • The Gorton government’s revamped health insurance scheme began operation. Despite strong opposition by many doctors, a plebiscite of AMA members approved the Gorton government’s new health benefits scheme despite its inclusion of the common fee and GP-specialist fee differentials. The AMA claimed at this time that it had 80 per cent of all doctors as members (This figure went down to 50 per cent in the 1980s)
  • A Hospital and Allied Services Advisory Council was established to advise on coordination of hospitals and allied services. For example, the Commonwealth scheme paid $5 a day to public hospitals in respect of a pensioner patient treated free in public wards. But this represented only a quarter of the average cost of hospital care for such a patient.
  • National measles immunisation with CSL vaccines began.


  • The Senate Standing Committee on Health and Welfare revealed serious deficiencies in services and facilities for mentally and physically handicapped persons.
  • Coalition government raised the charge for PBS items from 50 cents to $1.00.