Funding the Medical Profession Australia 1972-1975

Dec 12, 2000Health Funding, Paper

The Whitlam Period


Short-lived Medibank

The first two years of the Whitlam government were economically buoyant. New welfare programs were introduced and expanded. Then the effects of the oil shocks began to register.

Labor’s Medibank was a comprehensive, universal insurance scheme rather than a nationalised health system of the British sort that the Chifley Labor government had sought. Medibank involved the Commonwealth government reimbursing individuals for the medical costs they incurred. It also subsidised public hospitals on condition that they treated free (at the point of service) all those who elected to be treated as “hospital patients”, whether as in-patients or out-patients.

Medibank required agreements with States. The Commonwealth (with its tax powers) would meet 50 per cent of the operating costs of public hospitals in the states and pay the costs of drugs used in their hospitals. This was to be done by “bed-day” payments ($16) direct to hospitals and the balance to State authorities.

Private hospitals also got the $16 bed-day subsidy. Medical service costs of private patients in private or public hospitals were reimbursed at 85 per cent of the schedule fee. Private insurance funds could offer hospital insurance and cover the “gap”. Insured patients in public hospitals were charged unless they opted to be treated as “hospital patients”.

Doctors performing services at public hospitals were to be salaried, or paid on a sessional or contract basis. VMOs who wished to remain honorary could do so.

The Medibank period under Whitlam-Hayden involved more than a funding scheme. It attempted to change the way primary health care was delivered. It introduced a Community Health Program. Community Health Centres were to be controlled by the “local community”, and provide “integrated primary health care”, including medical and nursing services. They were also to provide “preventive and advocacy services”. The program led to the establishment of the Australian Community Health Association. The idea of Community Health centres continued as the main federal government strategy in regard to primary health care until the adoption in the 1990s of the General Practice Reform Strategy.


  • The Whitlam Labor government was elected. The Minister for Social Security, Bill Hayden, had portfolio responsibility for health. Federal government announced its intention to introduce a new universal health insurance scheme rather than the traditional ALP objective of a nationalised system with a salaried medical service. Government appointed health economist Dr John Deeble to chair a Health Insurance Planning Committee to prepare detailed recommendations.
  • Prior to the election in December of the Labor government, a House of Representatives Select Committee on Pharmaceutical Benefits claimed that there were too many chemist shops which it said inflated the cost of the PBS and forced chemists to operate at marginal profit.


  • The Deeble Report was tabled. It recommended a single health insurance fund for medical services and hospital ward care. It said the fund should be financed by a 1.35 per cent levy on taxable income. It aimed to reduce the inefficiency it said was associated with a multiplicity of health funds each with their separate administrations.
  • Government introduced a Bill to establish a Health Insurance Commission (HIC). It appointed health economist Dr Richard Scotton to chair its Interim HIC Executive.
  • Government appointed a three man tribunal to determine “fair and reasonable” fees to enable the fixing of medical benefits.
  • Government appointed Dr Sidney Sax to chair an Interim Hospitals and Health Services Commission.
  • The federal Health Department established an Aboriginal Health Branch to raise the standards of Aboriginal health.
  • Federal government agreed to finance a Family Medicine Program run by the RACGP to train GP’s .
  • State Nursing Home Fees Review Committees were set up to control nursing home fees.
  • Deeble, as chairman of Health Insurance Planning Committee, released a green paper for a system of universal health insurance. Doctors vigorously opposed the idea of government setting doctors fees through a medical fees tribunal. Doctors fees were inflating sharply at the time. Relations between doctors and the federal Labor government (and the Labor Party) became increasingly acrimonious.
  • Despite increasing suspicion, negotiations between government and the medical profession continued (nurses and other health care employees were not included, but insurance fund representatives were). Compromise agreements were reached and released in a White Paper which included the statement:
  • The program will generously support private enterprise in the supply of medical and hospital services.
  • The compromise deal transferred to the medical profession responsibility for disciplinary powers over false or excessive Medibank claims. It upheld professional standards (suggesting extension of peer review). It decided that the funds could insure for the gap between benefit levels and doctors” fees, and could act as agents for the new scheme, Medibank.
  • A Nurses Education Board was established which took control of nurse education from under the Minister of Health and gave it to the Minister for Education who was to nominate a Registration Board. Colleges of Advanced Education rather than hospitals became the locus of nurse education. This was heavily criticised by doctors.
  • The Whitlam budget extended Commonwealth funding to community health services, mental health, and alcoholism and drug dependency services.
  • The NSW Health Department was established to replace the NSW Health Commission. It began to regionalise health administration.


  • A program of legislation began to provide funds for the ALP-Deeble-Scotton programs. A vigorous injection of capital encouraged the growth of the public hospital system.


  • Whitlam’s Capital Cities Hospital Development Program started specific purpose grants to States to upgrade hospitals.
  • Continuing disagreement between the federal government and the AMA over fees led to an independent inquiry headed by Norman McIntosh to report on the conflict.
  • A meeting of the Australian College of Surgeons proposed that another body be established more appropriate for conducting political and industrial activity of behalf of surgeons. The Australian Association of Surgeons (AAS) was set up in 1975.
  • The Doctors Reform Society (DRS) was formed by doctors at the Monash Medical School in Melbourne to express their disagreement with the AMA’s opposition to the ALP Medibank proposals. It attracted mainly government-salaried and student doctors. It claimed, at its peak, to have 1000 members. The DRS rejected fee-for-service. It wanted the majority of doctors to be salaried doctors and the minority in private practice to be paid on a capitation basis or become part of health management organisations (HMOs). Almost always, the DRS supported Federal and State government intervention during conflicts between the state and the profession. In was begun by those who wished to dissociate themselves from the AMA’s critical attitude to Labor’s Medicare.
  • The Free Independent Doctors of Australia was formed.
  • The Senate twice rejected the Health Insurance Commission Bill. A double dissolution of federal Parliament was called. A joint sitting of Parliament passed two of the HIC Bills but another Bill to levy a1.35% tax on income was defeated. This forced the federal government to finance the Medibank scheme out of general revenue.


  • Medibank came into operation four months before the dismissal of the Whitlam government. Medibank embraced the idea of a universal citizen right to health care. It stated its principal aims as universality, equity, and efficiency. It was based on the Deeble-Scotton proposals and involved:
    • Doctors providing services in public hospitals were either salaried or on sessional payments. (Some doctors refused payments of this type and continued to act as honoraria’s.)
    • The Commonwealth government paid half the operating costs of public hospitals including the cost of drugs used.
    • States agreed that outpatient and in-patient services be free to patients who elected to be “hospital patients”.
    • Private hospitals got lesser bed day subsidies. Medibank paid doctors for services in private as well as public hospitals.
    • Health insurance funds were allowed to cover the gap.
  • Doctors strongly opposed bulk-billing and sessional payments to Visiting Medical Officers (VMOs).
  • PBS item costs increased from $1.00 to $1.50 for general benefits and from 50 to 75 cents for subsidised MBS beneficiaries.
  • The Labor government sought to reduce the cost of drugs by buying the Fawnmac group of pharmaceutical manufacturing companies in order to compete with private industry.