Health Funding and Medical Professionalism

Dec 11, 2000Health Funding

TITLE Health Funding and Medical Professionalism – A short historical survey of the relationship between government and the medical profession in Australia
Publication Status

1 (1st published 2000, Published on AAMS December 2000)

Bob Browning BA

Freelance writer, published in a number of different magazines, and has written four published books: The Network (1990), Exploiting Health (1992), Bad Government (1995), and
Boom and Gloom (1998). All were published by Canonbury Press.

Review Status GR
Copyright Copyright of this article is vested in the author.
Permissions for reprints or republications must be obtained in
writing from the copyright holder. This article has been
republished here with permission from the copyright holder.

The Page Plan
Attempted Nationalisation
Medical Benefit Schemes
The Nimmo Report
The Common Fee
The NSW Doctors’ Dispute
Political Opposition to Medicare
Coalition reversal on Medicare
Managed Care
Professional Origins


This survey concentrates on the various ways medical services have been funded in Australia. It aims to illustrate the impact that different types of funding – and the intervention inevitably associated with government, insurance company and health corporation involvement – have on professional values and ethics, the quality of health care, and society generally.

Coverage mainly comprises a chronological chart of key events and developments, with brief comments using the following period divisions:


1788 -1900 First Settlement to Federation:
Colonial Service to Benevolent Societies
1900 -1939 Federation to World War II.
Failure of Social Insurance Models
1941 -1949 WW II Labor Government
Drive for Nationalisation
1949 – 1968 The Menzies Period
Welfare State and Voluntary Insurance
Attempts at Universal Health Insurance
1968 – 1972 The Rise of the Health Economists
1972 – 1975 The Whitlam Period
1975 – 1983 The Fraser Period
Medibank Dismantled
1983 – 1993 The Hawke-Blewett Period
Medicare and the NSW Doctors’ Dispute
1993 – 1995 The Keating-Lawrence Period
The Rise of Managed Care
1995 – The Howard-Wooldridge Period1
Managed Care Privatisation
Corporatisation & attempts to bolster private health insurance funds



The very nature of medicine is such that, unless it is firmly based on idealistic foundations, on notions of altruism, love, and so on, it can rapidly degenerate into a squalid business. The Hippocratic doctors recognised this, and they were not shy, as we are today, to preach idealism.
John Fabre MB PhD,
Journal of the Royal Society of Medicine,
Vol. 91, March 1998

There is always a degree of tension between the professional, ethical structures of medical institutions and the ways by which governments and other third parties fund or otherwise involve themselves in health services.

Civil society and the medical profession have tried to ensure that health institutions are imbued with professional ethics, compassion and humanitarian values as well as scientific discipline. Governments have sought to extend the availability and affordability of health care to all citizens. Unfortunately, this has often led the profession and governments into conflict. Recently, that conflict has extended in Australia to the government-regulated and subsidised health insurers and the government-lobbying, local and multinational corporations whose involvement in the health “industry” is being accelerated by privatisation.

Policy development and structural change in health are ongoing. Although influenced originally by the British health system and later by the Canadian and US models, changes to the Australian system have taken place largely within parameters specific to the Australian experience. In regard to health care funding, the parameters have been insurance-based, ranging from voluntary to compulsory, and from universal to targeted schemes, with a mixture of public and regulated private sector involvement. Currently, however, some of these parameters are being challenged by the impact of globalisation, especially by the neo-liberal policies associated with that phenomenon. In Australia, such policies are commonly referred to as “economic rationalism”.

Focussing on the innovation of new funding policies and associated managerial concepts has the additional advantage of giving a sharper view of the essential nature of the institutions and culture that characterise the Australian socio-political system. This is what makes the Australian health system different from the British, European and American systems. It also highlights the expectations Australians have come to have of any health system – expectations that they register electorally, and to which political parties pay notice.



From First Settlement to World War 11, with the exception of those covered by the British Treasury-funded Colonial Medical Service, health care was funded by individual patients. People paid doctors and hospitals directly for treatment on a fee-for-service basis, or through voluntary contributions to friendly societies, or they received charitable care made possible by contributions in money or services by members of religious and benevolent community organisations and the medical profession.

During this period state intervention helped the medical profession develop its autonomy, purge its ranks of the unqualified, and improve its scientific training, professional skills and self-regulation.

Between Federation and World War II, friendly societies and charities grew but proved increasingly inadequate to meet the growing need for affordable health care by the Australian population. Health care needs were critically heightened during recurrent periods of economic downturn and unemployment. Government intervention was required, not only for the medical treatment of the poor and lower income groups, but for the maintenance of collective public health through regulation and prevention as migration accelerated and the urban population increased.



The Page Plan

Attempts were made, notably under the Bruce-Page government in the 1920s and the Lyons-Casey government in the 1930s, to institute a national social security program based on compulsory contributory insurance principles. All attempts were abortive, due mainly to the intervention of the Great Depression and WW 11.

Dr. Earle Page was later to become Health Minister under the Menzies government. He was instrumental in creating the framework for Coalition government health systems until the advent of Labor’s Medibank in the 1970s. (See below)



Attempted Nationalisation

During WWII and its immediate aftermath (1941-49), the Curtin and Chifley federal Labor governments made an unsuccessful attempt to install a nationalised health service. They envisaged government-salaried doctors working in a system along the lines of the British nationalised health system.

What Labor did succeed in doing, through a constitutional referendum, was to gain substantial federal power to intervene in health matters. From then, federal government power in respect of health policy derived from Sections 51 (xxillA), 51 (ix) and 96 of the Constitution.

Section 51 (xxill A) gives the Commonwealth broad power to provide health services to the Australian people (e.g.. Pharmaceutical Benefits, Medicare). Section 51 (ix) gives quarantine powers. Section 96 provides federal power to make specific grants to the states for specific purposes. (Associated with this are tied grants or Special Purpose Payments, and general untied grants, normally made through Commonwealth-State Agreements. These Agreements and grants indirectly enable the federal government to influence, sometimes effectively to direct, state health policy and practice).



Medical Benefit Schemes

Menzies-era governments (i.e. Liberal Conservative Coalition governments from 1949-1973) maintained an overriding commitment to voluntary health insurance. They swung the political pendulum back from Labor’s nationalising propensities to an insurance-based, voluntary system.

But in line with Menzies’ welfarism, the Coalition’s commitment was made in conjunction with targeted Commonwealth assistance to the needy. Coalition federal governments during this period used the new federal health powers gained by Labor to expand the Australian welfare state.

In 1953, Menzies’ first government introduced the Medical Benefits Scheme. It involved voluntary contribution to a registered private medical insurance fund. Patients had the freedom to make their own choice of doctor and fund. Doctors charged fee-for-service. The fund acted as the government’s agent, and paid the appropriate Commonwealth benefit.

The so-called Page Plan sought a national health system through subsidies and regulation of the private health insurance funds for hospital, medical, pharmaceutical and nursing home care. It set out to provide a safety net for the very needy, and to encourage and assist the majority of the population to look after themselves through voluntary contributions to regulated and subsidised health insurance.

The Page Plan avoided interference in the supply side. It respected the doctor-patient relationship and private, fee-for-service practice. It maintained what by then had more or less become the traditional clinical and organisational self-regulatory autonomy of the medical profession.



The Nimmo Report

Over time, Menzies’-style health welfarism through the Page Plan proved inadequate. It resulted in a multiplicity of separately targeted groups and a complexity of measures. Bureaucracy expanded. Total health expenditure in Australia rose from $683 million in 1961 to $1.7 billion in 1971 – a rate of increase well above that of the GDP. But it still left nearly 17 per cent – or one in five Australians – uncovered by insurance, and unentitled to publicly assisted health care.

By 1968 problems and public discontent had grown to a level that prompted the Coalition government to appoint a Committee of Inquiry into Health Insurance. The Nimmo Committee was asked to consider the problems of health insurance, but it was instructed to do so only in the context of a voluntary scheme and the existing arrangements with State governments.

The Nimmo Report found the existing scheme to be too complex, the benefits received too low, and the contributions beyond the capacity of too many. It found bureaucratic red tape was causing serious and widespread hardship; that too much of contributors’ money was being absorbed by the operating expenses of the insurance funds, and that many health services were not covered by the scheme, including nursing, dentistry, and optometry.



The Common Fee

In 1969, the Gorton Coalition government introduced a new Health Benefits Scheme. Gorton’s MBS included a copayment by patients (a maximum of $5 for any one service). It also introduced the notion of the most common fee – i.e. a median fee for each service, on which to base medical benefits for health insurance purposes.

The most common fee claimed to be based on the fees most commonly charged for over 1000 medical services. Each benefit was set so that the amount charged to patients should not exceed $5. For GP consultations and visits, the patient was expected to pay a copayment of 80c and $1.20 respectively of the common fee.

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 to 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 advent of the common fee concept (the forerunner of the schedule fee) set four new attitudinal developments in motion:

  • It injected an element of division into the ranks of the profession – GP and specialist interests differed in some respects and were exacerbated by government funding formulae.
  • It increased anti-government sentiment among doctors, and more policy-makers began to think that price control over doctors’ fees was necessary if government was to subsidise national health care.
  • Anti -doctor attitudes entered policy-making circles and the media. Soon after the introduction of the Gorton government’s new MBS system, the media began claiming that doctors where charging more than the common fee for their services, and that fee increases were above increases in the consumer price index. 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 Andrew Refshauge, later to be associated with the Doctors Reform Society and to become a NSW Labor Minister of Health, claimed that in Australia individual doctors now had greater authority to spend public funds than government officials. He said Australian doctors were completely free to write any prescription for a patient and the bulk of it would be paid under the Pharmaceutical Benefits Scheme.




Pressure mounted after the Nimmo report for a health funding scheme that would be insurance-based but entail compulsory contributions.

Labor turned to advocating a universal, compulsory, national health insurance scheme. Labor was careful to distance its electoral campaigning – but not its party’s fundamental leanings – from the British nationalised health model favoured by the war time Labor government.

The end of the Menzies era and the advent of the Whitlam Labor government marked the rise of the health economists. Economists from the Melbourne Institute of Applied Economic and Social Research, Drs Richard Scotton and John Deeble, make proposals which were to form the crux of the ALP health policy platform for the 1969 election.

Labor’s 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.

Labor’s community health centre strategy was the first of on-going efforts by Coalition as well as Labor governments and the health bureaucracy to re-organise the way in which primary health care was funded, delivered and evaluated for overall effectiveness. Community health centre strategy included shifting the emphasis somewhat away from medical, so-called curative health care, to preventive health care.

Preventive health care as conceived by Labor involved more than medical treatments such as immunisation. It also involved advocacy, i.e. government-sponsored advertising programs to promote “healthy lifestyles”. It also involved political action to improve living standards, housing and other factors associated with lower health status in various populations according to income, occupation and location. Prevention of this sort often had political implications and social engineering propensities leading to accusations of ideological motivation.

Labor’s Medibank did not come into operation until four months before the dismissal of the Whitlam government in 1975.

Medibank embraced the idea of a universal citizen right to health care. It’s stated aims were universality, equity, and efficiency. It was planned as a non-contributory (i.e. tax-funded) national health insurance model which would provide universal access to medical and hospital services irrespective of income.

Medibank involved a dominant health insurance body, the Health Insurance Commission (HIC) which was to finance all hospital and medical benefits, set a schedule for medical rebates, and make administrative changes aimed to improve efficiency. These changes included the introduction of bulk-billing and special purpose payments to the States to fund their provision of standard ward hospital care, free at the point of service.

Medibank paid 85 per cent of the schedule fee, with a maximum copayment by patients of $5 per service. Doctors who provided 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.




With the dismissal of the Whitlam government, the political pendulum swung again. The Fraser Coalition government dismantled Medibank. Health insurance, whether public or private, was no longer compulsory.

Stagflation was the new, dominating economic phenomenon. The Fraser government believed health costs were rising inexorably. Policy focus was on reducing public expenditure.

Fraser changed the way the Commonwealth provided health funding to the States. Commonwealth funding to States for public hospitals and health services was no longer by tied grants, but was included in the general revenue grants. Conditions were attached. If States allowed their hospitals to provide free services to anyone other than those restricted categories whom the federal government defined as disadvantaged, then grants to the States were reduced by the amount those services cost. This measure aimed to prevent State Labor governments continuing or reverting to Medibank-style universal, tax-funded access to public hospital treatment.

Hospitals now had to compete with others for a share of the States’ general grant. Political fallout over deterioration in hospital resourcing was largely transferred to the States. Health funding now fell into the category that some referred to as political football between the federal and state governments.

Under Fraser, those taking our private medical-hospital insurance received a tax rebate. The Commonwealth met 30 per cent of the schedule fee of those covered by private insurance. Uninsured persons and those without entitlements to pension or unemployment benefits were unable to claim any subsidy for medical or hospital charges. Those failing to insure faced sizeable bills if hospitalised. Bulk billing was abolished except for those entitled to Pensioner Medical Service benefits and those whom government criteria identified as disadvantaged. Funds were cut to the Community Health Program, the School Dental Scheme, and the Hospital Development Program.




When the Hawke Labor government replaced the Fraser Coalition, it was elected claiming a mandate for a new universal health scheme – Medicare.

The structuring and implementation of Medicare was largely the work of Dr Neal Blewett, Labor’s federal health minister under the Hawke government. Blewett’s doctorate was in politics not medicine.

Medicare swung the pendulum once again from voluntary to compulsory, and from private to public. Unlike Medibank where people were able to opt out of their Medibank obligation and subscribe to a (registered) private health insurance fund, Medicare was the nation’s compulsory monopoly insurer.

Private health insurance taken out in addition to Medicare received no tax incentives. It was voluntary, and the funds were more heavily government-regulated than in the past. Private health insurance was confined to covering hospital treatment as a private patient in either private or public hospitals. The funds were not allowed to cover the gap between the schedule fee and actual medical charges. Funds were not allowed to cover dental, physiotherapy, chiropractic and other such services.

Medicare offered to pay for a wide range of hospital services, provided the patient agreed to receive these services in public, not private hospitals. Medicare had a dramatic effect on the health insurance funds and private hospitals.

Medicare met 85 per cent of schedule fees for doctor’s services. Patients were reimbursed for payments to GP’s. Bulk billing was installed. One hundred per cent of doctor’s charges were paid by Medicare – if doctors accepted 85 per cent of the schedule fee as total payment.

Schedule fees were set by a government tripartite tribunal comprising representatives from government, the profession, and the community. The majority of doctors agreed to the Schedule of Fees for Medical Services, but the AMA remained opposed in principle to bulk-billing, other than for pensioners and “needy persons”.

A Medicare levy of one per cent of gross income applied, except for low income earners. The levy did not cover the cost of the scheme but required additional funding from general revenue. Labor later increased the levy. (Fraser had raised the Medibank levy to 2.5 per cent, which was still insufficient to cover the cost of Medibank).



The NSW Doctors’ Dispute

Medicare involved the most substantial bureaucratic interventions to that date into Australian doctors’ professional autonomy. These interventions were to escalate over time. During this period much of the new policy thinking that was to extend into the 1990s and beyond became manifest. In time, these ideas and practices were to change the organisation of Australian health care radically. This period is therefore examined in additional detail.

NSW took the lead in implementing Medicare as the Commonwealth lacked the constitutional powers (because of the anti-conscription clause) to do so directly. The anti-conscription clause in the Constitution prevented the federal government from passing legislation conscripting doctors for public service. But this restriction did not apply to States. NSW had a strong Labor government at that time. So the federal Labor government’s Medicare implementation by-passed this restriction by using its Commonwealth-State Medicare Agreements and the cooperation of the NSW Labor government.

Under Medicare, the Commonwealth offered the States untied grants (as Fraser had instigated) – but conditions applied. It required the States to refuse the right to private practice in public hospitals to any doctor who did not accept a contract to conform to the Health Legislation Amendment Act. States were required to pressure doctors to sign contracts aimed to control the costs of private practice in public hospitals. The health bureaucracy began maintaining computer monitoring profiles on doctors, claiming this was necessary to restrain costs and over-servicing.

The new legislation enabling Medicare to operate was embodied in two amendments to the Health Insurance Act (1973). The Health Legislation Amendment Act 1983 alarmed the profession. Medicare benefits for medical services were to be paid only if doctors entered into agreements to comply with the Act and all its regulations. This applied not just to existing regulations. It included any regulations that the Health Minister might unilaterally care to add in the future. There was to be no appeal open to the medical practitioner, and there was no provision for parliamentary review of the regulations.

The AMA tried to have the Medicare legislation amended, but many doctors, especially hospital specialists, thought the AMA was GP-dominated and too timid in resisting government. Specialists in particular saw the legislation as a barely disguised attempt by Labor governments to conscript the medical profession as a de facto agency of government. The Australian College of Radiologists and the Australian College of Orthopaedic Surgeons warned of industrial action if no compromise was reached on the new contracts.

Relations between the federal government and the profession deteriorated further when Labor’s Health Minister Dr Neal Blewett began to make repeated public references to “over-servicing” by doctors for monetary gain. Such references included that “the cancer of medical fraud and over servicing drains the public purse of nearly $10 million a year”. His department proved unable to substantiate the Minister’s claim.

Blewett further resurrected doctors’ fears of nationalisation by statements to ALP meetings about the need to move “gradually and incrementally” in socialising the health system. The gap in doctor-government relations widened.

In line with federal Labor’s Medicare strategy, the NSW Labor government secured an amendment to the NSW Public Hospitals Act giving it increasing power over public hospitals and their boards. The amendment also enabled the NSW Health Minister to attach conditions to the payment of hospital subsidies, including power to regulate “the appointment, regulation and government” of doctors performing services in public hospitals.

The NSW Private Health Establishment Act 1982 blocked expansion of private hospitals. By 1983, 80 per cent of all NSW hospital beds were in public hospitals. This had severe consequences for surgeons wishing to conduct private practice.

ALL this set the scene for the intense, long-running, bitter struggle between government and the medical profession, known as the NSW Doctors Dispute.

Surgeons believed government was using Medicare implementation in NSW to turn Visiting Medical Officers into part-time government employees and to displace private patients from the public hospital system. The State Health Minister was claiming power to:

  • Regulate how doctors should work in public hospitals.
  • Regulate the “appointment, regulation and government”‘ of doctors performing services in public hospitals.
  • Regulate VMO’s conduct at work and “elsewhere”.
  • Demand that doctors who wanted to practice in public hospitals agreed not to charge any patient more than the scheduled fee.
  • Transfer any VMO to another hospital.
  • Make it an offence for doctors to “coerce” patients into joining a health fund. (No distinction was made in regard to “advice”.)
  • Classify all workers compensation and third party accident victims entering hospital as “public” or “hospital patients”. This reduced the fees doctors could charge private patients covered by insurance in public hospitals. (This was later changed where the patient was conscious, and could ask to be treated as a private patient. Doctors argued that people who had chosen to insure had already made that choice.).
  • Assign any patient who did not nominate a particular doctor to “hospital patient” status. This further reduced doctor’s incomes from private patients. Hospital staff often advised patients not to claim their private insurance status.
  • These regulations, and any future ones the Minister might care to make under the legislation, were not subject to any review by Parliament.
  • The new regulations conferred considerable new powers not only on the Minister, but through him on departmental bureaucrats and public hospital boards.

NSW surgeons led the counter attack. It was difficult for the doctors to strike, so many resorted to resigning their public hospital service. Orthopaedic surgeons moved first, but were soon joined by plastic and urological surgeons, and then by anaesthetists.

Dr Bruce Shepherd, Chairman of the Australian Society of Orthopaedic Surgeons (ASOS), called attention to the deteriorating state of public health under the NSW Labor government. NSW Premier Wran threatened to import orthopaedic surgeons and have the work of visiting hospital specialists done by general surgeons. Government took out Australia-wide advertisements for surgeons. Not one suitably qualified surgeon broke ranks by responding.

Wran then launched an anti-doctor campaign, using such rhetoric as “money hungry doctors”. Doctors continued to resign saying they could not strike but that under such conditions they had no choice but to leave the system.

Medicare was successfully changing the balance between public and private sector health care in Australia. Citizens were now paying one per cent of their income to Medicare. The Penington Committee reported in 1984 that two million Australians had dropped their health insurance cover. Prior to Medicare, 60 per cent of patients in public hospitals had private insurance. Now only 40 per cent did. There was about a 24 per cent drop in private patient bed days in public hospitals since February 1984 when Medicare was launched.

This added to the impact on specialists’ incomes. Surgeons argued that sessional payments were inadequate because their practice overheads continued and were not covered by the public work. This was felt most acutely in the inner city and teaching hospitals. It also affected traditional professional values and status. Professional resentment against government became increasingly bitter.

The Sydney Morning Herald backed Wran, even offering him editorial advice on how to subdue the doctors. Under the editorial heading, “Now is the time to quit”, it told the public that doctors had “pushed their luck”, that they were facing defeat and should stop their protest. It also editorialised on “How to Knife the Surgeons”. When the doctors remained unsubdued, the SMH advised the Wran government that it might now be time to “use its emergency powers”.

Wran announced he would recall Parliament and pass legislation banning for seven years all doctors who resigned or could be deemed to have resigned from working in public hospitals. The SMH applauded the Premier declaring he had “perceived a fundamental weakness in the surgeon’s position”.

Wran’s bans united the medical profession. An avalanche of new resignations from NSW public hospitals began. Doctors claimed their right to resign from a position without reprisal. Many doctors believed that compromising by the AMA Federal Executive had allowed professional autonomy to be taken away, and for them to be punished for resisting.

Public opinion swung to the doctors. Wran’s ratings fell. Wran repeated his threat to import foreign specialists and stepped up his rhetoric against “the greedy doctors”. The Australian Financial Review published assessments of specialists” incomes. It found that specialists who accepted sessional payments for treatment of public patients according to Medicare schedules in NSW would loose 39 per cent of their gross and net income. Those who did not would loose 57 per cent.

NSW Health Minister Mulock offered to defer proclamation of the seven year ban if surgeons withdrew their resignations. Doctors thought this would leave the ban hanging over their heads. Surgeons met in Sydney and decided to resign their public hospital appointments. Anaesthetists met later and decided to follow suit. The AMA recommended that members ban performance of all but emergency services in NSW public hospitals. The Public Medical Officers Association (PMOA) representing staff specialists declared support for the VMOs – even if they took industrial action. The AMA decided to go ahead with the indefinite strike. The PMOA supported it.

The dispute dragged on (details in the chronology below). Some would argue that in many ways it continues to the present time, with the tension between government and the medical profession over the interventions associated with health care funding unresolved.

Medicare itself was not the issue so much as its mode of implementation, especially in NSW. Government felt it had to contain the costs of health care which, according to the current wisdom, was growing exponentially. Politicians and bureaucrats did not understand the mindset and modus operandi of the doctors. Doctors were frustrated with bureaucracy. Patients were caught in the cross fire.

In 1985, more fuel was added to the fire. Following a widely publicised report by the Complaints Unit of the NSW Health Department, the NSW government announced stricter new controls over the medical profession. The Complaints Unit declared that harsher penalties were needed to deal with the extent of medical incompetence, negligence, improper professional conduct and unhygienic premises that the Complaints Unit claimed existed. The Complaints Unit called for wider powers to allow entry, search and seizure of documents in premises of registered practitioners and others involved in the medical profession.

Many doctors considered the NSW Complaints Unit to be more concerned with agitating to advance ALP health policy and the interests of the NSW Wran government, than with objective interest in the betterment of health care. Aggrieved doctors saw the Unit’s report and the Labor government’s response as another political operation to secure strategic advantage for the advocates of state control over professional autonomy and doctors’ patient-first responsibility. By now, any residual ALP government goodwill to doctors was confined to supporters of the Doctors Reform Society, and to those who proved cooperative among the AMA executives and government-salaried doctors.

Labor Prime Minister Hawke was concerned to save Medicare, believing that he had won office in 1983 by promising to implement such a national health system. Cabinet agreed on a “peace proposal” to be put to the AMA. It included:

  • Repeal of S.17 of the Health Insurance Act which limited the fees of VMOs who treated private patients in public hospitals to the schedule fee.
  • Extension of fee-for-service to VMOs in country hospitals with no resident medical staff, plus a modified fee-for-service agreement covering all public hospitals except teaching hospitals. (This was justified on the grounds that VMOs at teaching hospitals received assistance of staff, gained status, and were therefore able to increase their practice income).
  • Privately insured patients in public hospitals would be automatically classified as private (i.e. fee paying) patients.
  • Additional Commonwealth funds would be provided for hospital equipment and facilities.
  • Private insurance would be made more attractive.

Although broad agreement was reached on the government’s “peace proposals”, tensions persisted within doctors ranks. A majority of procedural specialists accepted the deal, but, with few exceptions, orthopaedic surgeons refused to return to public hospitals. (Many did not do so until many years later when an agreement was reached with the Greiner Coalition government.) The sources of continuing instability included:

  • Procedural specialists wanted the NSW government to deregulate private hospitals, but instead State government stepped up their regulation.
  • The NSW government remained short of funds and kept trying to keep health expenditure down by intervening to affect hospital and doctor activities and charges.
  • Specialists remained wary of that governments were trying to make them de facto government employees. They were determined not to surrender professional autonomy to political and bureaucratic control. Doctors resented government-bureaucratic power over private practice in public hospitals and elsewhere under the powers granted by Medicare legislation and secured through Commonwealth-State Agreements.
  • Specialists continued to resist government’s unilateral power to alter VMO’s hospital contracts.
  • Specialists resented the requirement that patients be billed by the public hospitals in respect of doctor services, and not directly by the doctors who performed those services. (This was considered a breach of the doctor-patient relationship)
  • Doctors generally resented on-going accusations of fraud and over-servicing, including the associated monitoring of their patient treatment and rigorous new powers of investigation.
  • Doctors remained resentful of the way workers’ compensation and third party accident victims were classified as public rather than private patients. (This reduced doctors” income from such services to 85 per cent of the Medicare schedule fee).

Even as late as 1986 the AMA was still warning the NSW government against reneging on the Commonwealth-State “peace-proposal” promises. For example, in 1986 the NSW government introduced further legislation giving the Medical Board wider investigatory powers under the Medical Practitioners Act. These included powers to:

  • enter premises,
  • search medical records,
  • interrogate a doctor about whom a complaint had been laid, without giving him the right of legal representation, and without requiring complainants to make a statutory declaration of their complaint against the doctor,
  • suspend doctors for any such time as the investigations continued.

Practitioners not only viewed these new powers as draconian, but saw them as a breach of the “peace package” in that they claimed no prior consultations with the profession had occurred. The Federation of Independent Doctors of Australia (FIDA) called a mass meeting which passed a vote of no confidence in the then NSW Health Minister, Barry Unsworth. Attendees voted to refuse to pay registration fees to the NSW Medical Board. Months of negotiations followed.

Finally the regulations were revised sufficiently to stop doctors ” activism” on this issue. But tension continued and spot fires constantly broke out. Changes to the Area Health Services Act (NSW) created yet another cause for dispute. Legislation regionalised health services. It shifted power away from the hospitals to newly constituted area health boards. Hospital staff representation on the new boards was minimal (one employee from each hospital). Doctors thought this was yet another move to increase ministerial and departmental power over private practice. VMOs resisted renegotiating their hospital contracts with the new boards. Government compromised on this issue but refused to extend medical representation on the regional boards.



Political Opposition to Medicare

In 1987, Opposition leader John Howard declared Medicare a “disaster” and a “nightmare”. He said:

“Everybody knows that one of the great disasters of the Hawke government has been Medicare. It has raped the poor in this country”.

He said a Liberal-National party government would “pull Medicare right apart”, and went on to promise:

“What I’m going to do is take a scalpel, without pruning too much, to Medicare. I’m going to say to people: “If you want to get out of Medicare and make your own private health arrangements, you can do so”.

Howard’s opposition to Medicare was expressed in economic terms only – terms which some saw as ideological along “economic rationalist” lines. His stated concerns did not extend to the value of traditional health care institutions and medical professionalism to patients and society in general. Nor did his concerns refer to how escalating bureaucratic intervention under Medicare was undermining these values.

Meanwhile, conflict between the federal Labor government and the AMA continued although the AMA declared: “We are not involved in a campaign to destroy Medicare, although we are certainly committed to identify its deficiencies and to seek to encourage improvement”.

Federal health minister Dr Blewett warned the AMA that the statutory requirement that government must consult with the AMA before making appointments to government health bodies could be altered to “relevant and appropriate professional associations”.

The AMA was also continuing to experience internal dissension brought on by AMA responses to Medicare. Coping with Medicare and the way government and bureaucracy were implementing it, exacerbated political and special interest differences among doctors – GPs and specialists, physicians and surgeons, and private and salaried doctors. Many thought the AMA was not succeeding in representing all the various types of doctors across the country.

In 1986 the AMA appointed a review committee to provide guidance on organisational restructuring to correct its internal problems. Professor Cotton, the committee chairman, completed his report in 1987. He confirmed that disunity not only existed within the AMA but that AMA membership had been falling. In 1965 about 90 per cent of doctors were in the AMA. By the mid 1980s the figure had fallen to 50 per cent. Cotton also noted substantial differences between the views of autonomous state branches and the federal AMA.

In the early 1990s, Labor stepped up its interventions into professional autonomy by introducing its General Practice Reform Strategy. The Community Health Centre Strategy had not succeeded in changing primary health care in the way government had hoped. One hindrance was that the Commonwealth retained responsibility for primary health care services via Medicare funding of GP services, whereas the states retained responsibility for community health care with funding coming through the Medicare block grants to states.

The Federal government planned to cut the amount GP’s would receive from government for treating patients other than pensioners. Its intention was that GP’s could cover the shortfall in their schedule fee by charging a copayment when bulk billing. This proved controversial. The Hawke government responded by reducing the proposed copayment from $3.50 to $2.50. Keating replaced Hawke as Prime Minister before this was implemented and abolished copayment altogether.

In 1992, the Kennett Coalition government was elected in Victoria. In 1993, it introduced Casemix – a new system of funding public hospitals. It comprised a major change in the way the state government funded public hospitals. Hospitals no longer received global budgets based on previous levels of expenditure. Hospitals were paid according to the number and type of patient services it would be treating – the patients being classified according to the system called DRG’s – Diagnostic Related Groups. South Australia followed.

The Federal Coalition lost the alleged unlosable 1993 federal election. Its determination to end Medicare was considered the main factor after the GST. The Coalition’s Fightback promised additional funding for health by encouraging an entrepreneurial market in health rather than government capital investment.

The ALP’s commitment to Medicare remained paramount but it was also becoming concerned over its cost. The ALP’s One Nation package for the 1993 election gave millions of extra dollars for road and rail infrastructure but not a cent more for health infrastructure. The federal health department and associated policy-makers began to look closely at the USA and Europe for alternative ideas about how health resources could be more efficiently funded, planned and managed.

In 1994, the Council of Australian Governments (COAG) was established. It was given responsibility for micro-economic reform with an emphasis on competition policy and clarification of the roles of the three tiers of government. COAG established a Working Group on Health and Community Services which commissioned a working paper, Health and Community Services – Meeting People’s Needs Better.

COAG was forced to recognise that the Australian health system had “grown like topsy” into a complex, fragmented and uncoordinated cluster of separate programs. It announced a major structural reform process to address major problems in Commonwealth-State health funding arrangements.

COAG declared an intention to realign the fundamental responsibilities in the financing, planning, organising and managing of health and community services. This included seeking to:

  • Eliminate duplication and cost-shifting (between Commonwealth and State funding)
  • Clarify the funding of service responsibilities across all levels of government.
  • Integrate the multitude of separate health programs.

Coordinated Care trials were to be one major result. (These trials involved tests of other ways of funding and delivering services to patients with on-going, complex ailments and multiple needs). Cases were to be divided into three streams – general care, acute care, and coordinated care.

The Keating Labor government introduced amendments to the Health Insurance Act, 1973 and the National Health Act 1953. The stated aim was to increase competition between insurance funds by giving them greater power to negotiate with medical practitioners and private hospitals. The funds were to be allowed to offer 100% (no gaps) cover to subscribers who agreed to use only those hospitals and doctors who had agreed to contracts with the funds.

The AMA strongly opposed the amendments – which they referred to as the Lawrence legislation. (Carmen Lawrence was then federal health minister). The amended Acts also sought to increase patients” rights to information relevant to proposed treatments and patient access to complaint mechanisms.



Coalition reversal on Medicare

During the campaign for the 1995 federal election, the then Opposition, the Howard-led Coalition, reversed its stand on Medicare. Howard declared:

“We absolutely guarantee the retention of Medicare. We guarantee the retention of bulk billing. We guarantee the maintenance of community rating.”

When asked whether Medicare had become better (see Howard’s 1987 statements above), he replied:

“It’s not a question of whether its become better. It is a question of us believing that Medicare is seen by the overwhelming majority of the Australian community as an important part of the social security infrastructure. We accept that, and we endorse it.”

On another occasion, he added: “We will certainly retain Medicare. I want to make it absolutely clear there will be no tampering with Medicare”.

Former Prime Minister Keating had commented during electioneering:

“For John Howard to support Medicare, he would need more than a change of mind. He would need a change of mind and heart and fundamental values. He would need a transplant of proportions which are beyond the reach of both science and credibility”.

Nevertheless, the Coalition won office, after declaring its support for a universal insurance system. Dr Michael Wooldridge became its federal Health Minister.

The Coalition declared that while it supported Medicare it also had a “core commitment” to a significant level of subsidy to bolster private health insurance. It set out to redress the swing to public sector dominance via the Medicare insurance monopoly under Labor. The Howard 1996 budget announced measures costing $600 million per year to encourage people to take out private health insurance.

The annual cost for family health insurance to cover private patient hospital costs had risen to between $1200 and $2500 – and many of those insured found they still had to pay substantial out-of-pocket extra expenses (the gap) after hospital treatment. Income tax and cash rebate measures were applied but with little effect. Higher income earners without private health insurance were made pay a higher Medicare levy.

The federal Coalition government announced an Industry Commission inquiry to examine the private health insurance industry. Problems included:

  • Public perception of health insurance as poor value for money.
  • Large, unpredictable out-of-pocket expenses over and above fund premiums.
  • Proliferation of bills and a cumbersome billing process.
  • Complex health insurance policies.
  • Lack of equity between long term contributors and “fly-by-nights”.



Managed Care

The efforts of first Labor and then the Coalition to maintain Medicare increasingly turned towards “supply side” controls – in other words towards accelerated intervention – by indirect as well as direct means – in hospital management and the self-regulatory autonomy of the medical profession. It even extended at times – directly or indirectly – to doctors’ clinical decisions and the doctor-patient relationship generally.

“Economic rationalist” leanings came to dominate public policy circles, including health policy. The new economically-focussed policy and managerial mindset favoured mechanisms such as managed care and privatisation and “mission” concepts such as “evidence-based” efficiency and continuous quality improvement.

Given the increased role that government was encouraging health corporations and insurance funds to play in the management of health care, intervention in the professional “supply side” came increasingly from corporate as well as government bureaucracy.

Professional discontent increased rather than subsided after the Federal Coalition government replaced the former Hawke-Keating Labor governments. Public discontent also increased over issues such as “waiting lists” and other forms of rationing. Nevertheless, in 1999 Prime Minister Howard insisted:

“The Australian health system is probably better than any in the world and a battler is better getting sick in Brunswick than the Bronx… We stand by the Medicare system… There’s no way we are going to dismantle Medicare”.

Victoria’s then Premier Jeff Kennett reflected the opposite point of view. He said only the genuinely disadvantaged and the poor should have their health insurance covered by a government scheme. Everybody else should be made to take responsibility for their own health, either by ensuring privately or paying “full freight” when they needed hospital treatment. He argued that “generational change necessitated a new approach to health insurance”.

Once again many doctors felt the AMA federal executive was not adequately resisting government efforts to de-professionalise the medical profession. In 1999 AMA members called for an Emergency General Meeting of the federal AMA and passed a no confidence motion against the incumbent president Dr David Brand by 5,326 votes to 4,581. Brand refused to resign. At a second EGM of the AMA called by members of the AMA Executive Council all members including the federal president Dr David Brand retained their positions.

About that time, Liberal MP for Bradfield Dr Brendan Nelson reflected on the state of the Australian health system, drawing on his experience as a former AMA President. Delivering the Sir Herbert Maitland Oration at Sydney University (26.10.99), Dr Nelson noted the recent publicity given to rationing of over-stretched resources in the public sector and uninsurable gaps in the private system. He argued that one critical point was not being mentioned – the under-funding of the health system:

“The Medicare levy is paid by 6.6 million Australians whose average contribution (1996/97) is $527. The money raised is less than 18 per cent of Commonwealth outlays and has not ever funded more that 9 per cent of the nation’s health expenditure… [yet] the average Australian household spent $1655 on gambling, alcohol and tobacco. The Productivity Commission’s July 1999 report on gambling now puts gambling expenditure per person at $800…

Real progress in hospital financing will not be made without reform of our constitutional arrangements that presently has one tier of government constantly seeking to shift both cost and political responsibility onto the other… There is a debate that must be had about the cost of duplicating State/Commonwealth bureaucracy in terms of resources and clinical care denied to people in need as the cost of administration.”

Dr Nelson then commented on the role he thought the medical profession needed to play if the health funding system was to be appropriately reformed:

“But if Australia is to eventually embark on such a course – as it should – the medical profession has new and emerging obligations to meet. It must be actively involved, individually and collectively in resource allocation. No government will do what must be done while inefficiencies remain in the system – in the administration of resources, funding mechanisms and utilisation at a hospital level…”

He argued that doctors had a relationship to three critical groups:

  • Firstly, the individual patient for whom a doctor must always act in the “utmost good faith”.
  • Secondly, a responsibility to colleagues, to share skills and knowledge.
  • Thirdly, an “equally important” relationship is to society itself.

Nelson declared:

“If doctors focus only on the doctor/patient relationship, refusing to participate in decisions of resource allocation – or worse still are desensitised to the agony of the process, then you abrogate your responsibility to those who will miss out. In refusing to participate, doctors are in fact deciding. Resource allocations will then be made by the worst of all possible people – politicians and our public servants.”

(to be continued)



Professional Origins

400-300 BC Hippocrates and the Hippocratic doctors wrote about sixty known treatises on the profession of medicine.

280 BCThe Hippocratic treatises were collated as the “Hippocratic Corpus”. From this derived the modern Hippocratic Oath.


1N.B: Obviously, the Howard-Wooldridge period must be regarded as “work-in-progress”. It will be updated on the website as an on-going process.