Mrs ELIZABETH GRACE —My question is addressed to the Minister for Health and Family Services. Can the minister inform the House of the details of the government's offer to the states on funding for public hospitals? Will the patients in Australia, and particularly those in my electorate of Lilley, be affected by the states and territories behaviour at the Premiers Conference in Canberra last week?

Dr WOOLDRIDGE (Health and Family Services) —I thank the honourable member for her question. The offer that the government has put to the states is as follows: in the last five years we have spent $27.3 billion on Commonwealth-state health care agreements. The forward estimates show that that would rise over the next five years as a matter of course to $30.3 billion. There is a $3 billion increase built into the forward estimates already. Over and above that, the Commonwealth has put the following on the table: $1.5 billion in the base funding over the next five years; an extra $750 million for full cost purchasing of veterans in public hospitals: $500 million for initiatives in efficiency and effectiveness in hospitals, particularly in the area of information technology; and $120 million on waiting lists, to make a total offer over and above the forward estimates of $2.9 billion of new money. This is a 6.9 per cent real increase in the first year of funding, moving to a 15.4 per cent real increase over the five years of the agreements.

The agreements also bring in a number of innovations. In terms of looking at growth in hospital funding, we have a fairly complicated indexation formula, but one that takes into account age, sex, population, the level of private health insurance and what is called utilisation drift. This is a big advantage on the 1993 agreement. If the level of private health insurance coverage drops, the Commonwealth will on a formula driven basis add $83 million a year to the health care agreements. The states will not need to claim the money. It will simply be there on the basis of a formula.

Further, over and above everything we can possibly think of that might increase hospital utilisation, we have also added a one per cent drift factor which can be largely accounted for by new technology and inherent underlying demand. This one per cent drift is consistent with what has happened over the past decade. Unlike 1993, once the states sign up they can reasonably expect that all the contingencies will be accounted for. We are also offering them something that is not of financial benefit but very practical benefit in running their hospitals, and that is substantially greater flexibility. The system is silly at the moment because, if a state was to put in place a very comprehensive program say to stop older people breaking their hips, and in fact they were successful, they would be penalised at the moment because they would not be doing so many hip operations for broken neck of femur. Clearly, we want to prevent illness as much as treat illness.

These agreements allow states to put in place measures that may shift treatment from in-hospital into the community and it puts in place arrangements that allow states to bring in prevention programs to try and stop doing the operations in the first place. Also we are bringing in a measure and share arrangement which would allow states to have a look at arrangements whereby the Commonwealth-state boundaries could be broken down. This will mean an end to cost shifting and give us a chance to work cooperatively for the first time ever.

The states are asking for $1.1 billion over and above whatever the Commonwealth chooses to put on the table at any point in time. This means 300,000 additional operations per year and, quite frankly, there are not that many people around needing operations. All that would do is one of two things. The first is that it would create demand which is not there, which can certainly happen in health.

The second thing it would do is allow the states to pull out their own funding for hospitals, which is what happened in 1993. Honourable members will be interested to know that after the 1993 health care agreement the Commonwealth has increased its funding nearly 20 per cent in real terms. The states reduced their funding in the first year by 12 per cent. For the benefit of honourable members, I table a graph with Commonwealth Grants Commission data showing health care funding at Commonwealth and state levels over the last five years.

Finally, the honourable member asked whether people in her electorate will be affected. I would say to her that health funding is going up $3 billion anyway on the forward estimates, and we will stick by that forward estimate. But if states do want to access the extra $2.9 billion, if they want to access the flexibility or if they want to access the measure of share, then we expect them to sign an arrangement.