Victoria’s health care disaster the result of a privatised system

September 8, 2020
Photo: Jason Shivers / Pixabay

In all the commentary about why the health care system failed to quickly stamp out the second wave of COVID-19 in Victoria, not much has been said about the failures that date back to the Liberals’ privatisation push.

To understand why and how it failed, it is important to understand what makes Victoria’s system unique among other states and territories, particularly compared to New South Wales and Queensland which have equivalent populations and a mix of metropolitan, regional and rural areas.

Health care in Australia is a complex muddle of public (federal- and state-funded and administered) and private (user-pays) systems, often with blurred lines of public funding for private health care and a user-pays model for some public health care services, such as pathology, medical imaging and dental services.

The critical division is between the federal government, which collects most taxes, and the states, which deliver most public services. The financial and functional responsibilities are divided. The disparity between the taxing capacity and the revenue needs of the two tiers are an ongoing argument, with the federal government distributing funds to the states and territories via revenue sharing and specific purpose grants.

Negotiations over funding and functional responsibilities are ongoing and the division of responsibilities is not permanent: since 1901 the federal government has assumed more responsibility for health and social services.

Until the mid-20th century, individuals had to pay for their own health care, apart from some public and charitable hospitals providing some free treatment. From the late 19th century to the mid-1940s, the friendly society movement was a driving force.

From 1941 to 1949, the Labor government made repeated efforts to radically reform the health care system. In 1946, the Constitution was amended to enable the federal government to bring in laws to cover maternity allowances, widows’ pensions, child endowment, unemployment, pharmaceutical, sickness and hospital benefits, medical and dental services, benefits to students and family allowances.

Under the Hospital Benefits Act 1946, the federal government entered into agreements with the states to subsidise public hospital beds, on condition that there was no charge for patients in public wards. The intention was to reduce a patient’s financial barriers.

The act has remained the basis of subsequent hospital financing agreements between the federal government and the states, with the latter continuing to administer hospitals, public and private.

Conservative Prime Minister Robert Menzies and his successors (1949–1972) introduced the National Health Act 1953, which consolidated the four main pillars of the post-war health care system: the pharmaceuticals benefits scheme; the hospital benefits scheme (federal funding for state hospitals); pensioner medical services enacted in 1951; and the medical benefits scheme (which subsidised medical costs for non-profit health insurance). The act remains in force, although with many amendments.


The Labor government under Prime Minister Gough Whitlam introduced a national health insurance scheme. Medibank was strongly opposed by the medical profession, private health insurers and opposition parties, and was rejected by the Senate in 1973 and 1974.

The scheme aimed to provide universal health insurance, administered by the federal government and funded entirely from taxation.

Between 1975 and 1982, the Liberal Coalition government made a series of changes to Medibank and, by 1981, it had effectively uninsured a significant proportion of the population for hospital treatment. It had promised to maintain Medibank, but was actively supporting private health insurance.

Public funding for health care, principally for public hospitals, continued to be negotiated between the two layers of government.

The Hawke and Keating Labor governments (1983–1996) re-established a universal, tax-funded health insurance system, Medicare, which remains in place today albeit with more limited access. The initial 1% mandatory income levy has been raised to 1.5%.

The national health insurance system provides the entire population with subsidised access to the doctor of their choice for out-of-hospital care, free public hospital care, and subsidised pharmaceuticals.

Increasingly, though, the distinction between the public, private-not-for-profit and private-for-profit sector hospitals is changing. The push to privatise has changed both public and private hospitals.


Internationally, health care “reforms” from the late 1980s consisted of trying to contain rising health costs and promoting the private sector. These neoliberal strategies were adopted with bipartisan enthusiasm by both federal and state governments.

Privatisation has taken many forms over the past two decades. For example, many public hospitals contract to private providers and take private patient and vice versa; state governments contract the private sector to build new hospitals; contract private providers to run a hospital on behalf of the state.

Co-location, which involves a privately-owned hospital being set up within, or adjacent to, a public hospital, has become popular. The private sector might undertake to build a hospital that reverts to the public sector after a stipulated period.

The private facility might be physically distinct or linked to the public hospital, provide comprehensive or select services, or might involve the sharing of facilities, staff and services.

The public hospital system in metropolitan Melbourne consists of state-wide centres of specialisation: tertiary hospitals provide a comprehensive range of specialist services and secondary (or community) hospitals provide acute care services to local communities. Day hospitals and other facilities provide ambulatory and subacute care.

In rural areas, low-acuity, high-volume services are provided as locally as possible, with high-acuity or complex services often focused in regional and subregional hospitals.

Health services also work together in formal and informal partnerships to provide a full range of services. This minimises duplication and supports better outcomes, especially for low-volume, specialised or state-wide services.

Kennett cuts

The “economic rationalisation” approach driven by Premier Jeff Kennett’s Liberal Coalition government during the 1990s devastated the state’s health care system.

Kennett used the excuse that, because Labor governments had plunged the state into deficit, “reforms” needed to be made. His pursuit of an extreme form of privatisation, including contracting out public services to private operators, laid the basis for today’s weakened health care system.

The hospital funding crisis and the redistribution of hospital beds, from inner to outer urban areas, was behind grouping Melbourne metropolitan hospitals into networks.

In 1995, 35 hospitals were grouped into seven metropolitan networks. After some controversial failures to shift hospital resources involving prestigious hospitals, nine small community hospitals were closed or merged.

The new set-up led to an expensive layer of management bureaucracy.

Now, Victoria has 88 metropolitan, regional and rural Local Health Care Authorities (LHCA), each with its own board and autonomy. Each LHCA receives state and federal funding: state funding is based on population and services offered and state and federal funding goes to specific projects. Many also derive income from private services offered to outpatients.

Each LHCA competes for funding it needs or wants from both tiers of government, which has led to competition and a break-down in collective strength.

Failure to integrate services

In 2015, the federal department of health established 31 Primary Health Networks (PHN), aimed at improving efficiency and the quality of care for those most at risk.

The PHNs work with general practitioners, primary health care providers, secondary-care providers, hospitals and the broader community, including those working in mental health, Aboriginal and Torres Strait Islander health, eHealth and aged care.

Victoria has six PHNs: three metropolitan PHNs (North Western, South Eastern and Eastern) and three regional PHNs (Gippsland, Western and Murray). A critical challenge has been to get Local Hospital Networks (LHNs), state and territory health departments and other agencies, to take regional planning seriously and support the delivery of integrated services locally.

The COVID-19 crisis has shown up Victoria’s systemic failure to integrate information, personnel and resources across the LHNs and the six PHNs. This is why the setting up of contact tracing and testing services has been slow, and the protection of all workers with adequate personal protective equipment has been a shambles.

The private hospital and private aged-care sectors have been the worst: their focus has been to protect their bottom lines, not their staff. Because of the way the systems have been set up and managed, there has been no adequate oversight by the state government.

While the hotel quarantine debacle has been identified as the cause of the second wave of COVID-19, the fault lines lie deeper: the whole system has been shown up as dysfunctional.

Relying on labour-hire companies to contract security staff, who have not been trained or given adequate protection to supervise a health care emergency, is beyond belief.

The security personnel were thrown into a confusing and dangerous situation. They have been vilified, while the policy makers responsible for allowing the health system to deteriorate to this point have been largely ignored.

Economic rationalism, or neoliberalism, which drives the contracting out of public services to private operators, is responsible for the second wave of COVID-19. We can also see that it has hit the private sector harder.

Health care does not fit well into a business model.

The main lessons to be drawn from this second wave of the coronavirus crisis in Victoria is that health care must be run as a service to the community: it must provide health care no matter one's circumstances or bank balance. It must also care for its workers.

[Zeta Henderson is a long-term health care worker in a large regional hospital.]

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