Is COVID-19 opening the fault lines in our healthcare system?

By Prof Anthony Scott and Prof Jeffrey Braithwaite

A new Research Insight from Melbourne Institute reveals that while a number of temporary solutions to the COVID-19 pandemic are in place to fix emerging problems in health care, there's a case for making these solutions permanent.

As the healthcare system prepares for an unprecedented test of its resilience, it is useful to begin to reflect on some of the lessons that could be learned that might influence future reform initiatives.

Compared to other countries, many think Australia has one of the best healthcare systems in the world, while others suggest that it is not a ‘system’ at all and that it could be much more integrated.

The fault lines in our system are deep, yet they usually remain ignored, forgotten about or seem too hard to change until there is a crisis that opens them up for all to see. There are two major fault lines within the system that have emerged because of the coronavirus crisis and are receiving short-term patches but should be translated into long-term solutions.

New funding models for GPs

The first is the funding of GPs in primary care. The fee-for-service funding model being used is one straight from the 19th century, but with a nod to the Middle Ages. It is clear that the funding model has been unable to cope as GPs’ groups with an old but curable condition called “Medicare-item-it-is” clamour for additional Medicare Benefit Schedule items to be able to conduct online or telephone consultations to help stop the spread and support general practices to stay open. Although this is just being announced as a temporary measure, it has taken months to get this in place and the measure is very late.

The cure is a more resilient funding model where GPs are able to consult with patients however they see fit when circumstances deem this necessary, and under careful but light regulation so that online services are not exploited by the corporate sector. The best types of funding models are blended models where fee-for-service is blended with a fixed payment per patient per year (called a capitation payment). This is being trialled in the Health Care Homes program for patients with chronic disease, but should be introduced for the whole population.

Pooling the funding of private and public hospitals

The second wide-open fault line is the division between public and private hospitals. Governments have announced that all non-urgent elective surgeries would be cancelled in both the public and private sector, and private hospitals have already begun to lay off nursing staff and talk about closures at a time when skilled staff are needed most. While public hospitals are preparing to bear the brunt of COVID-19, only on 1 April was an agreement reached that the Commonwealth will provide 50% of funding to back the direct funding of private hospitals through agreements with each jurisdiction.

Even though public hospitals are always busy and at capacity, it seems obvious that patients displaced from them should be treated using the excess capacity of private hospitals. Fewer patients in private hospitals funded by private health insurance (PHI) means increased profits for private health insurers who won’t have to pay for all that care not taking place. They have already announced that they will postpone the premium rises, which were due to go into effect on 1 April, so they are going to take a hit to their income that this will nicely help them to replace.

The longer-term impact of the virus on the private sector is unclear. A different funding model for both public and private hospitals may have made the whole sector more resilient, encouraged much earlier cooperation across the divide, and enabled resources to be moved quickly across the divides to respond to the pandemic with little additional cost. Repurposing private health insurance subsidies was suggested in 2015 but shelved—even though some insurers quietly concurred.v The current agreement to directly fund private hospitals (rather than via PHIs) could be a testbed for existing PHI’s subsidies to be redirected to pay private hospitals. Such reform means that funding issues wouldn’t get in the way of an effective and coordinated response to the pandemic.


This coronavirus is teaching us many things, but we know one standout lesson for the future: this is unlikely to be the last event of its type. These are challenging times that without a doubt will occur again in tandem with major climate events (such as bushfires and floods) and as new bacterial and viral infections emerge. They will place enormous pressure on healthcare services and frontline healthcare workers who are risking their lives, yet finding their hands are tied by a disjointed ‘system’ that reduces the speed and agility of response. Fixing these fault lines should be a key reform priority once the coronavirus in under control.

Read the full Research Insight here.

The Melbourne Institute Research Insights Series provides meaningful analysis of questions related to contemporary economic and social issues in Australia, to enable evidence-based decision making for policy and practice.