Introduction

Australia, with a population of around 20 million, is a federation consisting of six states (the largest, New South Wales, accounting for about 33 per cent of the population, the second largest, Victoria, accounting for a further 25 per cent of the population) and two territories. Casemix development in Australia has been shaped by the design of the Australian health care system, Australia's federal constitution, and the division of responsibilities between the Commonwealth government and the states. Australia has a universal health insurance system providing for public funding for access to hospital and medical care, complemented by private health insurance which provides insurance against the costs of access to private hospital care and ancillary services (such as physiotherapy, dental). About 40 per cent of hospital admissions occur in private hospitals.

Funding of public hospital care is shared between the Commonwealth and state governments, but states have operational responsibility for public hospitals. This mix of Commonwealth and state shared responsibility and public and private sectors means that the organisational arrangements of health care in Australia are quite complex.

Private health insurance organisations negotiate contracts with private hospitals to minimise out-of-pocket costs for their contributors. In some circumstances these contractual arrangements involve casemix-based payments to private hospitals (see Willcox 2005 for a discussion of these payments).

The relationship between the Commonwealth and the states is governed by the Australian Health Care Agreements, which are negotiated every five years (see Duckett 2004 for an outline of negotiation issues surrounding the 2003–2008 Australian Healthcare Agreements).