The GST health reform deal is now in question.
Federal Labor says it is still committed to health reform but it's back-pedalling from its pledge to overhaul funding to put the nation's hospitals on a more sustainable footing.
Prime Minister Julia Gillard and Treasurer Wayne Swan on Monday refused to say if the commonwealth still wanted to become the dominant funder of public hospitals by clawing back a third of the states' GST.
That was the central element of a deal struck between former prime minister Kevin Rudd and every state and territory except Western Australia early last year.
But Gillard is now suggesting such financial reform isn't sacrosanct.
"People don't judge their healthcare system on commonwealth-state financial relations," the Prime Minister told reporters in Canberra.
Rather, they were concerned about whether they could access a doctor or nurse when they needed one, she said.
In the strongest sign yet the GST clawback could be history, Gillard said she would judge the success of Labor's health reforms on whether they increased efficiency.
In that regard, she said the current proposal to pay hospitals for each procedure they carry out rather than via untied block grants was "vital".
Such activity-based funding is already in place in Victoria and is widely seen as being the best way of encouraging hospitals to reduce waste.
Swan on Monday said Labor was "absolutely committed to health reform" but repeatedly refused to say if the commonwealth still wanted to fund 60 per cent of hospital costs.
"We've got to sit down with the states at COAG (on February 14) and go through all of that detail again," he told Sky News.
Opposition health spokesman Peter Dutton said the government's health overhaul was always a hollow "financial pea-and-thimble trick".
"Julia Gillard's failure today to stand by her previous commitments to Labor's so-called health reforms confirm she is galloping away from them as fast as she possibly can," he said in a statement.
It's been reported that if Labor ditches the GST clawback and continues to pay just 40 per cent of costs it could deliver the funds direct to hospitals.
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