Primary Health Networks caught between a rock and a hard place

By Karen Gardner

Friday March 8, 2019

Primary health networks are intended to improve services at the local level, but recent events suggest political ideology may be lurking behind some matters of contestability and competition. Dr Karen Gardner, Senior Research Fellow in the Public Service Research Group of the UNSW Canberra Business School, shares her thoughts.

The recent Sydney Morning Herald article Headspace turf war prompts review of $1.45 billion in mental health funding raises interesting questions about the government’s policy of devolved purchasing arrangements in primary healthcare, and more specifically the extent to which primary health networks (PHNs), as Commonwealth-funded commissioning bodies, have the independence they need to procure appropriate services that match the health needs of their local populations.

The controversy, reported in the SMH, was prompted by events following the unsuccessful tender to the North Melbourne PHN by the mental youth health organisation Orygen to run a centre in Melton, Victoria. Professor Patrick McGorry, Executive Director of Orygen, Professor of Youth Mental Health at The University of Melbourne, a Director of the Board of the National Youth Mental Health Foundation (headspace), and Former Australian of the Year, has accused PHNs of a “lack of accountability in the commissioning of services”. He said the Melton Headspace tender highlighted a weakness in the system under which PHNs are funded, saying the local bodies should not be given free rein over how to spend taxpayer funds.

But history and the events that followed perhaps suggest the opposite: that PHNs have far from free rein in commissioning services and may, in fact, be in the invidious position of having significant responsibility for health system improvement but few of the levers required to do it. A review of the rationale for their establishment and a look at recent discussions of their implementation and performance can help to throw light on this unfortunate situation.

Intended to tighten a patient’s healthcare circle: the PHN program

The Primary Health Networks (PHN) Program commenced on 1 July 2015 with the establishment of 31 PHNs across Australia, in response to findings from the Horvath review that a greater emphasis on increased purchasing power and a focus on achieving integrated care pathways and local solutions to service gaps, would better serve the health needs of the Australian community.1 Accordingly, the key PHN program objectives are to increase the efficiency and effectiveness of medical services for patients, particularly those at risk of poor health outcomes, and to improve coordination of care to ensure patients receive the right care in the right place at the right time.

PHNs localise health care for the Australian community

The key means by which these objectives are realised is through strategic planning for the commissioning of services to address gaps at the local level. Commissioning encompasses the processes of analysing local health needs and available services; procuring services on the basis of the needs analysis and in line with national priorities for PHNs; and monitoring the efficiency and effectiveness of those services over time.

Under the program arrangement, federal funds are placed in the hands of the PHNs to purchase services in accordance with local community needs. Devolved, or third-party purchasing, as such arrangements are known, are well described internationally2 and used to improve the quality and appropriateness of services for specific populations, such as those with chronic disease who require better coordination. The rationale behind the rhetoric is that organisations which are closer to the populations they serve are better able than central government to understand the health care needs of their communities and purchase services on their behalf.

To that end, successful commissioning requires a clear policy framework of national and regional priorities which define agreed roles, responsibilities and targets for commissioning.3 High-quality, nationally standardised performance measures and data requirements need to be built into contracts, with ongoing monitoring and evaluation mechanisms. Commissioners need autonomy and the time to develop relationships.4 Competition can be a problem and most countries appear to be moving away from competitive models as they can undercut the collaboration that is required for integration.5 Achieving the balance between competition associated with contracting and the collaboration required for service development and participatory design is a major challenge for all funders, perhaps more so for PHNs who must operate in sometimes small geographical areas.

Nevertheless, the commissioning process is tightly prescribed by the Department of Health under its service agreements with PHNs. PHNs have scope to develop their needs assessments and to purchase services under priority plans but each must establish clinical and consumer councils that report to PHN boards and are required to play a significant role in commissioning services. This is designed to facilitate expert input and to introduce an element of consumer centredness.

READ MORE: Medicalisation-nation: Australia’s growing public policy dependence on drugs

That North Melbourne PHN was found by an independently commissioned review (Deloitte) to have followed the rules related to commissioning and to have dealt with all matters appropriately, while at the same time having been subjected to ministerial interference in the process does not auger well for the PHN program. The SMH article reported that Minister Hunt has ordered the taxpayer-funded contract, awarded last year to a consortium led by drug and alcohol treatment provider Odyssey House Victoria, be torn up and a new tender process launched. It seems the federal government cannot live by the rules of the third-party purchasing game, instead preferring to retain control of the funding agenda, in the face of powerful advocacy. Ultimately, this can only limit potential for PHNs to address deficiencies in service delivery by purchasing on the basis of local need.

Whatever the merits or otherwise of this situation, it cannot be seen as an unexpected consequence of a policy initiative of this kind. As far back as the late 1990s, evaluation of third-party purchasing arrangements in the English primary care system found the experiment did not succeed, in large part because it was never implemented; the government found it impossible to let go of the reins of central control.6

There may very well be good reasons for that. Establishment costs and entry rules mean service development is a necessary feature of investment which neither governments nor communities can afford to waste. How services can be kept accountable for delivering quality care that meets community needs is an ongoing challenge that requires collaborative effort on the part of governments, providers, purchasers, clinicians and communities. Tensions, conflicts and differences in approach are part of healthy debate in determining investment and achieving outcomes, but the transaction costs and unintended consequences associated with competition for contracts have long been known.

“…the government [might be] in a position of contravening its own policy…”

While PHNs are widely regarded as having significant potential to improve services at the local level7,8, they have also been seen as “a tool for implementing a political ideology about contestability and competition and as a means to shunt off hard decisions about priorities in the face of growing needs and diminishing resources” (Russell and Dawda)9. The costs associated with re-running a procurement process for the North Melbourne PHN can only be expected to eat into funds that policy requires be spent on service delivery. Under current rules, no more than 6% of commissioning funding can be used on administrative costs.

The upshot of the requirement to rerun the tender process may put the government in a position of contravening its own policy, thereby reinforcing the view that political ideology, not evidence informed policy is the basis for decision making. Under such circumstances, the community will be no closer to having its need for mental health services met.


  1. Horvath J. Review of Medicare Locals: Report to the Minister for Health and Minister for Sport, March 2014.
  2. Van de Ven WP (1996) Market oriented health care reforms: trends and future options. Social Science and Medicine 43:6550666
  3. Gardner K, Powell Davies G, Edwards K, McDonald J, Findlay T, Kearns R, Joshi C, Harris M. (2016) A rapid review of the impact of commissioning on service use, quality, outcomes and value for money: implications for Australian policy. Australian Journal of Primary Health Special edition on commissioning 22(1) 40-49
  4. Dickinson H, Glasby J, Nicholds A, Sullivan H. (2013) Making sense of joint commissioning: three discourses of prevention, empowerment and efficiency. BMC Health Services Research 13(Suppl 1), S6
  5. Robinson S, Dickinson , Durrington L. (2016) Something old, something new, something borrowed, something blue? Reviewing the evidence on commissioning and health services. Australian Journal of Primary Health 22(1) 9-14
  6. Le Grand J. (1999) Competition, cooperation or control? Tales from the British National Health Services. Health Affairs 18:27-39
  7. Duckett S etal. (2015) Leading change in primary care: Boards of Primary Health Networks can help improve the health system
  8. Russell L, Dawda P.(2019) The role of Primary health Networks in the delivery of primary care reforms.
  9. Russell L. What do we know about the activities and outcomes of Primary Health Networks. Croakey

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