As of next year public hospital funding will become the biggest financial challenge faced by state and territory governments, a report from the peak organisation representing doctors the Australian Medical Association, warns.

The annual assessment of the country’s public hospital system, launched by the association’s president Professor Brian Owler on Thursday, found many hospitals failed to meet key performance benchmarks for emergency department waiting and treatment times in 2014-15.

Only 68% of emergency department patients classified as urgent were seen within half an hour, a reduction of 12% from the previous year and well short of a performance target of 80%, the report found.

Just 73% of emergency department patients were referred on for treatment, admitted to hospital, or discharged within four hours or less, representing no improvement from the previous year and short of the target of 90%.

It was a situation set to be exacerbated from July 2017, when indexed growth funding from the federal government to the states will be reduced, the report says.

Under the cuts announced in 2014 by the former prime minister, Tony Abbott, Commonwealth funding increases for public hospitals each year will fall from 9% to 4.5% in 2017 and be restricted to a formula based on population growth and inflation, as measured by the consumer price index.

By 2025, this will see public hospital funding reduced by $57bn, Treasury has said.

“Public hospitals are facing a growing funding crisis,” the introduction to the report, written by Owler, said.

“This crisis is not generated by hospitals themselves. Rather, it is a crisis created by the political process, and political and budgetary decisions.”

State and territory leaders have been proposing ways to come up with a way to meet the shortfall.

Last week, the South Australian premier, Jay Weatherill, said he would not be opposed to raising the goods and services tax if the revenue went towards public hospitals, though said his preferred option would be for the states to receive a fixed share of federal income tax.

The Victorian premier, Daniel Andrews, has previously proposed increases to the Medicare levy, saying Victoria stands to lose $17.7bn over a decade as a result of the cuts. The NSW government has said it stands to lose $2bn over four years.

The state and territory leaders discussed these measures at the Council of Australian Governments meeting in December.

But Owler told Guardian Australia time was running out to address the future of public hospital funding.

“The funding cliff will happen in 2017, that’s just next year,” he said.

“We now have a new prime minister and a new treasurer, and this is an opportunity to sort out this funding cliff and the uncertainty that surrounds the future of our public hospital system. There are various proposals being put forward to address the shortfall, and I’ll leave the discussion about which method of raising tax is least regressive and fairest to the economists and experts.

“But the money raised does need to go towards our public hospitals so that patients don’t continue to languish in emergency departments.”

Owler said he hoped to meet with the prime minister, Malcolm Turnbull, to discuss funding in the near future, saying he was disappointed discussions had so far involved politicians and not health care experts.

But the federal health minister, Sussan Ley, said despite the reduction in indexed growth funding, hospital spending under Turnbull would still increase each year.

“Commonwealth public hospital funding continues to grow over the next four years with an increase of $3.3bn or around 21.5%,” she said.

A health economist and program director with the Grattan Institute, Stephen Duckett, said Turnbull should restore at least some of the funding cut by the Abbott government. The states would not be able to recover the funding simply by making hospitals more efficient, he said.

“I’m not saying that the Commonwealth needs to completely reverse the decision, as we’ve moved on a few years now since the funding formula was revoked,” Grattan said.

“But the Commonwealth may reinstate some funding and deliver it to the states on a different basis, or they might skip the states altogether and deliver it directly to the hospitals.”

However, he said he thought the Commonwealth government recognised it “went a bit too far” with its cuts.

“But there has been no announcement on how it plans to address that,” he said.

Leanne Wells, the CEO of the Consumers Health Forum, which represents hospital patients, said while the Australian Medical Association report revealed gaps in the health care system, there was an urgent need to think beyond a “quick fix of pouring more money into hospitals”.

“The Consumers Health Forum believes the $57bn planned funding reduction does need to be reversed,” Well said.

“However the evidence indicates that we could get better value for our health dollar by also doing more in primary care in the community to prevent or avoid hospital admissions in the first place.”



That should include doctors, nurses and other health practitioners in the community working more closely together through innovative, out-of-hospital alternatives to deal more effectively with patients with chronic health conditions in particular, she said.

Professor Stephen Leeder, from the Menzies Centre for Health Policy at the University of Sydney, said hospital funding needed to be reviewed in the context of the federal government’s tax white paper, to be revealed by March.

“State and territory leaders are negotiating with the federal government over taxes, and a rise in the GST could take pressure around hospital funding off,” Leeder said.

Leeder said the hospital funding saga was “not unsolvable”.

“These are complicated systems, and it’s important to realise what the Abbott government really cut was forward funding projections the Labor government brought in towards the end of its turn, supposedly matching growth in the health system with a view to them taking a more direct role in the running of public hospital systems,” he said.

“They covered the pill of more involvement with monetary sugar.”

Hospital funding agreements between governments was a “game they’ve played for donkey’s years”, Leeder said.

“The states won’t be able to sustain the cuts,” he said.

“But the funding of public hospitals is a state responsibility, so if the Commonwealth cuts money to the states that’s tough, but the states are responsible for finding the necessary revenue, which they can do through a range of measures. Maybe they can increase parking fines or sell a few things or introduce a state lottery.”