Prime Minister Kevin Rudd has unveiled a sweeping national plan to take control of Australia's hospital funding by clawing back $50 billion of GST revenue from the states and territories.

Mr Rudd, who outlined the major changes at the National Press Club today, is likely to face some opposition from state and territory leaders.

The changes would see the Government directly fund the country's public hospital system in a bid to stamp out waste and also include a full federal takeover of all GP and primary healthcare services.

The plan will be funded by pumping one third of the states' GST allocations - which amounts to $50 billion over the forward estimates - directly into hospitals.

The Commonwealth will take on 60 per cent of all hospital funding, which includes the average cost of each patient, ongoing funding for research, training, maintenance and improvements.

That share of hospital funding will cost the Federal Government $30.9 billion over the forward estimates and primary care funding will cost $18.7 billion.

The administration of the funds will be done through local authorities, which will oversee small groups of hospitals and will be subjected to "strong national standards".

These authorities will be will be paid by the Federal Government on the basis of each patient they treat and an independent body will be established to set the "efficient" cost of each treatment.

Funding will also be linked to a hospital's efficiency, with national standards to be set and performance statistics published.

"For the first time there will be nationally consistent performance standards for hospitals in critical areas such as emergency departments and elective surgery to help reduce waiting times for the public," Mr Rudd said.

The Government has also pledged to allow doctors and nurses more of a say in their local authority.

The Government says the plan is fully funded over the forward estimates.

It says no states or territories will be worse off over the next four years and they will be better off in the medium term.

"For the first time, eight state-run systems will become part of a national network," Mr Rudd said.

To convince the states to relinquish control, the Government argues that growing health care costs as the population ages will become larger than growth in GST revenues.

And Mr Rudd has also flagged more announcements in the coming months on doctor and nurse training, more hospital beds, improvements to GP services and electronic health records.

The long-awaited announcement follows on from Mr Rudd's 2007 election pledge to take over hospital funding if the states and territories did not fix endemic problems in the system.

Long road ahead

Mr Rudd will face a tough battle to get agreement from all states and territories for his changes when he puts it to them at the next Council of Australian Governments (COAG) meeting in April, with Western Australia and Victoria already signalling opposition to the plan.

Mr Rudd this morning spoke to premiers about the plan and said their response was "mixed".

But he has delivered a blunt message to his state and territory counterparts.

"If the states and territories do not sign up to fundamental reform, my message is equally simple - we will take this reform plan to the people at the next election, along with a referendum by or at that same election to give the Australian Government all the power it needs to reform the health system," he said.

The issue of funding has long been contentious between states and federal governments, with each blaming the other for failures in the system.

Ken Baxter, who has headed the Department of Premier and Cabinet in both Victoria and New South Wales, says the Federal Government faces major challenges to implement its plan in a year in which it and several states will face an election.

"It will make the emissions trading scheme and the insulation problems pale into insignificance," he said.

"History both in this country and in the US and the UK has shown very, very clearly that implementation of health reform is a major political minefield.

"If the Prime Minister is going to effectively put in place his model ... it will need to be managed by people out of the Prime Minister's Department and Treasury," he continued.

"The states don't trust or respect the Commonwealth Department of Health."

The Opposition have already criticised the proposal.

Treasury spokesman Joe Hockey has questioned where the Government will find the money to fund the changes.

"Where is this magic pool of money that Kevin Rudd says is a great substitute for the black hole in the health system," he said.

"If I were a state premier I would be very reluctant to put money into something I do not control."

Opposition health spokesman Peter Dutton says the Government will not be able to deliver the reforms.

"They can't even deliver a give-away program of $1 billion of pink batts so how on earth can the Prime Minister manage a $100 billion health system," he said.

"Over the past two years, Kevin Rudd has seen the situation in public hospitals deteriorate, he's presided over a system where despite having put a couple of billion dollars in waiting lists, the waiting lists have blown out."

The Coalition has not released its full health policy but has proposed that local boards would take control of hospitals in New South Wales and Queensland.

The Australian Medical Association (AMA) supports a federal funding takeover.