Premier Anna Bligh has announced that she will abolish Queensland Health and "start again" in the wake of a major fraud scandal.

Ms Bligh says the arrest this morning of Queensland Health employee Joel Barlow for allegedly embezzling $16 million from the department was the final chapter in the life of the ailing agency.

Police expect to lay charges within the next day against Mr Barlow, who was arrested outside his inner-Brisbane unit and is under guard in Royal Brisbane Hospital.

Ms Bligh says the embezzlement was a result of insufficient financial safeguards within the department.

Queensland's anti-corruption watchdog has also launched an investigation into why the department and the police failed to follow up on a complaint about Barlow last year.

It comes on top of other problems like the payroll system failures and the jailing of former surgeon Jayant Patel.

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Ms Bligh says she is so fed up with the scandals she is splitting the department in two. She says the department needs "a new beginning".

"No more reviews, no more task forces or committees; Queensland Health as we know it is over," she said.

"Queenslanders can no longer tolerate the sick administrative performance of this mammoth organisation.

"For some time now the administration of Queensland Health has been suffering because the current organisation is just too big."

Restructure

Ms Bligh says of the two new entities replacing Queensland Health, one will focus on frontline services and managing the hospital system.

The second entity will be a support agency to provide corporate services like finance, human resources and information and communications technology.

Ms Bligh has commissioned Shane Solomon, the lead partner of KPMG's healthcare practice, to advise on how to split the department.

Joel Barlow has been accused of embezzling $16 million from the department. ( AAP )

"This is not an exercise in downsizing the agency. This is an exercise in radical restructure that will put more people onto the frontline," she said.

Ms Bligh says the restructure will not result in job losses.

"There are thousands of good people in Queensland Health who work hard, who want to do a good job and who want to serve the people of this state," she said.

"They have nothing to fear. Their jobs are safe and they can look forward to stronger leadership and more satisfying jobs."

The proposal will be the largest decentralisation of a public sector agency in Queensland's history.

Panic

Deputy Opposition Leader Tim Nicholls says the plan smacks of panic and desperation.

"We've been told time and time again that Queensland Health is about to turn the corner, that things are on the up, that the Government has things under control," he said.

"Now we find that the Government, in a panic move, is now putting the wrecking ball through Queensland Health."

Mr Nicholls says Health Minister Geoff Wilson should resign.

"He is the person responsible under every concept of Westminster responsibility," he said.

"He should take responsibility for what has happened and he should be resigning. If he won't resign, Anna Bligh should sack him."