QUEENSLAND Health is beyond repair and the department "as we know it" will be abolished, Premier Anna Bligh has announced.

The announcement follows the arrest of a former procurement officer accused of swindling $16 million from the department, and ongoing problems with the department's payroll system costing hundreds of millions of dollars.

Addressing a media conference today, Ms Bligh said Queensland Health had an "unacceptable culture" and two new agencies would be set up in its place.

One entity would focus on frontline services and manage hospitals, while the second would be a support agency to provide corporate services, like finance and human resources.

She said there would be no loss of jobs.

Such an overhaul was foreshadowed by then premier Peter Beattie at the 2005 health inquiry.

"Queenslanders can no longer tolerate the sick administrative performance of this mammoth organisation," Ms Bligh said.

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

Queensland Health will cease operating on July 1, 2012.

Ms Bligh has appointed Shane Solomon, national leader of KPMG's health practice and a former head of health in Hong Kong and Victoria, to oversee the changeover.

"I have asked that he report back to the first Cabinet of 2012, on January 23, with a detailed implementation plan to transform health administration," she said.

She said this will be the largest decentralisation of a public sector agency in Queensland's history.

Ms Bligh admitted the decision to break up Queensland Health was triggered by the alleged theft of millions from the department.

Public servant Joel Morehu-Barlow is alleged to have siphoned off $16 million - possibly more - over three years.

He was being held in custody and would be charged with fraud later on Monday, police say.

"This latest failure has made it clear to me that we need a new beginning for the administration of health services in Queensland," Ms Bligh said.

"No more reviews, no more task forces or committees. Queensland Health as we know it will be abolished."

Under the plan, a hospitals and health care agency will be established to focus on the management of hospitals, waiting lists and to deliver more services to patients.

A health services support agency will provide corporate services including finance, human resources and information and communications technology.

The State Opposition said the Queensland Health reforms smacked of panic and desperation.

Deputy Opposition Leader Tim Nicholls called for Health Minister Geoff Wilson to be sacked.

Mr Nicholls said the Bligh Government had presided over the health payroll debacle and Jayant Patel saga but "up until 72 hours ago didn't have a problem with the structure of Queensland Health".

"Now, in an act of desperation, the Premier is chopping up the department but she still refuses to chop failed Health Minister Geoff Wilson from her Cabinet," he said in a statement.

"Dividing a failed culture into two doesn't solve the problem unless you actually see those at the highest level held to account starting with the Minister."

Police Commissioner Bob Atkinson, meanwhile, conceded it had been a security guard and not police who were responsible for raising the alarm when Barlow, 36, was about to enter his luxury riverfront unit in Moray St at New Farm about 3am today.

He said the unit had not been under constant surveillance. The police watching the property had been doing patrols at the time Barlow returned.

Police were not yet sure if he was helped during his days of hiding.

An informant outside Queensland Health raised concerns about Barlow's background and activities with police last August.

Mr Atkinson admitted "it would have been a fairly straightforward process" for police to have checked that complaint with New Zealand police.

But nobody did. The Crime and Misconduct Commission is now investigating why.

Ms Bligh said Barlow - who had now been officially dismissed from Queensland Health - had a number of promotions in a relatively short amount of time during his time at the department.

There was no evidence anybody else had been involved in the alleged deception.

Nobody in Queensland Health other than Barlow had yet been dismissed over the affair.

Parts of this article have been removed for legal reasons.

Originally published as Queensland Health to be broken up