New South Wales and Western Australia have agreed to the federal government’s hospital funding deal, breaking ranks with most state and territory governments and health groups.

The two states said the funding deal was fair, and gave them “certainty” of health funding for the next seven years. NSW and WA will also receive a funding boost, through a new health innovation fund, which was offered to states that signed up to the hospital deal at Friday’s Council of Australian Governments (Coag) meeting.

The states were only told of the existence of the fund this week, and were told if they signed up to the hospitals funding deal early they would receive a greater percentage of the $100m innovation fund.

Two sources told Guardian Australia that NSW and WA had shared their intentions to agree to the deal prior to Friday’s meeting in Canberra.



Under the agreement, the commonwealth will pay 45% of hospital funding and cap federal funding growth at 6.5% a year for the five-year life of the deal, which begins in 2020.

West Australia was the only Labor government to sign up. WA’s premier Mark McGowan said it was a “difficult decision”, but the state needed certainty in hospital funding.

“It was a difficult decision and obviously Western Australia would have liked to have seen more money on the table,” he said. “But we decided to accept the offer put by the federal government because as a state we need certainty.”

Other Labor state governments criticised the funding offer as inadequate. The ACT’s chief minister Andrew Barr said it fell far short of what was required.

Barr compared the additional funding offered through the health innovation fund to a “rounding error”, even for a small jurisdiction like the ACT.

“The principle, though, we do acknowledge is a good one, the fund is simply too small to deliver the innovations that we and our health ministers are seeking,” Barr said.

The South Australian premier Jay Weatherill said the commonwealth could not argue it did not have the money to invest in health at the same time it pushed $65 billion worth of company tax cuts.

“I don’t accept that it’s a question of money. I believe it’s a question of priorities,” Weatherill said.



“And it’s our intention to continue fighting for the resources that we need to go into our health care system and our education system.”

The NSW premier Gladys Berejiklian said the funding certainty would allow it to meet “demand pressures” in its health system. She said if NSW had not signed the deal, the funding growth cap would have reverted to 4.2%.

Berejiklian said she shared the concerns of other states about ongoing reform of health funding, and other pressures on the health system.

“But that doesn’t preclude us from signing the agreement, and can I say I would not have signed the agreement today if I did not think it was fair, if I didn’t think it was a strong one and certain one,” Berejiklian said.

The terms largely mirror an agreement struck in 2016, and the prime minister, Malcolm Turnbull, described the offer as “generous” on Friday morning.



“We have put forward a generous funding offer that provides stability and certainty, and is entirely consistent with the current arrangements and it goes out to 2025,” Turnbull said at the beginning of the meeting.

“The Queensland premier, Annastacia Palaszczuk, said she would consider a deal only when the state was paid what it was still owed.

Palaszczuk said her government was owed $170m for work in the state’s hospitals since 2014.

“When I get the $170m that I’m owed, then I will sign up to it, but not before then, and I think you’ll find that there’s not uniform agreement,” she said.



Palaszczuk said Queensland would be satisfied if that money was forthcoming.

On Thursday, the Australian Health and Hospitals Association said the deal would represent a failure of leadership. It wants to see a values-based funding of health, which incentivised quality outcomes for patients, and diverted money to prevention and better primary care.