Prime Minister Anthony Albanese will meet with state and territory leaders in Sydney on Friday as the federal government seeks to lock in a new five-year hospital funding agreement.
The national cabinet meeting will also discuss efforts to rein in runaway spending on the National Disability Insurance Scheme.
Mr Albanese hosted a dinner at Kirribilli for the premiers and chief ministers on Thursday evening ahead of formal talks.
The South Australian government will go into caretaker mode a month out from the March 21 state election, meaning if an agreement isn't reached imminently, there won't be time to land something new by July 1.
Failure to secure a funding pact would likely necessitate another one-year rollover arrangement.
The Albanese government in December offered $23 billion for public hospitals across five years, including $2 billion to help states manage elderly patients languishing in hospitals while they wait for aged care beds.
Up to one-in-10 Australian public hospital beds were being taken by stranded patients needing alternative accommodation in aged care and disability support, an independent report released in 2025 found.
Health Minister Mark Butler described the December offer as "generous", saying the Commonwealth was approaching negotiations in good faith.
But the states and territories have insisted the federal government stick to a 2023 agreement that the Commonwealth would increase its share of public hospital funding to 42.5 per cent by 2030 and 45 per cent by 2035.
The actual share of Commonwealth funding is understood to be well short of those targets.
Mr Albanese on Thursday pointed to health commitments already made by the federal government, such as the tripling of the bulk-billing incentive.
"We're not an ATM," Mr Albanese told reporters in Cairns.
"We have to make sure that we're responsible going forward. We understand a number of state budgets are under pressure as well."
Queensland Premier David Crisafulli this week called for a better deal, saying unless the offer presented to the states adequately dealt with the issue of stranded aged care patients, he would not sign an agreement.
South Australian counterpart Peter Malinauskas has indicated the states could be amenable to a deal if the offer is lifted enough to leave the Commonwealth share tracking towards the 42.5 per cent figure.
Australian Medical Association president Danielle McMullen said funding for hospitals could not be left on "auto-pilot".
"More funding to 'just keep pace' will not lessen wait lists ... what matters with hospital funding is the fine print," she said.
"Comparing how much you are paying for the next five years compared to the last five years is not fair or honest because the fact is, costs are rising, our population is increasing, and care is getting more complex."
Dr McMullen called for an increase of up to $40 billion to bring the federal government's contribution to 45 per cent of hospital funding by 2030.
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