The decision of the British colonial government to accept responsibility for the health care of convicts and military personnel but not for that of free settlers established the model for hospital provision in Melbourne until the 1970s.
Although the administrators of the Port Phillip District had opened a small hospital in William Street in 1838, admission was restricted to convicts and new immigrants. The first public hospital, the (Royal) Melbourne, based on the English voluntarist model, opened in temporary premises in 1842, transferring to its new Lonsdale Street building in 1848. The primary function of the new hospital was to accommodate those who were too poor to pay for care at home. It was governed by a committee elected by subscribers who also had the privilege of recommending people they believed to be fit objects for treatment by doctors who provided their services on an honorary basis. In the era before anaesthetics, antiseptics and aseptic techniques in nursing and surgery, however, those that could afford so to do chose to be treated at home.
This pattern of provision was maintained throughout the 19th century. Funded largely through philanthropy and public appeals most public hospitals acquired a free grant of land and an annual financial allocation from the colonial administration. Although the government was often the major subscriber it had no direct say in management. Alongside these charity hospitals, a plethora of small private hospitals had opened in Melbourne, some of dubious standards. These institutions were the target of the Private Hospitals Act, 1889, the first attempt at regulation. The government, however, was reluctant to impose regulatory control over public or private hospital services lest it would then have to assume responsibility for service provision, that is, for funding. While public health and psychiatric services were provided by government, until 1948 hospitals reported only to Treasury.
Of the 19th-century Melbourne hospitals only the Alfred (1871) sought to duplicate the generalist services of the first. Both the Benevolent Asylum (1850) and the Immigrants Home (1853) restricted their hospital wards to chronic and aged care after the establishment of specialist hospitals for women, children and incurables. But the charity model was increasingly strained. Epidemics exposed health officials as powerless to compel hospitals to open fever wards, with the debate as to who should cover the cost only resolved when Fairfield Infectious Diseases Hospital opened in 1904.
By the turn of the century advances in medical science meant that hospitals had more than care to offer. While private hospitals provided increasingly complex medical and surgical treatment they remained beyond the means of most. Public hospitals, developing as centres of medical research and medical education for University of Melbourne medical students and the hospital's own nurses, faced a growing demand for treatment from people who argued that their contributions to appeals entitled them to admission. Many hospitals responded by introducing means-tested payments but struggled to balance the demands of their competing clientele. Some incorporated a private wing, or built an adjacent private hospital - such as Mount St Evins, established in 1906 by the Sisters of Charity, adjacent to St Vincent's Hospital in Fitzroy. New private hospitals were opened in the wealthier suburbs or close to the teaching hospitals for the convenience of the doctors. A demand for a middle stream of hospital services was taken up by the churches. Bethesda was opened by the Salvation Army in 1906, the first not-for-profit hospital established to cater for wage and salary earners who could not afford expensive private hospital care.
The pattern for later developments was set by the Charities Board, established in 1922 to co-ordinate fund-raising activities for the public hospitals. It recommended the introduction of the American community hospital model, allowing for the construction of wards in which patients paid for both accommodation and medical care, alongside public wards that continued on the charity model. Both the older hospitals in the city centre and new facilities in the expanding suburbs adopted this model, particularly after 1945 when the federal government passed the Commonwealth Hospital Benefits Act, offering both public and private hospitals a payment of six shillings per patient per day. While the introduction of medical insurance allowed greater access to private care, the poor and most emergency care were left to the large public teaching hospitals. Means-testing for public hospital admission ended when the introduction of universal health insurance by the Whitlam Australian Labor Party Government in 1975 provided free hospital treatment for all.
The problem of geographic distribution remained, however, with the major hospitals clustered in the inner suburbs far from where the bulk of the population now lived. The first opportunity to address this issue came with the commencement of a second medical school at the newly opened Monash University in 1961. Under a negotiated agreement the University of Melbourne relinquished both the Alfred and Prince Henry's hospitals to the Monash Medical School. Monash also enticed the Queen Victoria Memorial Hospital within its teaching circuit. After difficult negotiations Prince Henry's and the Queen Victoria Memorial Hospital were amalgamated to become the Monash Medical Centre on a new site in Clayton.
In 1995 the State Liberal Government set up a Metropolitan Hospitals Planning Board to further review the distribution of hospital beds. Its aim was to integrate the smaller community hospitals and aged care facilities with the large tertiary referral hospitals and psychiatric services, through common governance structures. At that time Melbourne had 35 stand-alone public hospitals and 129 private hospitals, but 30% of the State's acute hospital activity occurred in the six central teaching hospitals. The Board recommended the establishment of health care networks charged with ensuring the provision of hospital beds across the wider suburban area. The implementation of these recommendations completed the transformation of hospitals from charities to public services under government control. The controversial closure of some hospitals and the tendering out of replacements in the outer suburbs, combined with persistent waiting lists and pressure to reduce periods of stay, have ensured that hospitals remain central to political debate.