Doctors and nurses are frustrated by an arrogant bureaucracy and burgeoning paperwork. Many retire, and locums fill the gaps at $2000 or more a day. Parliamentarians receive almost daily complaints about poor medical treatment by fly-in/fly-out locums, who do not know patients' medical histories. The state's health administration appears to put blind trust in what locum agencies tell them about the qualifications of overseas-trained doctors, many of whom have been unable to earn the stamp of approval from relevant Australian medical colleges.

The recent inquiry into public hospitals by Peter Garling deserves top marks for documenting the mess. It decried a poor workplace culture, bullying of staff, poor infection control and a high incidence of errors in prescribing and administering medications.

Doctors and nurses will tell you that the mess started in the mid-1990s, when the ALP government abolished local hospital boards.

Treatment records and waiting lists are now fraudulently doctored to please the overblown Department of Health and its eight area health services. They spend more and more tax dollars with little regard for what the citizens want and the frontline clinicians need.

Australia-wide, the health bureaucracy has grown by 64 per cent over the past, prosperous decade, whereas the number of frontline clinical staff just kept pace with population growth. Some 27 per cent of the state budget now goes on health, but not enough of it reaches the coalface. With NSW in recession, the deficit-ridden Government has received massive federal subsidies, but is nevertheless cutting services further.

The Garling diagnosis was not matched by a therapy that went beyond marginal tinkering. The fundamental problem is excessive, centralised bureaucracy. Hospitals have little incentive to provide beds and client-oriented services and to search for efficiency gains. Instead, more and more staff find rewarding career opportunities by escaping the hard work in the ward and theatre to gaze at computer screens and busy themselves with inquiries, meetings and similar bureaucratic exercises.

Real solutions will have to be based on the insight that central planning and top-down co-ordination of complex public systems invariably produce high costs, disaffection among staff and public discontent. Government services are reminiscent of how the Soviet system delivered consumer goods and services, and how the bureaucrats were motivated to become deceitful, lazy and shy of innovation. Peter Garling was right when he predicted a possible end to free and accessible hospital care.

What is to be done if we want to preserve equitable access to hospitals and improve the quality of services?

Economic systems analysis suggests the answer: service provision has to be decentralised and exposed to competition for resources, and the entrenched bureaucracy has to be sacked.

It will not be cheap or easy, but the alternative is the continuing decay of our hospitals, even if the feds take over.

Hospitals must be weaned from direct fiscal transfers and the need to lobby for them. Instead, they should be managed by autonomous local boards and hospital directors, but would no longer be subjected to micromanagement by faraway bureaucrats. Hospitals should have to earn their revenue by treating patients and providing beds.

Patients would be invoiced by hospitals and pay their bills with vouchers that they obtain from the government. Should they want extra or better treatment, they may use their own funds or insurance payments. Hospitals should also have to compete for annual government vouchers for providing beds.

Such a system is not revolutionary. Vouchers empower ordinary citizens in other countries and other areas of public-access services, such as education. The Federal Health Minister, Nicola Roxon, has confessed to an open mind about health vouchers and the incentives they create. The argument that ordinary Australians cannot make the right hospital choices does not hold water. We are not imbeciles and would seek the advice of our GPs and specialists, and hospitals would build their reputation by informing us about their capabilities and past successes. These reforms will require the intestinal fortitude of genuine political leadership. If that's not available, let the next state government face public scorn about continued cutbacks and decay, if not even the bankruptcy of the "state of neglect".

Wolfgang Kasper is Professor Emeritus at the University of NSW, and author of Radical Surgery - The Only Cure For NSW Hospitals, published by the Centre for Independent Studies today.