New South Wales in Australia is asking for a huge cash injection, to the tune of $2.5 billion, to rebuild major public hospitals.
Premier Nathan Rees is expected to press for the rescue package when he flies to Canberra today for a special briefing from the Prime Minister on the global financial crisis.
The package will involve the construction of wards, diagnostic, radio therapy and cardiology units and also addition of extra intensive care unit beds.
If Mr Kevin Rudd agrees to the intervention, it would be the first time the Federal Government has acted to prop up NSW's health system since former prime minister Gough Whitlam funded the construction of Westmead Hospital more than 30 years ago.
Mr Rudd has hinted there could be a second round of spending to boost the national economy - on top of the $36 billion already committed - to be announced as early as next week.
It comes as the world's largest economies are grinding to a halt, increasing the chances of Australia going into recession.
The grim warning ensures the Reserve Bank will cut interest rates by up to 1 per cent when it meets next Tuesday. It also reinforces the need for a second big-spending stimulus package.
Infrastructure grants to the states are expected to be a major component of the PM's attempt to protect the country against the new deflationary threat from the global downturn.
Two independent reports commissioned by the state government last year reveal the NSW health budget is facing a funding shortfall of almost $1 billion by March.
As well, NSW Health owes $117 million in unpaid bills, leading to claims some public hospitals are not paying their doctors and suppliers.
But Health minister Della Bosca has denied knowledge of any report indicating that NSW Health has a liquidity crisis.
"If there is a report, which I haven't seen, that says there is a billion dollar or nearly a billion dollar cash shortfall, it is wrong," he told Macquarie Radio on Thursday.
He has also played down the $117 million that NSW Health owes in unpaid bills.
"$117 million ... that's a very small proportion of the overall health budget," he said.
In response to a Fairfax Media report that said specialists at Dubbo Hospital had not been paid for six weeks, and that nurses had used their own money to pay for batteries for heart monitors, Mr Della Bosca told Macquarie Radio he was concerned resources had not been used in a way that had "maximised patient care options".
A national doctors group says there is nothing wrong with the NSW public hospital system other than its lack of federal government funding.
Doctors Reform Society vice president Con Costa wants to know why the Australian government can find funds to prop up ailing big business, but there is no money for a public hospital system on which millions of people rely for their health care.
"It really is for the federal government to step in and make sure there is adequate funding of the current system," Dr Costa said.
"They've got these buckets of money they seem to have to give the struggling car industry and the big banks, yet they sit on their hands when it comes to the public hospital system."
The NSW branch of the Australian Medical Association adds that while funding is important, prolonged underfunding at hospitals means a review of health administration across the state has become necessary.
"AMA (NSW) hopes the NSW government's campaign for more federal funds will be successful but we urge the government to review the administration of health," state AMA president Brian Morton said in a statement.
"The crisis point has been reached. Inability to pay suppliers is symptomatic of deeper problems and the ultimate concern is the welfare of patients.
"A number of doctors have already resigned from the public hospital system because they feel they cannot offer safe care."
Even if the federal government agrees to boost funding, the Doctors Reform Society - established in 1973 to support the formation of Medicare - said the delay in reaching that decision was unacceptable.
"It just seems petty and mean," Dr Costa said.
The state Opposition is demanding answers from the Government about whether Health Department budget shortfalls will put hospital patients at risk.
The Opposition's health spokeswoman, Jillian Skinner, says the reports show the Government has lied about the problem.
"It's appalling that the Government sits on this kind of information, pretends that all is well in hospitals, when anybody who has anything to do with them - whether they're creditors providing goods and services, or patients struggling to get attention, or the long-suffering staff who are now having to pay for things out of their own pockets - they know that things are wrong, that the Government's in denial," she said.
A retired economics professor has linked the debt crisis to a 70 per cent increase in bureaucrats in less than a decade.
Professor Wolfgang Kasper, formerly of the University of New South Wales, says the system began failing after the previous Government introduced centralised hospital management.
He is calling for a return to local communities running their own hospitals, so more money can be spent on front-line services.
"Local knowledge in this diverse country, with the non metropolitan city conditions being very different from the big hospitals like Westmead, local knowledge is absolutely essential to efficient exploitation of the cheapest costs available," he said.