There's limited time to reform the nation's health system amid fears Medicare could collapse within five years, the NSW government says.
NSW Health director-general Deborah Picone has given a dire prognosis for the current system, saying Australia is heading towards US-style user pays.
Prof Picone says cost escalations mean universal health care could collapse within five years.
She is pushing for a system where funding from the commonwealth and states is pooled and then redistributed.
NSW Health Minister John Della Bosca backs her claims.
"Prof Picone and many, many commentators in the medical system ... are telling me that we have a limited window of opportunity to preserve the great public hospital system that we have," he told reporters.
"To make the decisions, the changes and confront the problems and make sure we hand on this great hospital system onto the next generation.
"I'm taking up that challenge."
Mr Della Bosca said he believed talk of the commonwealth taking over the health system was not a threat but proof Prime Minister Kevin Rudd wanted to fix it.
"We've got the opportunity for a new collaborative partnership with the Rudd government ... to come to grips with the immediate problems in the hospital system," he said.
However, federal Health Minister Nicola Roxon has rubbished Prof Picone's claims.
"I think that is a nonsense for us to say that public and free health care is dead," she told reporters in Canberra.
"The commonwealth is absolutely committed to ensuring that people can have access to high quality care whether it is through their GPs or whether it is in public hospitals."
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