Kevin Rudd now appears to have a fairly stark choice when it comes to his hospitals funding plan; either alter it before the COAG meeting on Monday or accept that he will not get the states on board.

New South Wales has dealt the latest and biggest blow to the Prime Minister’s hospitals dream.

Premier Kristina Keneally is refusing to give up control of a third of the state’s GST revenue to the Commonwealth.

New South Wales is demanding instead that state and federal funds be pooled and controlled by the states.

Ms Keneally is also demanding a lot more money immediately.

“I will not sign up to a deal that disadvantages New South Wales taxpayers,” she said.

Mr Rudd says he will not be issuing a blank cheque to the states and if he does not get the deal he wants he will execute his threat of a referendum on the issue at the federal election.

But he is not going to get what he wants from the premiers and Ms Keneally has ensured a deal is not going to happen unless Mr Rudd performs a major backdown.

“I can support nearly 90 per cent of the proposals put forward by the Prime Minister in his healthcare reform proposal. We are nearly there,” she said.

In reality, the Prime Minister is not nearly there at all.

The NSW Premier has now joined her Victorian and West Australian colleagues in rejecting Mr Rudd’s attempt to claw back 30 per cent of the states’ and territories’ GST revenue.

That is the key part of the hospitals plan.

“New South Wales is willing to dedicate but not to have the Commonwealth retain up to a third of our GST for health spending,” Ms Keneally said.

“This is an important technical distinction.”

As with Victoria and Western Australia, New South Wales wants to pool state and federal funds to pay for hospital care.

But Ms Keneally will not be handing any money over to Mr Rudd first.

“The state would put its money into the fund, the Commonwealth would put its money into the fund. The fund would be administered by the state and the payments would come out from the fund to the local hospital networks,” she said.

More money

And there is more and it comes at a cost. For Mr Rudd to secure New South Wales support, he will have to give the state an extra $670 million over the next four years.

“[This is] to ensure that New South Wales is no worse off as we implement the Commonwealth’s health reforms. We can’t wait for four years to see new real growth money coming into this system,” Ms Keneally said.

But Mr Rudd wants to channel Commonwealth money directly to local hospital networks.

“On Monday COAG has to do more than simply come up with a plan for money, it has to come up with a plan for reform because the blank cheque theory of health and hospitals doesn’t work,” he said.

“We’ve got to fix the system and then fund the system for the future, more hospital beds, more doctors, more nurses.”

The Prime Minister has threatened to take the matter to a referendum at the election if he can’t get a deal with the premiers and an in-principle deal at the COAG meeting will not be enough.

“We are looking for an inter-governmental agreement and I’ve been very clear about that. Let’s not shilly shally around this. No ifs, no buts, no maybes. We want an inter-governmental agreement,” he said.

Opposition health spokesman Peter Dutton says Mr Rudd is looking to squeeze every last bit of political opportunity out of the issue.

“He may see a referendum as a political outcome that’s advantageous to himself, but in the end people should know that Kevin Rudd is playing politics with health at the moment,” he said.

“The Prime Minister’s put forward a proposal which is changing day by day because it wasn’t properly put together in the first place. There are bits and pieces.

“There are lots of negotiations going on behind the scenes and I wouldn’t be surprised if there’s a qualified agreement at COAG on Monday because, in the end, Labor mates will stick together.”