Kevin Rudd had dismissed suggestions that his new funding plan could financially ruin many hospitals as scare campaigns launched by various state health bureaucrats yesterday.

In the outback, where many small hospitals are located and where high costs of most basic goods and services means an activity-based funding model may not sustain them, the pledge does not sound that convincing.

As the only doctor in Tullamore, a town of around 300 people 130km west of Dobbo in central NSW, for ten years, Rick Newton said the case mix system that paid for the efficient cost of each hospital service would prove hard to adapt to small hospital such as his.

Dr Newton said, I would only have confidence (in the reform proposals) if Mr Rudd can demonstrate that he has taken into account the differences of a small country hospital compared to any other setting.

In a hospital such as Tullamore, everything costs more, from the transfer of a patient to the nearest tertiary hospital 150km away to hiring locum staff.

The rural hospital has only four acute beds, plus 12 aged-care beds and two in the emergency department. Although the four acute beds are empty, it does not take much for them to fill up.

Per year, up to 50 patients may pass through, staying on average three days each, with typical causes for admission as being in road or farming accidents.

Dr Newton is skeptical that the Rudd government has worked out the extra cost burdens that push up the running costs of rural and remote hospitals, of if the funding formula is suitable enough to let all the hospitals to continue to function.

Nicola Roxon, federal health minister said, Dr Newton should be reassured that no hospital, including his, will be forced to close as a result of the activity-based funding model.

The independent umpire will be setting prices for services in these areas, which will take into account the extra cost of delivering services in remote locations. This process will not be setting country prices with city assumptions.

A paper by the academic, Kathy Eagar of the University of Wollongong, however estimated that hundreds of small hospitals will be under financial dilemma unless the new funding plan takes account of their situation.