Victoria has become the second state to take up to the Commonwealth health and hospitals contract.

On Saturday, Premier John Brumby met Prime Minister Kevin Rudd at The Alfred hospital in Melbourne to officially give the green signal to the Federal Government turning out to be the leading sponsor of the public hospital system for the first time.

NSW inked the agreement last month at Blacktown Hospital.

Mr. Rudd said that the historic contract was a landmark.

He told journalists, "This is the biggest reform to the health and hospital system that Australia has seen since the introduction of Medicare".

He expressed gratitude towards Mr. Brumby for partaking in a "difficult debate for the nation".

The agreement implies that the Commonwealth will completely finance primary health care and the aged care set-up.

In Victoria, $1.5 billion in new backing will boost the supply of physicians and nurses and improve the figure of sub-acute beds by 332.

Mr. Brumby said that the change would also cut down waiting times for 150,000 patients who presently wait too long in emergency departments every year to inside the clinically suggested four-hour time period.

The Premier settled for the plan last month after prolonged negotiations, which comprised Mr. Rudd offering better financial control to the states than was first proffered.