Poor management of chronic disease costs Australia more than $320 million a year, according to a Grattan Institute report.

Improving the management of heart disease, diabetes and other chronic conditions could save the Australian health system more than $320 million a year.

That's the estimated cost of avoidable hospital admissions for the conditions, according to a report by the Grattan Institute.

"Each year there are more than a quarter of a million admissions to hospital for health problems that potentially could have been prevented," says the institute's Professor Hal Swerissen.

The report, Chronic failure in primary care, found chronic conditions are ineffectively managed and an increasing burden on the Australian health system.

Cardiovascular disease, oral health, mental disorders, musculoskeletal conditions, respiratory disease and diabetes account for about half of total disease costs.

Yet at best, the primary care system provides only half the recommended care for many of them, the report said.

For example, only a quarter of the nearly one million Australians diagnosed with type 2 diabetes get the monitoring and treatment recommended for their condition.

"Yet each year the government spends at least $1 billion on planning, co-ordinating and reviewing chronic disease management and encouraging good practice in primary care," Prof Swerissen said.

Three quarters of Australians over the age of 65 have at least one chronic condition that puts them at risk of serious complications and premature death.

Social and environmental changes are the best way to prevent these diseases.

"The role of GPs is vital but the focus must move away from fee-for-service payments for one-off visits," Prof Swerissen said.

A broader payment for integrated team care would help to focus care on patients and long-term outcomes.

Other suggested reforms included giving more responsibility to Primary Health Networks for co-ordinating local primary care services and having a consistent approach to specific diseases.