The Queensland Aboriginal and Islander Health Council has welcomed the federal government's $1.7 billion commitment to ease pressure on public hospitals but says more targeted investment in First Nations health is needed.

Proud Bailai and Torres Strait Islander man and QAIHC Chairman, Matthew Cooke, noted investment should focus on strengthening the capacity of Aboriginal and Torres Strait Islander community-controlled health organisations (ACCHOs) to collaborate with hospitals and deliver care in community settings, including hospital-in-the-home programs.

"First Nations health must be funded as part of this deal," Mr Cooke said.

"ACCHOs understand Aboriginal and Torres Strait Islander communities and are best equipped to support their emotional, physical, and cultural wellbeing."

The federal government proposed the one-year extension for 2025–2026 after it was unable to finalise a five-year renewal of the National Health Reform Agreement (NHRA) before the next federal election.

Under the deal, the Commonwealth's public hospital funding will increase by 12 per cent to $33.91 billion in the next financial year.

Mr Cooke said QAIHC had participated in national NHRA negotiations, and a mid-term review had highlighted the need to prioritise First Nations health in future agreements, recommending a dedicated schedule for First Nations health.

The review also called for a requirement to work with ACCHOs and local communities in service design and commissioning.

Mr Cooke said the one-year extension provided an opportunity to ensure First Nations health was included.

"The Government must acknowledge the essential role of the ACCHO sector in the health system," he said.

"This partnership can deliver improved care for First Nations people while reducing pressure on the public healthcare system."