National bodies and concepts related to funding

Independent Health and Aged Care Pricing Authority

The Independent Health and Aged Care Pricing Authority (IHACPA) (formerly the Independent Hospital Pricing Authority (IHPA)) is a Commonwealth statutory authority established to oversee the phased implementation of a nationally consistent approach to activity based funding (ABF). The IHACPA calculates and determines a National Efficient Price (NEP) and price weights for public hospital services. The key concepts that the IHACPA administers are:

Pricing framework

The Pricing Framework for Australian Public Hospital Services is updated annually. It outlines the principles, scope and methodology adopted by IHACPA to determine the National Efficient Price (NEP) and the National Efficient Cost (NEC) for Australian public hospital services for the specific financial year.

Public consultation

IHACPA consults with all stakeholders including the general public prior to finalising the Pricing Framework.

National Efficient Price

The National Efficient Price (NEP) calculates payments for public hospital services funded on an activity basis. IHACPA publishes an annual NEP Determination for public hospital services for each coming financial year. The NEP underpins Activity Based Funding across Australia for Commonwealth funded public hospital services.

The NEP has two key purposes:

• It comprises a major determinant of the level of Commonwealth Government funding on public hospital services.
• It provides a benchmark for the efficient cost of providing public hospital services.

The IHACPA determines the NEP for a National Weighted Activity Unit (NWAU) and is responsible for setting it based on the National Hospital Cost Data Collection (NHCDC).

The annual NEP Determination includes the scope of public hospital services eligible for Commonwealth Government funding under the National Health Reform Agreement and adjustments to the price to reflect legitimate and unavoidable variations in the cost of delivering health care services.

Price weights

Price weights expressed as national weighted activity units for each financial year are outlined in the NEP Determination price weights tables.

Shadow pricing

Shadow pricing are transitional arrangements used when new activity-based funding (ABF) classification systems or costing methodologies are being developed, including shadow pricing classification system changes and pricing based on a costing study. The approach is used to ensure robust data collection and reporting to accurately model the financial and counting impact of changes on the national funding model.

Shadow pricing arrangements are outlined in the NEP Determination for each financial year. For more information, see National Efficient Price Determination on the IHACPA website.

National Efficient Cost

The national model recognises that Activity Based Funding (ABF) may not always be practicable. The National Efficient Cost (NEC) is used to calculate Commonwealth Government payments for services that are funded on a block grant basis.

IHACPA publishes an annual NEC Determination for public hospital services for each coming financial year. The NEC cost model is determined using the in-scope activity and expenditure data for hospitals to be block funded. Hospitals are assigned to a size-locality grouping and mean expenditure is calculated for groupings.

National Weighted Activity Unit

The National Weighted Activity Unit (NWAU) is a measure of health service activity expressed as a common unit against which the national efficient price (NEP) is paid to jurisdictions. It provides a way of comparing and valuing public hospital services whether they are admissions, emergency department presentations or outpatient episodes, and is weighted for clinical complexity.

For more information, see National Pricing Model Technical Specifications on the IHACPA website.

Work Program and Corporate Plan

The Work Program and Corporate Plan sets out the deliverables for the coming year. As prescribed in Section 225 of the National Health Reform Act 2011, IHACPA invites interested persons (including states and territories) to make submissions about its work program.

Three Year Data Plan

IHACPA requires accurate activity, cost and expenditure data from jurisdictions on a timely basis in order to perform its core determinative functions. The data plan sets out IHACPA's Three Year Data Plan, specifying the data requirements and timelines that IHACPA will use to collect data over the next three years.

National Health Funding Body

The National Health Funding Body (NHFB) supports the administrator in performing his or her functions under Commonwealth, state and territory legislation. The NHFB is established as an independent statutory authority under the National Health Reform Act 2011.

The National Health Funding Pool

Commonwealth and state activity funding are provided to health services through the National Health Funding Pool.

Features of the national pool:

• Pool accounts exist for each state and territory.
• Responsibility for payments and publicly reporting on payments sits with an Administrator of the National Health Funding Pool (the administrator) who is an independent statutory office holder.
• The National Health Funding Body (NHFB) supports the role of the administrator.
• A service agreement between each health service and the state government determines the volume and mix of services provided.
• States and territories, as part of their system management role, advise the administrator on payments to be made out of the pool in accordance with their service agreements with health services.
• Monthly payments are directed from the pool to Victorian health services.
• Block funding is provided through state managed funds.