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 determine a National Efficient Price (NEP) and price weights for public hospital services. The key concepts that 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) determinations 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 on an annual basis. The Pricing Framework emphasises IHACPA’s commitment to transparency and accountability in how IHACPA undertakes its work.

National Efficient Price

The National Efficient Price (NEP) is used to calculate payments for public hospital services that are 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 has responsibility for setting the NEP 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 unit are outlined in the annual NEP Determination price weights tables.

Shadow pricing

Transitional arrangements when developing new activity based funding (ABF) classification systems or costing methodologies, including shadow pricing classification system changes and pricing based on a costing study are used to ensure robust data collection and reporting to accurately model the financial and counting impact of changes on the national funding model. For 2021–22, IHACPA has developed shadow price weights for:

• admitted and community Australian Mental Health Care Classification (AMHCC) Version 1.0 end classes
• admitted acute Australian Refined Diagnosis Related Group (AR-DRG) Version 10.0 end classes (excluding specialist mental health)
• Tier 2 Non-Admitted Services Classification end class 40.62 Multidisciplinary case conference - patient not present.

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. Under current arrangements, non-admitted mental health, small rural hospitals, and teaching, training and research outputs continue to be funded nationally through block grants.

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. 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.

IHACPA has released operating versions of the NWAU calculators described in the National Pricing Model Technical Specification 2021-22. NWAU calculators are available for:

• acute admitted services
• emergency department services
• non-admitted outpatient services
• subacute and non-acute admitted services.

The department has released Information on Calculating NWAU outlining the process for mapping from Victorian specifications to the Independent Health and Aged Care Pricing Authority (IHACPA) specifications to calculate National Weighted Activity Unit (NWAU) must be read before downloading the Victorian mapping for NWAU 2021-22 (xlsx).

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. The aim of publishing and calling for public submissions on the Work Program and Corporate Plan are to:

• enhance focus on the equitable funding of public hospitals
• improve efficiency, accountability and transparency across the public health care system
• drive financial sustainability of public hospital services into the future.

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. Members of the NHFB, including the CEO of the funding body, are not subject to direction from any Commonwealth minister, and undertake duties as directed by the administrator.

The National Health Funding Pool

Both 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 for Small Rural Health Services, teaching, training and research, non-admitted mental health services and other services outlined in the Independent Health and Aged Care Pricing Authority’s National Efficient Cost determination.