The Independent Health and Aged Care Pricing Authority (IHACPA) has developed the following Frequently Asked Questions to further clarify the several major areas of work we undertake to inform the annual determination of the national efficient price.
What is the Independent Health and Aged Care Pricing Authority?
The Independent Health and Aged Care Pricing Authority (IHACPA) is an independent agency established under Commonwealth legislation as part of the National Health Reform Act 2011 signed by the Council of Australian Governments in August 2011.
IHACPA was formally established as part of the National Health Reform Act 2011 to contribute to significant reforms to improve Australian public hospitals. A major component of these reforms is a new way of funding public hospitals to ensure increased efficiency and more transparency.
This includes the implementation of national activity based funding (ABF) for Australian public hospitals. The implementation of ABF provides incentives for efficiency and increases transparency in the delivery of services and funding of public hospital services across Australia.
What does IHACPA do?
The Independent Health and Aged Care Pricing Authority sets the national efficient price (NEP) and the national efficient cost (NEC) and price weights based on national data provided by the state and territory governments.
The NEP is a major determinant of the level of Commonwealth Government funding for public hospital services and provides a price signal or benchmark for the efficient cost of providing public hospital services. The NEC is for services that are not suitable for activity based funding, such as small rural hospitals. IHACPA undertakes several major areas of work designed to inform the annual determination of the NEP and NEC including ongoing consultation with all Australian health departments, expert advisory committees and key stakeholders.
We work in partnership with the Australian Commission on Safety and Quality in Health Care to ensure that pricing, quality and performance measures for public hospitals are complementary and facilitate a strong national framework for the delivery of public hospital services.
IHACPA’s work also covers policy development to resolve disputes on cross-border issues between the states and territories and provides advice and reporting to all Australian governments and the public.
What is activity based funding?
Activity based funding (ABF) is a way of funding hospitals whereby they get paid for the number and mix of patients they treat. Put simply, if a hospital treats more patients, it receives more funding. However, because some patients are more complicated to treat than others, ABF also takes into account various adjustments.
A key aim of the National Health Reform Agreement is to move as much funding as possible to an activity basis and away from block funding to provide more transparency in regards to where funding is going and to improve efficiency. ABF aims to empower the health sector to drive continuous improvement and value for money in the delivery of public hospital services.
Who works at IHACPA?
IHACPA is governed by a Pricing Authority, whose membership is agreed through the Council of Australian Governments. Members of the Pricing Authority bring significant expertise and skills to the role, including substantial experience and knowledge of the health care needs and the provision of health care for people living in regional and rural areas.
The Pricing Authority is supported by a Chief Executive Officer, who is responsible for the day-to-day running of the agency.
IHACPA works closely with a range of expert committees including a Clinical Advisory Committee, a Jurisdictional Advisory Committee, a Stakeholder Advisory Committee and a Technical Advisory Committee. These committees ensure that the underlying principles applied to setting the national efficient price and the national efficient cost are both clinically relevant and technically appropriate.
What is the national efficient price (NEP)?
The national efficient price (NEP) is a set amount that is used to work out the funding for a public hospital activity.
A public hospital service operating at the NEP will be able to:
- Provide episodes of patient care (on average, across all types of care, as measured using agreed classifications) and other services (including teaching, training and research) at or below the national benchmark price.
- Respond to evidence based initiatives to improve patient care including new technologies.
- Provide services at a quality level consistent with national standards, and to minimise negative consequences that fall on patients (including those attributable to poor quality and safety) or on other parts of the service system.
- Make choices about how best to deliver services to ensure that people receive the ‘right care at the right time in the right setting’.
IHACPA determines the NEP for public hospital services through the analysis of data on actual activity and costs in public hospitals. Costing information used to determine the NEP is drawn from the National Hospital Cost Data Collection (NHCDC). This data is submitted to IHACPA by state and territories.
What is the national efficient cost (NEC)?
The national efficient cost (NEC) determines the Commonwealth funding contribution to block-funded hospitals. It represents the average cost of block-funded hospitals across Australia.
IHACPA determines the NEC and the criteria for which public hospitals or public hospital services are eligible for block grant funding in its Pricing Framework for Australian Public Hospitals.
How often are the national efficient price and national efficient cost determined?
The national efficient price (NEP), the national efficient cost (NEC) and the National Weighted Activity Unit (NWAU) are determined annually. The NWAU is the unit of measure of the activity based funding system. Each year, IHACPA publishes a Pricing Framework for Australian Public Hospital Services (Pricing Framework) – a key policy which helps guide the NEP and NEC.
A version of the Pricing Framework is provided to Commonwealth, state and territory governments, IHACPA's key stakeholders and the general public for thorough consultation before it is finalised. IHACPA uses this consultation process to ensure all needs are met when delivering the NEP and the NEC.
In determining the efficient price, IHACPA considers the need to ensure reasonable access to public hospital services, safeguard clinical safety and quality, and the efficiency, effectiveness and financial sustainability of the public hospital system.
How does the national efficient price work?
In very simple terms, the national weighted activity unit (NWAU) multiplied by the national efficient price provides the total cost of a hospital service.
The NWAU allows activity across a range of settings to be compared – for example, inpatients, outpatients and emergency patients. It provides a scale that identifies the relative measure of resource use of each public hospital service. Specific examples of costs are available.
Does the national efficient price apply to all hospital services?
Each year, the Pricing Framework for Australian Public Hospital Services (Pricing Framework), lists the scope of public hospital services eligible for Commonwealth funding.
The National Health Reform Act 2011 and clauses A9–A17 of the National Health Reform Agreement, defines public hospital services eligible for Commonwealth funding to be:
- all admitted programs
- inpatient services are included as recorded in the 2010 Public Hospitals Establishment Collection
- all emergency department services
- non-admitted services as specified in the Pricing Framework.
If a service is not suitable for activity based funding, such as a small rural hospital, it will receive block funding through the national efficient cost.
How does IHACPA index the national efficient price?
IHACPA uses an indexation methodology to account for the time lag between the costing data used and the price to be set. IHACPA reviews the indexation methodology each year in preparation for determining the national efficient price.
How will activity based funding contribute to more efficiency and transparency in public hospitals?
Activity based funding is an episodic funding model – this means that for the vast majority of patients, a single payment is made for their stay in hospital – which means that the hospital has a strong incentive to ensure that patients are kept in hospital only as long as they need to be.
The model also recognises that some patients require more care/treatment and makes additional payments to these patients to ensure that the hospital is not disadvantaged by treating them.
Is activity based funding and the national efficient price applied to all public hospital funding in Australia?
No. Block funding still exists for some hospitals which have been recognised as unsuitable for activity based funding.
The National Health Reform Agreement stipulates that the Commonwealth will provide block-funding amounts for relevant services in regional and rural communities via a state managed fund.
Both the Commonwealth, states and territories are committed to maintaining a flexible approach to health and community services delivered to small, isolated communities and funding agreements will reflect this.
IHACPA determines the national efficient cost for block-funded services.
Does this mean that hospitals are now funded by the Commonwealth Government instead of state and territory governments?
No. The national efficient price determines only the Commonwealth contribution to public hospital funding. As system managers, the states and territories will set the volume of services to be provided by each local hospital network via a service agreement. States and territories can also choose to pay a price that is higher or lower than the national efficient price or national efficient cost if they choose to.
Is it fair to have one set price for all Australian hospital services?
No. This is why IHACPA was also given the role of determining adjustments to reflect legitimate and unavoidable variations in the costs of delivering healthcare services. The full list of adjustments can be found in the national efficient price section of the IHPA web site.
These include an adjustment for:
- Indigenous patients
- patients who required treatment in an intensive care unit
- patients treated in specialist paediatric hospitals
- patients who live in outer regional, remote and very remote areas of Australia
- subacute paediatric patients
- specialist psychiatric care.
Does IHACPA set prices in private hospitals as well?
No. The National Health Reform Act 2011 specifies that the national efficient price is only applied to public hospital services in Australia. IHACPA does however consult closely with private health stakeholder groups which sit on IHACPA's stakeholder advisory committee.
What is classification?
Classification aims to provide the health care sector with a nationally consistent method of classifying all types of patients, their treatment and associated costs in order to provide better management, measurement and funding of high quality and efficient healthcare services.
Classifications are comprised of codes that provide clinically meaningful ways of relating the types of patients treated by a hospital to the resources required. They enable hospital and health service provider performances to be measured by creating a link between the patients treated and the resources consumed for providing those treatments. This allows hospital and health service provider output to be measured, which forms the crucial data for policies on funding, budgeting and setting costs.
Effective clinical classification systems ensure that hospital data is grouped into appropriate classes, which in turn contributes to the determination of the national efficient price and national efficient cost.
What are the main classifications?
There are six patient service categories in Australia currently which have classifications being used nationally or in development stage.
- Admitted acute care
- Subacute and non-acute care
- Non-admitted care
- Mental health care
- Emergency care
- Teaching, training and research
More information is available in the Classification section of the IHACPA website.
How can I purchase the AR-DRG and ICD-10-AM/ACHI/ACS products and licences?
The AR-DRG and ICD-10-AM/ACHI/ACS products and licences that can be purchased include:
- ICD-10-AM Alphabetic Index
- ICD-10-AM Tabular List
- ACHI Alphabetic Index
- ACHI Tabular List
- Australian Coding Standards
- AR-DRG Definitions Manual (Volumes 1-3)
- Mapping tables between ICD-10-AM/ACHI editions
- Electronic Code Lists (ECLs)
You may purchase any of the AR-DRG and ICD-10-AM/ACHI/ACS products and materials by visiting the AR-DRG Classification System Product Sales website.
Please note that purchasing of the ECLs requires entering into a licensing arrangement with IHACPA, which sets out the terms and conditions for the use of the ECLs. To enquire about the ECL licensing arrangement, please contact us here.
Further information on the AR-DRG Classification System is available on the IHACPA website including:
- international licensing arrangement
- licence Agreement for governments
- Software Developer Licence Agreement
- how to purchase classification system materials and products.
Please note that if you are from outside Australia, your country must be licensed for the AR-DRG classification system before you can purchase any the materials and products above. Please see ‘How to purchase a Licence Agreement’ for more information on entering into a licence for the AR-DRG classification system.
If you have any questions regarding how to purchase the AR-DRG products and materials, Classification.Licensing [at] ihacpa.gov.au (please contact us here).
Where does IHACPA get its data from?
To calculate the national efficient price and national efficient cost, activity and cost data is provided by state and territory jurisdictions.
IHACPA receives activity data from each jurisdiction on a six-monthly basis. This data includes inpatient admissions, emergency department presentations and outpatient appointments as well as a range of mental health and rehabilitation services.
In addition to activity data, each year IHACPA receives cost data from jurisdictions via the National Hospital Cost Data Collection (NHCDC). The NHCDC collates the vast majority of health system costs at a ‘product’ level.
Further information is available in IHACPA’s Three Year Data Plan.
What does IHACPA do with the data?
IHACPA’s activity and cost data collections provide the primary input for the national efficient price (NEP) and national efficient cost (NEC). Once data is collected it is analysed by IHACPA using a pricing model. This price model is then used to produce the NEP and NEC Determinations for each financial year.
How can I contact IHACPA?
You contact us by email enquiries.ihacpa [at] ihacpa.gov.au or by calling +61 2 8215 1100.
What is the Independent Health and Aged Care Pricing Authority’s function in aged care?
Following the passage of the Aged Care and Other Legislation Amendment (Royal Commission Response) Act 2022 (the Act), the Independent Hospital Pricing Authority (IHPA) was expanded and renamed to become the Independent Health and Aged Care Pricing Authority (IHACPA). In addition to IHPA’s existing functions in the pricing of public hospital services, the newly formed IHACPA will take on the role of providing advice on the costing and pricing of aged care services to the Commonwealth Minister for Health and Aged Care.
IHACPA may also benchmark cost and activity data for aged care services and will provide an annual recommendation for an Australian National Aged Care Classification (AN-ACC) price to the Commonwealth Government. This will inform Commonwealth Government decisions on residential aged care and residential respite care funding from 1 July 2023. IHACPA will provide advice on the costing and pricing of home aged care following future reforms.
The passage of the Act also saw the transfer of functions from the Aged Care Pricing Commissioner to IHACPA. IHACPA therefore has the power to approve changes to extra service fees and residential aged care accommodation prices above $550,000.
Is IHACPA’s role in aged care pricing the same as its role in public hospital funding?
IHACPA determines the national efficient price and national efficient cost for delivering public hospital services each year. This calculation determines the amount of Commonwealth Government funding for public hospital services. In contrast, IHACPA’s role in aged care pricing is advisory only. The Commonwealth Government will continue to have responsibility for determining the pricing and funding for Australian aged care services.
How is IHACPA’s role in aged care different to the role of the Department of Health and Aged Care?
IHACPA's role in aged care pricing aims to ensure that funding for residential aged care and residential respite care is informed by the actual costs of delivering care.
IHACPA will provide annual pricing advice to the Commonwealth Minister for Health and Aged Care regarding the costs of care and how changes in the cost of care may be considered by the Commonwealth Government when making funding decisions.
The Department of Health and Aged Care will continue to be the aged care system operator. This includes responsibility for the operation and implementation of the Australian National Aged Care Classification (AN-ACC), determining how AN-ACC assessments are undertaken and reviewed, and the requirements for re-evaluation.
What is IHACPA’s role in AN-ACC?
The Australian National Aged Care Classification (AN-ACC) funding model was developed by the University of Wollongong, commissioned by the Commonwealth Department of Health and Aged Care.
IHACPA will provide advice to the Commonwealth Government regarding decisions on the pricing of residential aged care and residential respite care from 1 July 2023. This advice will include recommendations for the national AN-ACC price as well as the national weighted activity units (NWAU) or price weights that determine the relative prices of different AN-ACC classes.
The ongoing implementation of activity based funding in residential aged care will be an extended, multi-year process involving evolution and refinement. IHACPA will work alongside stakeholders to:
- Develop, review and refine the Pricing Framework for Australian Aged Care Services.
- Review the distribution of residents across AN-ACC classes to provide advice on the price and the AN-ACC NWAU weightings.
- Conduct cost studies to gather the relevant data required to make recommendations on appropriate adjustments.
- Review and propose refinements to the cost components in the AN-ACC funding model including those involving Indigenous status, Modified Monash Model classifications, homelessness and other identified adjustment categories.
- Explore future areas of reform and priority and consider how these can be appropriately captured in classification, costing, pricing and funding model development.
Does IHACPA determine a resident’s AN-ACC class?
IHACPA does not determine a resident’s Australian National Aged Care Classification (AN-ACC) class.
Independent assessors will use the AN-ACC assessment tool developed by the University of Wollongong to evaluate a resident’s functional, cognitive and physical capabilities and assign them an AN-ACC class.
For more information about AN-ACC assessments, refer to: AN-ACC assessment process and classification on the Australian Government Department of Health and Aged Care’s website.
How will IHACPA’s new role in aged care impact people receiving care?
IHACPA’s provision of independent aged care pricing advice to the Commonwealth Government will aim to ensure that aged care funding, including through the new classification model for residential aged care and respite care, the Australian National Aged Care Classification (AN-ACC), is directly informed by the actual costs of delivering care.
IHACPA will seek to support a range of policy objectives through the Pricing Framework for Australian Aged Care Services, including enabling aged care providers to deliver the person-centered, quality care expected by the community and increased safety, efficiency and sustainability of the aged care system over time. Some objectives may be achievable in the short to medium-term. Other objectives, such as improved efficiency of the sector, are longer-term objectives.
What will IHACPA consider in its analysis of residential aged care costs?
IHACPA will consider any cost differentials by facility size, type or location and the costs associated with specific resident groups and the Australian National Aged Care Classification (AN-ACC) classes.
To support this, IHACPA will undertake regular costing studies, consider other available cost and activity data such as the Aged Care Financial Report and Quarterly Financial Report data, and seek input from stakeholders through annual public consultation and advisory committees. IHACPA invites stakeholders to make submissions relating to these issues in response to the Towards an Aged Care Pricing Framework Consultation Paper.
Will the processes IHACPA uses in aged care costing and pricing follow the same methods that it uses for public hospital pricing?
IHACPA’s established role in public hospital pricing relies on a consultative, transparent and evidence-based approach. IHACPA is committed to these same principles in developing its aged care costing and pricing advice.
However, IHACPA acknowledges the need to ensure its aged care costing and pricing advice is developed specifically for the aged care system. IHACPA is committed to transparency and accountability in making impartial, evidence based and timely policy decisions that are appropriate for the aged care system.
While IHACPA will build on and draw from the principles adopted for public hospital pricing, the technical aspects of costing studies and the modelling used to develop pricing advice will be developed specifically for the aged care system. IHACPA seeks feedback on these methods through the Towards an Aged Care Pricing Framework Consultation Paper.
Will IHACPA consider aged care wages in its pricing advice?
IHACPA will provide pricing advice to the Commonwealth Government that considers the impact of wage increases on costs, only where these have been determined by the Fair Work Commission in the prior year. Where a wage determination is made and takes effect outside of IHACPA’s advice cycle, the Commonwealth Government may seek additional advice from IHACPA. IHACPA will not assess the appropriateness of wages within the aged care system.
How often will IHACPA review its advice for the costing and pricing of aged care services?
IHACPA will develop and provide annual advice to inform Commonwealth Government decisions on the costing and pricing of residential aged care and residential respite services from 1 July 2023. IHACPA may also provide advice at other times if requested by the Commonwealth Government.
As part of annual pricing development, IHACPA will review the Pricing Framework for Australian Aged Care Services on an annual basis, to reflect new costing and pricing developments.
As part of this process, a consultation paper will be released annually to engage stakeholder views on the proposed approach to costing and pricing of aged care services.
When will IHACPA’s advice start being considered by the Commonwealth Government to inform residential aged care and residential respite pricing advice?
IHACPA’s advice will inform Commonwealth Government decisions on the pricing and funding of residential aged care and residential respite care using the Australian National Aged Care Classification (AN-ACC) from 1 July 2023.
Will IHACPA advise the Commonwealth Government on means testing and resident contributions in aged care?
IHACPA will not provide advice on means testing arrangements or the appropriate level of resident contributions in aged care. This will remain the responsibility of the Commonwealth Government.
Will the Pricing Framework for Australian Aged Care Services also include home care services?
The Pricing Framework for Australian Aged Care Services 2023–24 will initially focus on pricing advice for the Australian National Aged Care Classification (AN-ACC) funding model in the context of residential aged care and residential respite care.
The Commonwealth Government is developing reforms to home care services, and it is anticipated that IHACPA will advise on costing and pricing matters once these reforms take effect.
What is the purpose of the Towards an Aged Care Pricing Framework Consultation Paper?
IHACPA is committed to ongoing and transparent consultation with a wide range of stakeholders in the aged care system. The Towards an Aged Care Pricing Framework Consultation Paper is the primary opportunity for all stakeholders to contribute to the development and refinement of the Pricing Framework for Australian Aged Care Services 2023–24.
In the Towards an Aged Care Pricing Framework Consultation Paper, IHACPA outlines the proposed principles and approach for developing costing and pricing advice for residential aged care and residential respite care. The paper also highlights key issues and future priorities.
Public consultation will provide stakeholders with an opportunity to provide feedback on a range of matters, including:
- the proposed pricing principles, which will underpin the Pricing Framework for Australian Aged Care Services 2023–24
- the key challenges for aged care costing and pricing, and how best to address them in the development of the Pricing Framework for Australian Aged Care Services 2023–24
- the Australian National Aged Care Classification (AN-ACC) funding model in the context of residential aged care and residential respite care.
- the mechanisms that support activity based funding in aged care.
Can anyone provide feedback on the Towards an Aged Care Pricing Framework Consultation Paper?
Yes. IHACPA is focused on ensuring that submissions are representative of the whole system and the community. IHACPA therefore seeks submissions reflecting the diversity of stakeholders, including people receiving care, their representatives and a wide range of organisations, roles, backgrounds and perspectives.
How do I give feedback on the Towards an Aged Care Pricing Framework Consultation Paper?
Feedback submissions close at 5pm AEDT on 14 October 2022 and can be submitted via:
- Online submission questionnaire
- Email in PDF or Word format to submissions.ihacpa [at] ihacpa.gov.au
- Mail to:
Independent Health and Aged Care Pricing Authority
PO Box 483
Darlinghurst NSW 1300
If you have further questions about the Towards an Aged Care Pricing Framework Consultation Paper, or require assistance with the submission process, please contact IHACPA via email at submissions.ihacpa [at] ihacpa.gov.au or by phone at (02) 8215 1100.
What makes a good submission to the Towards an Aged Care Pricing Framework Consultation Paper?
A good submission will generally include:
- your name and organisation (if applicable), as well as information about your role and area of expertise to help IHACPA understand your perspective and ensure we are obtaining submissions that are representative of the whole aged care system
- a focus on your area of expertise—stakeholders are encouraged to respond to questions in their area of expertise or specific of interest or relevance. Stakeholders do not need to answer all questions
- evidence to support your recommendations, including well-reasoned and evidence-based arguments, and the use of supporting references and/or data (if possible)
- feedback related to IHACPA’s five-year vision for the development of aged care costing and pricing advice
- feedback related to the AN-ACC funding model for residential aged care and residential respite care.
What will happen with my submission?
Unless respondents specifically request that their submission or parts of their submission should not be released, all submissions will be published on the IHACPA website. IHACPA retains, at its absolute discretion, the right not to publish any submissions or part thereof, where it considers it appropriate to do so.
The Pricing Framework for Australian Aged Care Services 2023–24 will be published on the IHACPA website in early 2023. IHACPA will also publish a consultation report in early 2023, which will summarise all the feedback received and the decisions made by IHACPA based on these submissions