Frequently asked questions

The Independent Health and Aged Care Pricing Authority (IHACPA) is an independent agency established under the National Health Reform Act 2011.

IHACPA was formerly established as the Independent Hospital Pricing Authority (IHPA) as part of the National Health Reform Agreement to contribute to significant reforms to improve Australian public hospitals. A major component of these reforms is the implementation of national activity based funding through the annual determination of the national efficient price and national efficient cost. 

These determinations play a crucial role in calculating the Commonwealth funding contribution to Australian public hospital services and offer a benchmark for the efficient cost of providing those services as outlined in the National Health Reform Agreement.

On 12 August 2022 amendments to the National Health Reform Act 2011 came into effect changing IHPA’s name to IHACPA and expanding its role to include the provision of advice on aged care pricing and costing matters to the Commonwealth and the performance of certain functions conferred by the Aged Care Act 1997.

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.

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.

IHACPA is governed by a Pricing Authority. Members of the Pricing Authority bring significant expertise and skills to the role, including substantial experience and knowledge of the health industry, healthcare needs, the aged care industry, and the provision of health care in regional and rural areas.

The Pricing Authority is supported by a Chief Executive Officer, who is IHACPA’s only employee. The CEO is responsible for the day-to-day running of the agency. All other staff are seconded from the Department of Health, Disability and Ageing to IHACPA. IHACPA staff report to the CEO under a Memorandum of Understanding with the department.

All Australian Public Service (APS) employees must follow the APS code of conduct. View the code of conduct procedures.

IHACPA is required to publish details of Statutory Appointments. This list is published in accordance with the requirements for the Information Publication Scheme under the Freedom of Information Act 1982.

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.

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 document which helps guide the development of the NEP and NEC.

The Pricing Framework is developed in consultation with the Commonwealth, state and territory governments, IHACPA's key health stakeholders and the general public prior to being finalised. IHACPA uses this consultation process to ensure all needs are met when delivering the NEP and the NEC.

In determining the NEP and NEC, 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.

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.

The annual Pricing Framework for Australian Public Hospital Services outlines 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 a Commonwealth funding contribution to be:

• all admitted services, including hospital-in-the-home programs
• all emergency department services provided by a recognised emergency department service
• other outpatient, mental health, subacute services and other services that could reasonably be considered a public hospital service.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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, please contact us here.

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.

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.

You contact us by email enquiries.ihacpa@ihacpa.gov.au or by calling +61 2 8215 1100.

IHACPA provides the Australian Government with expert residential aged care, residential respite care and in-home aged care pricing and costing advice that reflects the costs of delivering care. Our advice is independent, transparent, evidence-based and consultative. 

When developing our advice we balance a range of objectives. This includes promoting the standard of high-quality care expected by the community and required by government policy and legislation.

While our role is to provide pricing advice to the Minister for Health and Ageing, it is government who determines and announces the prices for aged care services. Following agreement from the minister, we publish our pricing advice on our website.

We are also responsible for assessing applications from registered providers of aged care to charge residents a higher maximum accommodation payment amount as a refundable accommodation deposit or equivalent daily amount. 

Our work is guided by the minister’s Expectations Setting Paper and our Statement of Intent.

Pricing refers to the development of pricing advice to government based on analysis of activity and cost data.

Costing refers to analysis of the care related costs in the delivery of residential aged care, residential respite care and in-home aged care services.

No. For Australian public hospital services, we determine the national efficient price and national efficient cost for public hospital services each year.

In contrast, our role in aged care pricing is advisory. Government remains responsible for determining and announcing prices for residential aged care and residential respite care, and the Support at Home service list.

IHACPA provides annual pricing advice to government on the costs of care and how changes in the cost of care may be considered when making funding decisions. We ensure our pricing advice is informed by a range of evidence, including cost collections and stakeholder feedback. 

The Department of Health Disability and Ageing is the aged care System Governor. The department is responsible for the policy and administration of aged care subsidies, supplements and grants, funding policy settings, broader aged care funding, system management and providing policy advice to government on these matters. These responsibilities are outside the scope of our pricing and costing advice.

The Australian Government provides subsidies to registered residential aged care providers through the AN-ACC funding model. AN-ACC aims to provide equitable funding to providers that better matches residents’ needs and the costs of delivering care. AN-ACC funding is provided for aged care services and is not intended to support hotelling and accommodation expenditure.

IHACPA provides annual residential aged care pricing advice to government, informing decisions on the AN-ACC price and price weights for each AN-ACC class, respite class and base care tariff category.

The management of AN-ACC funding model remains the responsibility of the Department of Health, Disability and Ageing.

No, we do not determine a resident’s AN-ACC class.

For more information about AN-ACC assessments, see the AN-ACC assessment process and classification information on the Department of Health, Disability and Ageing’s website.

A key element of our pricing advice relates to the AN-ACC funding model. Elements of care included for the AN-ACC funding model are set out in Chapter 1, Division 8-150 and Division 8-155 of the Aged Care Rules 2025 for residential and clinical care.

We consider a range of cost differentials by service size, type or location and the costs associated with specific resident groups and the AN-ACC classes.

IHACPA’s Pricing Authority relies on a number of different data sources to inform the design and key parameters of the model when providing pricing advice. We undertake regular data collections and consider other available cost and activity data such as the Aged Care Financial Report and Quarterly Financial Report data. We also seek input from stakeholders through annual public consultations and our advisory committees.

Cost collections ensure that the costs of aged care are accurately captured, and that pricing advice is directly informed by the costs of delivering care. This helps to ensure funding is sustainable, transparent and meets the needs of older Australians.

Our cost collections gather cost and activity data from a wide range of aged care providers, with different geographic, demographic and individual characteristics. This ensures our pricing advice reflects the variation in care requirements and costs across a diverse sector. In particular with underrepresented geographical locations, provider and service types.

Our cost collections continue to be refined over time. Each cost collection builds upon the data collected from the previous one. This improves accuracy and expands our understanding of targeted areas.

Our pricing advice considers the impact of wage increases on costs, only where these have been determined by the Fair Work Commission. Where a wage determination is made and takes effect outside of our advice cycle, the Minister for Health and Ageing may seek additional advice from us.

We note that any future Fair Work Commission decisions on minimum wage increases may impact our pricing advice.

We do not assess the appropriateness of wages within the aged care sector.

No. We do not provide advice on means testing arrangements or the appropriate level of resident contributions in aged care. This is the responsibility of government.

Our aged care pricing and costing advice is informed by consultation with a broad range of stakeholders across the aged care sector. This includes providers across the for-profit, not-for-profit and government sectors, residents, in-home aged care participants, families, carers, and anyone with an interest in aged care.

Each year, we publish a consultation paper with a set of questions. This explains how we plan to develop our pricing and costing advice. It also highlights key issues and future priorities for consideration.

We then use the feedback gathered to develop our pricing framework, which is the key policy document used to inform our pricing advice to government.

Yes, we value all feedback to our public consultations. It’s important that we hear from as many voices as possible. This ensures our pricing advice is representative and reflective of the diversity of the aged care sector and the community.

Through our public consultation, you have the opportunity to tell us what is important to you in developing our pricing advice.

Visit our engagement hub to find open and past consultations on our work in aged care