What is activity based funding

The Independent Health and Aged Care Pricing Authority (IHACPA) was initially established in 2011 to develop and implement activity based funding (ABF) for Australian public hospitals to determine an annual national efficient price (NEP) for public hospital services. The NEP is a major determinant of the level of Commonwealth funding for public hospital services and provides a price signal or benchmark for the efficient cost of providing public hospital services. 

ABF in the aged care sector is a system of funding service providers whereby they are paid for the number and characteristics of people that they provide services to. If more people are provided services, the service provider receives more funding. Because some people’s needs are more complicated than others, ABF also takes this in to account. 

ABF should support timely access to quality aged care services, improve the value of the public investment in aged care and ensure a sustainable and efficient network of aged services. ABF payments should be fair and equitable, including being based on the same price for the same service across public, private or not for profit providers of aged care services.

The established expertise of IHACPA in ABF for public hospital services provides a strong foundation for its expanded role in aged care. 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 sector.

Under the Australian National Aged Care Classification (AN-ACC) funding model, activity data from residential aged care providers will be reported to the Government. This will include data on the assessed AN-ACC classes of the residents as well as demographic and facility data. This data will form the basis of AN-ACC daily basic subsidies paid by the Government to providers. It will also be used for other reporting requirements.

There are five proposed overarching principles central to the design of ABF systems:

  • Access to care – Funding should support appropriate access to aged care services. Individuals should have access to care that is not unduly delayed by availability, access to assessment, location or other factors.
  • Quality care – Care should meet the Aged Care Quality Standards and aim to deliver outcomes that align with community expectations.
  • Fairness – ABF payments should be fair and equitable, including being based on the same price for the same service across government, private and non-for-profit providers of aged care services. This should also recognise the legitimate and unavoidable costs faced by some aged care providers.
  • Efficiency – ABF should ensure the sustainability of the aged care system over time and optimise the value of the public investment in aged care.
  • Maintaining agreed roles and responsibilities – ABF design should recognise the complementary responsibilities of each government agency and department in the funding and management of aged care services, as well as providers in delivering aged care services.

The overarching principles articulate the policy intent behind the introduction of funding reform for aged care services.


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