Consultation now open - Consultation Paper on the Pricing Framework for Australian Public Hospital Services 2025–26

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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, which underpins the 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.

Consistent with the recommendations of the Royal Commission into Aged Care Quality and Safety, the Australian Government (the Government) commenced a funding reform of residential aged care, transitioning to a system of ABF. This draws on concepts from the implementation of ABF in Australian public hospitals, however IHACPA recognises the need for ABF in aged care to be designed specifically for the aged care system. 

The Australian National Aged Care Classification (AN-ACC) funding model replaced the Aged Care Funding Instrument on 1 October 2022, and saw the introduction of ABF in residential aged care and residential respite care. Under ABF, providers will be funded based on the number of residents and the type of care they require. This aims to provide a transparent, fair, equitable and predictable approach to funding that is informed by the cost of care delivery.

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.

IHACPA’s role is to provide independent, evidence-based pricing advice to the Australian Government on residential aged care funding, and aims to ensure that funding, including through AN-ACC, is directly informed by the actual costs of delivering care. The Minister for Health and Aged Care remains responsible for determining the price for aged care services.

IHACPA is committed to transparency and accountability in making impartial,  evidence-based and timely policy decisions that are appropriate for the aged care sector.

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

  • Access to care – Funding should support timely and equitable access to appropriate aged care services, for all those who require them.
  • Quality care – Care should meet the Aged Care Quality Standards, reflect continuous improvement, support resident wellbeing and deliver outcomes that align with community expectations.
  • Fairness – ABF payments should be fair and equitable, based resident needs, promote the provision of appropriate care to residents with differing needs, and recognise legitimate and unavoidable cost variations associated with this care. Equivalent services should otherwise attract the same price across different provider types.
  • 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.
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