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IHPA releases Pricing Framework and National Efficient Price and National Efficient Cost Determinations 2021–22

2 March 2020

The Independent Hospital Pricing Authority (IHPA) today released the National Efficient Price and National Efficient Cost Determinations for 2021–22 along with the underpinning policy decisions in the Pricing Framework for Australian Public Hospital Services.

The Determinations play a crucial role in the calculation of 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.

The national efficient price (NEP) for 2021–22 is $5,597 per national weighted activity unit (NWAU). This is a 5.2 per cent increase in price from the NEP for 2020–21. 

As part of the activity based funding model, the efficient price of a public hospital service is calculated by multiplying the NWAU allocated to that service by the NEP for that financial year. For example:

  • A tonsillectomy has a weight of 0.7383 NWAU which equates to $4,132.
  • A coronary bypass (minor complexity) has a weight of 5.3674 NWAU which equates to $30,041.
  • A hip replacement (minor complexity) has a weight 3.5226 NWAU which equates to $19,716.

In May 2020, all Australian governments signed an Addendum that amends the National Health Reform Agreement from 1 July 2020 to 30 June 2025. 

A key feature of the new Addendum was the agreement by all jurisdictions to implement the third tranche of pricing measures to support continued safety and quality improvements in Australia’s public hospital system. 

From 1 July 2021, the national pricing model will include measures associated with avoidable readmissions, in addition to previously introduced measures for sentinel events and hospital acquired complications. 

Shane Solomon, Chair of the Pricing Authority said IHPA has worked closely with the Australian Commission for Safety and Quality in Health Care in designing these approaches, which have had significant clinical input through both IHPA’s Clinical Advisory Committee and the working groups of the Commission.

Public hospitals that are not suitable for funding based on activity alone are funded through the national efficient cost (NEC) based on a on a fixed-plus-variable structure. 

For 2021–22, the NEC fixed cost is $2.199 million and the variable cost is $5,762 per NWAU. An additional loading of 30.2 per cent is applied for very remote hospitals.

Approximately 510 public hospitals nationwide receive funding based on their activity levels whereby they get paid for the number and mix of patients they treat. Funding based on a block grant basis applies to around 370 small rural hospitals.

Open and consultative approach to setting the price

Alongside the NEP and NEC Determinations, IHPA released the Pricing Framework for Australian Public Hospital Services 2021–22, which includes the major policy decisions that inform the Determinations.  

Some of the key changes outlined in the Pricing Framework include the likely impact of COVID-19 on service delivery, activity levels and models of care. 

During the drafting of the Pricing Framework and the Determinations, IHPA consulted extensively with all Australian governments, stakeholder groups and the wider public to ensure its decisions align with national health objectives. The Consultation Report captures how IHPA reached its decisions for 2021–22 based on the submissions received during the consultation process.

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