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IHPA releases National Efficient Price and National Efficient Cost Determinations

5 March 2018

The Independent Hospital Pricing Authority (IHPA) today released the National Efficient Price (NEP) and National Efficient Cost (NEC) Determinations for Australian public hospital services for 2018-19.

As outlined in the National Health Reform Agreement, the NEP and NEC determine the Commonwealth funding contribution to Australian public hospitals according to either hospital activity levels or, in the case of small rural hospitals, an allocation towards block funded services. The policy consideration underpinning the Determinations is provided in the annual Pricing Framework for Australian Public Hospital Services.

Currently, the majority of Commonwealth funding to public hospitals is determined by Activity Based Funding (ABF). This is a way of funding public hospitals whereby they get paid for the number and mix of patients they treat. The NEP underpins ABF to approximately 290 hospitals nationwide, including all the large metropolitan hospitals.

Shane Solomon, Chair of the Pricing Authority, said IHPA has consulted widely with all Australian governments to develop the Determinations that reflect the costs of delivering public hospital services across Australia.

The NEP for 2018-19 is $5,012 per National Weighted Activity Unit (NWAU). This is a 1.6 per cent increase in price from the revised NEP for 2017-18.

The price of each public hospital service is calculated by multiplying the NWAU allocated to that service by the NEP.

For example:

  • A tonsillectomy has a weight of 0.7158 NWAU which equates to $3,588.
  • A coronary bypass (minor complexity) has a weight of 5.1572 NWAU which equates to $25,848.
  • A hip replacement (minor complexity) has a weight of 4.0509 NWAU which equates to $20,303.

“The NEP for 2018-19 introduces an effective way of accounting to improve efficiency, accountability and transparency across the public health care system,” said Mr Solomon.

“The release of the seventh NEP continues to demonstrate the impact that ABF is having in reducing the rate of growth in public hospital costs; since the first NEP in 2011-12, there has been an average growth rate of 1.3 per cent per annum,” he continued.

Mr Solomon noted, “For the first time NEP for 2018-19 introduces a new funding model that adjusts the level of funding a hospital receives for complications, which may occur during a hospital stay.”

“This new adjustment provides a financial incentive for hospitals to reduce the rate of hospital acquired complications, and complements existing measures Australian governments place on improving safety and quality in public hospitals.”

The National Efficient Cost for 2018-19 is $5.171 million. The NEC is used when activity levels are not suitable for funding based on activity, such as small rural hospitals. In these cases, services are funded by a block allocation based on size and location. This type of funding applies to approximately 400 small rural hospitals.

“IHPA looks forward to its ongoing partnership with all Australian governments to continue to improve the value of the public investment in hospital care,” concluded Mr Solomon.

For a full copy of the National Efficient Price and National Efficient Cost Determinations 2018-19, and a guide to understanding the Determinations, visit www.ihacpa.gov.au.

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