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IHPA releases National Efficient Price and National Efficient Cost Determinations for 2022–23

23 March 2022

The Independent Hospital Pricing Authority (IHPA) today released the National Efficient Price and National Efficient Cost Determinations for 2022–23. 

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 Determinations rely on activity and cost data from the 2019–20 financial year.

Accounting for the impact of COVID-19

Coronavirus disease 2019 (COVID-19) has resulted in significant and potentially long lasting changes to models of care and service delivery in Australian public hospitals.

IHPA notes the importance of ensuring that the impact of COVID-19 is adequately accounted for in the national pricing model, however, acknowledges that it is not possible to definitively account for the ongoing impact that COVID-19 may have on hospital service delivery and costs in 2022–23. 

The Chair of the Pricing Authority, Mr David Tune AO PSM, said ‘Throughout the development of this Determination, transparency has remained central in our approach to ensuring IHPA’s work continues to support the delivery of safe and efficient high-quality care in Australia’s public hospital system’. 

IHPA will continue to prioritise assessing the impacts of COVID-19 to ensure public hospital costs, activity and evolving models of care are accurately accounted for in the national pricing model as more data becomes available.

Better pricing of mental health care 

For 2022–23, IHPA will price admitted mental health care using the Australian Mental Health Care Classification (AMHCC) Version 1.0, which represents a more clinically meaningful classification system for the pricing of admitted mental health care services and will result in more accurate pricing of these services.

With the introduction of the AMHCC for pricing admitted mental health care, the national pricing model will include pricing adjustments to capture and account for legitimate and unavoidable variations in the costs of delivering those services.

National Efficient Price Determination

The national efficient price (NEP) for 2022–23 is $5,797 per national weighted activity unit (NWAU).

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 0.7400 NWAU which equates to $4,290.
  • A coronary bypass (minor complexity) has a weight of 5.3925 NWAU which equates to $ 31,260.
  • A hip replacement (minor complexity) has a weight 3.4152 NWAU which equates to $19,798.

National Efficient Cost Determination 

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 2022–23, the NEC fixed cost is $2.265 million and the variable cost is $5,850 per NWAU. An additional loading of 44.1 per cent is applied for very remote hospitals.

Approximately 480 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

IHPA consulted extensively with all Australian governments, stakeholder groups and the wider public to ensure its decisions align with national health objectives. 

Prior to releasing the NEP and NEC, IHPA published the Pricing Framework for Australian Public Hospital Services 2022–23, which includes the major policy decisions that inform the NEP and NEC Determinations.  

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