Frequently Asked Questions
Frequently Asked Questions print friendly version (PDF 457 KB)
What is the Independent Hospital Pricing Authority (IHPA)?
What does IHPA do
Who works at IHPA?
What is Activity Based Funding (ABF)?
How will activity based funding contribute to more efficiency and transparency in public hospitals?
What is the National Efficient Price (NEP)?
How often is the NEP determined?
How does the NEP work?
Is ABF and the NEP applied to all public hospital funding in Australia?
What is the National Efficient Cost (NEC)?
Does this mean that hospitals are now funded by the Commonwealth Government instead of state and territory governments?
Is it fair to have one set price for all Australian hospital services?
Does the NEP apply to all hospital services?
Does IHPA set prices in private hospitals as well?
What are classifications?
What are the main classifications?
When will these reforms start?
Where can I find more information?
How can I contact IHPA?
What is the Independent Hospital Pricing Authority (IHPA)?
IHPA is an independent statutory authority established under Commonwealth legislation as part of the National Health Reform Agreement (NHRA) signed by the Council of Australian Governments (COAG) in August 2011.IHPA was formally established as part of the National Health Reform Act 2011 to contribute to significant reforms to improve Australian public hospitals. A major component of these reforms is a new way of funding public hospitals to ensure increased efficiency and more transparency.
This includes the implementation of national Activity Based Funding (ABF) for Australian public hospitals. The implementation of ABF provides incentives for efficiency and increases transparency in the delivery of services and funding of public hospital services across Australia.
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What does IHPA do
IHPA sets the National Efficient Price (NEP) and price weights based on national data provided by the state and territory governments.The NEP is a major determinant of the level of Commonwealth Government funding for public hospital services and provides a price signal or benchmark for the efficient cost of providing public hospital services.
IHPA undertakes several major areas of work designed to inform the annual determination of the NEP including ongoing consultation with all Australian health departments, expert advisory committees and key stakeholders.
We work in partnership with the National Health Performance Authority and Australian Commission on Safety and Quality in Health Care to ensure that pricing, quality and performance measures for public hospitals are complementary and facilitate a strong national framework for the delivery of public hospital services.
IHPA’s work also covers policy development to resolve disputes on cross-border issues between the states and territories and provides advice and reporting to all Australian governments and the public.
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Who works at IHPA?
IHPA is governed by a Pricing Authority, whose membership is agreed through the Council of Australian Governments (COAG). Members of the Pricing Authority bring significant expertise and skills to the role, including substantial experience and knowledge of the health care needs and the provision of health care for people living in regional and rural areas.The Pricing Authority is supported by a Chief Executive Officer, who is responsible for the day-to-day running of the agency.
IHPA works closely with a range of expert committees including a Clinical Advisory Committee, a Jurisdictional Advisory Committee, a Stakeholder Advisory Committee and a Technical Advisory Committee. These committees ensure that the underlying principles applied to setting the NEP are both clinically relevant and technically appropriate.
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What is Activity Based Funding (ABF)?
ABF is a way of funding hospitals whereby they get paid for the number and mix of patients they treat. Put simply, if a hospital treats more patients, it receives more funding. However, because some patients are more complicated to treat than others, ABF also takes into account various adjustments.A key aim of the NHRA is to move as much funding as possible to an activity basis and away from block funding to provide more transparency in regards to where funding is going and to improve efficiency. Activity based funding aims to empower the health sector to drive continuous improvement and value for money in the delivery of public hospital services.
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How will activity based funding contribute to more efficiency and transparency in public hospitals?
ABF is an episodic funding model – this means that for the vast majority of patients, a single payment is made for their stay in hospital – this means that the hospital has a strong incentive to ensure that patients are kept in hospital only as long as they need to be.The model also recognises that some patients require more care/treatment and makes additional payments to these patients to ensure that the hospital is not disadvantaged by treating them.
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What is the National Efficient Price (NEP)?
The NEP is a set amount that is used to work out the funding for a public hospital activity.A public hospital service operating at the NEP will be able to:
- Provide episodes of patient care (on average, across all types of care, as measured using agreed classifications) and other services (including teaching, training and research) at or below the national benchmark price.
- Respond to evidence based initiatives to improve patient care including new technologies.
- Provide services at a quality level consistent with national standards, and to minimise negative consequences that fall on patients (including those attributable to poor quality and safety) or on other parts of the service system.
- Make choices about how best to deliver services to ensure that people receive the ‘right care at the right time in the right setting’.
More information can be found about the NHCDC and NEP on the IHPA website.
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How often is the NEP determined?
The NEP and the National Weighted Activity Unit (NWAU) is determined annually. The NWAU is the unit of measure of the ABF system. Each year, IHPA publishes a draft Pricing Framework – a document which helps guide the NEP.The draft Pricing Framework is provided to Commonwealth and state and territory governments, for thorough consultation before it is finalised. IHPA uses this consultation process to ensure all needs are met when delivering the NEP and the NWAU.
In determining the efficient price, IHPA considers the need to ensure reasonable access to public hospital services, safeguard clinical safety and quality, and the efficiency, effectiveness and financial sustainability of the public hospital system.
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How does the NEP work?
In very simple terms, the NWAU multiplied by the NEP provides the total cost of a hospital service.The NWAU allows activity across a range of settings to be compared – for example, inpatients, outpatients and emergency patients. It provides a scale that identifies the relative measure of resource use of each public hospital service. Specific examples of costs are available on the IHPA website.
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Is ABF and the NEP applied to all public hospital funding in Australia?
No. Block funding still exists for some hospitals which have been recognised as unsuitable for ABF.The National Health Reform Agreement stipulates that the Commonwealth will provide block funding amounts for relevant services in regional and rural communities via a state managed fund.
Both the Commonwealth, states and territories are committed to maintaining a flexible approach to health and community services delivered to small, isolated communities and funding agreements will reflect this.
IHPA determines the National Efficient Cost (NEC) for block funded services.
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What is the National Efficient Cost (NEC)?
The NEC determines the Commonwealth funding contribution to block funded hospitals. It represents the average cost of block funded hospitals across Australia.IHPA determines the NEC and the criteria for which public hospitals or public hospital services are be eligible for block grant funding in its Pricing Framework for Australian Public Hospitals.
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Does this mean that hospitals are now funded by the Commonwealth Government instead of state and territory governments?
No. The NEP determines only the Commonwealth contribution to public hospital funding. As system managers, the states and territories will set the volume of services to be provided by each Local Hospital Network via a service agreement. States and territories can also choose to pay a price that is higher or lower than the NEP if they choose to.Back to top
Is it fair to have one set price for all Australian hospital services?
No. This is why IHPA was also given the role of determining adjustments to reflect legitimate and unavoidable variations in the costs of delivering health care services. The full list of adjustments can be found in the NEP documents.These include an adjustment for:
- Indigenous patients
- patients who required treatment in an intensive care unit
- patients treated in specialist paediatric hospitals
- patients who live in outer regional, remote and very remote areas of Australia
- subacute paediatric patients
- specialist psychiatric care adjustment
Does the NEP apply to all hospital services?
Currently there is no standard definition or listing of public hospital services. An important part of IHPA’s role is to make decisions about what is, or is not, a public hospital service for the purpose of determining eligibility for Commonwealth funding.Each year, The Pricing Framework for Australian Public Hospital Services, lists the scope of public hospital services eligible for Commonwealth funding.
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Does IHPA set prices in private hospitals as well?
No. The National Health Reform Act 2011 specifies that the NEP is only applied to public hospital services in Australia. IHPA does however consult closely with private health stakeholder groups which sit on IHPA's stakeholder advisory committee.Back to top
What are classifications?
Classifications enable clinical information that is written in medical charts to be converted into manageable data categories. Rules for collecting and coding clinical data need to be the same across Australia to ensure that all states and territories are obtaining and providing information in the same way.Effective clinical classification systems ensure that hospital data is grouped into appropriate classes, which in turn contributes to the determination of a NEP.
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What are the main classifications?
There are a number of different classifications in use, depending on the type of treatment the patient receives. These include:- Admitted acute patients (ICD-10-AM and AR-DRG V6.x)
- Emergency department patients (Urgency Related Groups)
- Non-admitted patients (Tier 2 Clinics)
- Subacute patients (AN-SNAP V3.0)
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When will these reforms start?
2012–13 to 2013–14 is a transition period. During this time there will be capped funding for payments from the Commonwealth Government equivalent to the amount that would have been payable before ABF was introduced. Put simply no extra Commonwealth Government funding will be available during these years.Over time the Commonwealth Government will contribute more funding based on the NEP. From 2014–15, the Commonwealth Government will contribute 45% towards efficient growth (growth in service volume at the NEP) and from 2017–18, the Commonwealth Government will contribute 50% towards efficient growth (growth in service volume at the NEP).
State and territory governments are responsible for providing the remaining funding as they see fit.
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Where can I find more information?
More information on the following topics can be found on the IHPA website:Activity based funding
Consultation with stakeholders
How can I contact IHPA?
You contact us by email enquiries@ihpa.gov.au or by calling +61 2 8215 1100.
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Page currency, Latest update: 30 November, 2011
