IHPA releases National Efficient Price and National Efficient Cost Determinations for 2019-20

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 2019-20.

As outlined in the National Health Reform Agreement, the NEP and NEC play a crucial role in determining 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.

Currently, the majority of Commonwealth funding to public hospitals is determined by activity based funding. This is a way of funding public hospitals whereby they get paid for the number and mix of patients they treat. Approximately 460 public hospitals nationwide, including all the large metropolitan hospitals, receive funding based on their activity levels.

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

The National Efficient Price for 2019-20 is $5,134 per National Weighted Activity Unit (NWAU). This is a 1.8 per cent increase in price from the NEP for 2018-19.

The efficient 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 0.7019 NWAU which equates to $3,604.
  • A coronary bypass (minor complexity) has a weight of 5.2449 NWAU which equates to $26,927.
  • A hip replacement (minor complexity) has a weight of 3.8794 NWAU which equates to $19,917.

The release of the eighth NEP continues to demonstrate the impact that activity based funding 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 in hospital unit costs of 1.6 per cent per annum,” Mr Solomon added.

IHPA recognises there are legitimate and unavoidable costs incurred due to higher costs of care associated with treatment in remote areas. For the first time the NEP for 2019-20 extends the remoteness adjustment to include non-admitted services.

Mr Solomon noted IHPA continues to incorporate safety and quality into the pricing and funding of public hospital services to improve national health outcomes.

From July 2017 no Commonwealth funding has been provided for episodes of care with sentinel events such as medication errors leading to death. Since July 2018 funding has been adjusted for any episode of care where a hospital acquired complication occurs.

The National Efficient Cost for 2019-20 is $5.319 million. The NEC is used when public hospital services 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 370 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 2019-20, and a guide to understanding the Determinations, visit www.ihpa.gov.au.

The policy consideration underpinning the Determinations is provided in the annual Pricing Framework for Australian Public Hospital Services.

About IHPA

IHPA is an independent government agency established under Commonwealth legislation as part of the National Health Reform Agreement, reached by the Council of Australian Governments in August 2011.

The agreement sets out the intention of the Australian Government and state and territory governments to work in partnership to improve health outcomes for all Australians.

IHPA is charged with implementing national activity based funding by determining the National Efficient Price and the National Efficient Cost for public hospital services each year. Activity based funding improves transparency and strengthens incentives for efficiency in the delivery of public hospital services.

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For more information contact:
IHPA Media and Communications Section
E: communications.ihpa [at] ihpa.gov.au  P: 02 8215 1110
LinkedIn: Independent Hospital Pricing Authority
Twitter: @IHPAnews

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