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The Independent Hospital Pricing Authority has developed the following Frequently Asked Questions to further clarify the several major areas of work we undertake to inform the annual determination of the national efficient price.

What is the Independent Hospital Pricing Authority?

The Independent Hospital Pricing Authority (IHPA) is an independent agency established under Commonwealth legislation as part of the National Health Reform Act 2011 signed by the Council of Australian Governments 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.

What does IHPA do?

The Independent Hospital Pricing Authority sets the national efficient price (NEP) and the national efficient cost (NEC) 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. The NEC is for services that are not suitable for activity based funding, such as small rural hospitals. IHPA undertakes several major areas of work designed to inform the annual determination of the NEP and NEC including ongoing consultation with all Australian health departments, expert advisory committees and key stakeholders.

We work in partnership with the 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.

What is activity based funding ?

Activity based funding (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 National Health Reform Agreement 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. ABF aims to empower the health sector to drive continuous improvement and value for money in the delivery of public hospital services.

Who works at IHPA?

IHPA is governed by a Pricing Authority, whose membership is agreed through the Council of Australian Governments. 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 national efficient price and the national efficient cost are both clinically relevant and technically appropriate.

How will activity based funding contribute to more efficiency and transparency in public hospitals?

Activity based funding is an episodic funding model – this means that for the vast majority of patients, a single payment is made for their stay in hospital – which 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.

What is the national efficient price (NEP)?

The national efficient price (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’.

IHPA determines the NEP for public hospital services through the analysis of data on actual activity and costs in public hospitals. Costing information used to determine the NEP is drawn from the National Hospital Cost Data Collection (NHCDC). This data is submitted to IHPA by state and territories.

More information is available on the NHCDC and the NEP.

What is the national efficient cost?

The national efficient cost (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 eligible for block grant funding in its Pricing Framework for Australian Public Hospitals.

How often are the national efficient price and national efficient cost determined?

The  national efficient price (NEP), the national efficient cost (NEC) and the National Weighted Activity Unit (NWAU) are determined annually. The NWAU is the unit of measure of the activity based funding system. Each year, IHPA publishes a Pricing Framework for Australian Public Hospital Services (Pricing Framework)– a key policy which helps guide the NEP and NEC.

A version of the Pricing Framework is provided to Commonwealth, state and territory governments, IHPA's key stakeholders and the general public for thorough consultation before it is finalised. IHPA uses this consultation process to ensure all needs are met when delivering the NEP and the NEC.

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.

How does the national efficient price work?

In very simple terms, the National Weighted Activity Unit (NWAU) multiplied by the national efficient price 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.

Does the national efficient price apply to all hospital services?

Each year, the Pricing Framework for Australian Public Hospital Services (Pricing Framework), lists the scope of public hospital services eligible for Commonwealth funding.

The National Health Reform Act 2011 and clauses A9–A17 of the National Health Reform Agreement, defines public hospital services eligible for Commonwealth funding to be:

  • all admitted programs
  • inpatient services are included as recorded in the 2010 Public Hospitals Establishment Collection
  • all emergency department services
  • non-admitted services as specified in the Pricing Framework.

If a service is not suitable for activity based funding, such as a small rural hospital, it will receive block funding through the national efficient cost.

How does IHPA index the national efficient price?

IHPA uses an indexation methodology to account for the time lag between the costing data used and the price to be set. IHPA reviews the indexation methodology each year in preparation for determining the national efficient price. 

Is activity based funding and the national efficient price applied to all public hospital funding in Australia?

No. Block funding still exists for some hospitals which have been recognised as unsuitable for activity based funding.

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 for block-funded services.

Does this mean that hospitals are now funded by the Commonwealth Government instead of state and territory governments?

No. The national efficient price 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 national efficient price or national efficient cost if they choose to.

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 healthcare services. The full list of adjustments can be found in the national efficient price section of the IHPA web site.

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.

Does IHPA set prices in private hospitals as well?

No. The National Health Reform Act 2011 specifies that the national efficient price 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.

What are classifications?

Classifications aim to provide the health care sector with a nationally consistent method of classifying all types of patients, their treatment and associated costs in order to provide better management, measurement and funding of high quality and efficient healthcare services.

Classifications are comprised of codes that provide clinically meaningful ways of relating the types of patients treated by a hospital to the resources required. They enable hospital and health service provider performances to be measured by creating a link between the patients treated and the resources consumed for providing those treatments. This allows hospital and health service provider output to be measured, which forms the crucial data for policies on funding, budgeting and setting costs.

Effective clinical classification systems ensure that hospital data is grouped into appropriate classes, which in turn contributes to the determination of the national efficient price and national efficient cost.

What are the main classifications?

There are six patient service categories in Australia currently which have classifications being used nationally or in development stage.

More information is available in the Classifications section of the IHPA website.

How can I purchase the AR-DRG and ICD-10-AM/ACHI/ACS products and licences?

The AR-DRG and ICD-10-AM/ACHI/ACS products and licences that can be purchased include:

  • ICD-10-AM Alphabetic Index
  • ICD-10-AM Tabular List
  • ACHI Alphabetic Index
  • ACHI Tabular List
  • Australian Coding Standards
  • AR-DRG Definitions Manual (Volumes 1-3)
  • Mapping tables between ICD-10-AM/ACHI editions
  • Electronic Code Lists (ECLs)

You may purchase any of the AR-DRG and ICD-10-AM/ACHI/ACS products and materials by visiting the AR-DRG Classification System Product Sales website.

Please note that purchasing of the ECLs requires entering into a licensing arrangement with IHPA, which sets out the terms and conditions for the use of the ECLs.  To enquire about the ECL licensing arrangement, Classification.Licensing [at] (please contact us here).

Further information on the AR-DRG Classification System is available on the IHPA website including:

  • international licensing arrangement
  • licence Agreement for governments
  • Software Developer Licence Agreement
  • how to purchase classification system materials and products.

Please note that if you are from outside Australia, your country must be licensed for the AR-DRG classification system before you can purchase any the materials and products above. Please see ‘How to purchase a Licence Agreement’ for more information on entering into a licence for the AR-DRG classification system.

If you have any questions regarding how to purchase the AR-DRG products and materials, Classification.Licensing [at] (please contact us here).

Where does IHPA get its data from?

To calculate the national efficient price and national efficient cost, activity and cost data is provided by state and territory jurisdictions.

IHPA receives activity data from each jurisdiction on a six-monthly basis. This data includes inpatient admissions, emergency department presentations and outpatient appointments as well as a range of mental health and rehabilitation services.

In addition to activity data, each year IHPA receives cost data from jurisdictions via the National Hospital Cost Data Collection (NHCDC). The NHCDC collates the vast majority of health system costs at a ‘product’ level.

Further information is available in IHPA’s Three Year Data Plan.

What does IHPA do with the data?

IHPA’s activity and cost data collections provide the primary input for the national efficient price (NEP) and national efficient cost (NEC). Once data is collected it is analysed by IHPA using a pricing model. This price model is then used to produce the NEP and NEC Determinations for each financial year.

Where can I find more information?

Where can I find information on the National Hospital Cost Data Collection?

The National Hospital Cost Data Collection (NHCDC) is the primary data collection used to develop the national efficient price.

It is an annual collection of public hospital data. Each collection (known as a 'Round') is made up of several components including the public hospital report and an independent financial review of the public hospital collection.

Please refer to the IHPA website for further information on the NHCDC collections.

Where can I find information on IHPA’s activity data collection?

In order for activity based funding to be effective, each patient episode needs to be counted. This includes inpatient admissions, emergency department presentations and outpatient appointments as well as a range of mental health and rehabilitation services.

IHPA collects data two times a year and is referred to as the activity based funding six-monthly activity data submission.

For further information on IHPA’s data collection please visit the Data Collection webpage.

How can I contact IHPA?

You contact us by email enquiries.ihpa [at] or by calling +61 2 8215 1100.