IHPA’s key role is to determine the annual National Efficient Price (NEP) and National Efficient Cost (NEC) for Australian public hospital services. IHPA develops cost and pricing models, as well as a range of supporting documents and tools that inform the Determinations and outline how they are calculated each year.
The NEP underpins the implementation of a nationally consistent Activity Based Funding (ABF) system and is used to calculate the amount of the Commonwealth Government’s payments to Local Hospital Networks (LHN) funded on an activity basis.
The NEC determines the Commonwealth Government’s contribution to LHN expenditure on block funded hospitals (such as small rural hospitals).
IHPA develops cost and pricing models that explain the expenditure of Local Hospital Networks nationally, while applying the policies contained within the Pricing Framework for Australian Public Hospital Services.
The cost model is then converted to the pricing model. This is developed by removing the out-of-scope costs and indexing costs to best reflect costs in the year of the NEP. The pricing model defines the NEP, price weights and adjustments.
Price weights and adjustments are combined to define the National Weighted Activity Unit (NWAU).