Basis of Commonwealth NHR funding

To meet the reporting requirements of section 240 of the National Health Reform Act 2011 (external link, opens in a new window) [http://www.comlaw.gov.au/Details/C2012C00746], the Administrator's monthly reports must include the amounts paid into and from each State Pool Account and State Managed Fund, the basis on which these payments were made, and the number of public hospital services funded.

In 2012-13 and 2013-14, Commonwealth NHR contributions to each state and territory were equivalent to the amount that would otherwise have been payable through the former National Healthcare Specific Purpose Payment (SPP). These years were known as the 'transition years'.

For 2014-15, 2015-16 and 2016-17, NHR funding is linked to the level of services delivered by public hospitals as provided under the National Health Reform Agreement. These years are known as the 'growth years'.

From 1 July 2017 to 30 June 2020, the Commonwealth will fund 45 per cent of the efficient growth of activity based services, subject to the growth in Commonwealth funding for public hospitals not exceeding 6.5 per cent a year.

The basis of Commonwealth NHR funding for each financial year as specified in the National Health Reform Agreement is outlined below.

  • 2012-13

    2012-13

    For 2012-13, the Commonwealth is providing funding to each state and territory equivalent to the amount that would otherwise have been payable through the former National Healthcare SPP (clause A32). This amount is divided into the following funding streams:

    1. An amount for public health activities calculated as the sum of amounts identified under the Agreement relating to national public health, youth health services and essential vaccines (service delivery) in 2008-09 ($244.0 million), indexed by the former National Healthcare SPP growth factor.
    2. A proportion of the total amount for hospital services to patients in public hospitals funded through block grants and in respect of teaching, training and research functions funded by states and territories undertaken in public hospitals, with the distribution of funds between these block funded elements based on state and territory advice.
    3. The residual amount is divided between the following interim ABF service categories based on state and territory NWAU(12) service estimates for the following:
      1. Acute admitted public patients
      2. Acute admitted private patients
      3. Emergency department services
      4. Non-admitted patient services

      Subject to further adjustments for cross-border arrangements, the residual amounts at step 3 represents the funds available for Commonwealth ABF funding for each state or territory.

  • 2013-14

    2013-14

    For 2013-14, the Commonwealth is providing funding to each state and territory equivalent to the amount that would otherwise have been payable through the former National Healthcare SPP (clause A33). This amount is divided into the following funding streams:

    1. An amount for public health activities in 2012-13 indexed by the former National Healthcare SPP growth factor.
    2. Discrete amounts, calculated by the Administrator based on the Independent Hospital Pricing Authority (IHPA) National Efficient Cost (NEC) Determination (external link, opens in a new window) [http://www.ihpa.gov.au/internet/ihpa/publishing.nsf/Content/national-efficient-cost-determination-lp] (clause A27), as endorsed by the Council of Australian Governments for:
      1. Block funded public hospital services provided at each local hospital network
      2. Teaching and training functions performed at each local hospital network or other organisations (such as universities and training providers)
      3. Research functions performed at each local hospital network.
    3. The residual amount is divided between the following ABF service categories based on the IHPA National Efficient Price (NEP) Determination (external link, opens in a new window) [http://www.ihpa.gov.au/internet/ihpa/publishing.nsf/Content/national-efficient-price-determination-lp] and state and territory NWAU service estimates for the following:
      1. Acute admitted public patients
      2. Eligible admitted private patients
      3. Emergency department services
      4. Mental health services (not already captured by clause A33(c)(i))
      5. Eligible non-admitted patient services
      6. Sub-acute admitted public patients.
      Subject to further adjustments for cross-border arrangements, the residual amounts at step 3 represents the funds available for Commonwealth ABF funding for each state or territory.
  • 2014-15, 2015-16 and 2016-17

    2014-15, 2015-16 and 2016-17

    The basis of Commonwealth NHR funding for 2014-15, 2015-16 and 2016-17 as specified in the Agreement is as follows:

    Public Health (clause A34)

    Payments for Public Health activities for 2014-15, 2015-16 and 2016-17 will be equal to the previous year's payment indexed by the former National Healthcare SPP growth factor.

    Block funding (clause A50)

    Payments for 2014-15, 2015-16 and 2016-17 will consist of the previous year's payment plus 45 per cent of the growth in the efficient cost of providing the services, adjusted for the addition or removal of block services as provided in clauses A27-A30 (calculated in accordance with clause A4).

    Activity based funding (clause A34)

    In 2014-15, 2015-16 and 2016-17, the Commonwealth's funding for each ABF service category will be calculated individually for each State by summing:

    1. previous year amount: the Commonwealth's percentage funding rate for the relevant State in the previous year multiplied by the volume of weighted services provided in the previous year multiplied by the national efficient price in the previous year;
    2. price adjustment: the volume of weighted services provided in the previous year multiplied by the change in the national efficient price relative to the previous year multiplied by 45 per cent; and
    3. volume adjustment: the net change in volume of weighted services to be provided in the relevant State (relative to the volume of weighted services provided in the previous year) multiplied by the national efficient price multiplied by 45 per cent.

    For further information on the calculation approach within the growth years, including specific information on the calculation parameters for 2014-15, 2015-16 and 2016-17, refer to the Administrator's Growth and Funding Guarantees document.

  • 2017-18

    2017-18

    The basis of Commonwealth NHR funding for 2017-18 as specified in the Agreement and Addendum is as follows:

    Public Health (clause A43 and I19)

    Payments for Public Health activities for 2017-18 will be equal to the previous year's payment indexed by the former National Healthcare SPP growth factor.

    Block funding (clause A50 and I18)

    Payments for 2017-18 will consist of the previous year's payment plus 45 per cent of the growth in the efficient cost of providing the services, adjusted for the addition or removal of block services as provided in clauses A27-A30 (calculated in accordance with clause A4).

    Activity Based Funding (clause A34, I15 and I16)

    In 2017-18, the Commonwealth's funding for each ABF service category will be calculated individually for each State by summing:

    1. previous year amount: the Commonwealth's percentage funding rate for the relevant State in the previous year multiplied by the volume of weighted services provided in the previous year multiplied by the national efficient price in the previous year;
    2. price adjustment: the volume of weighted services provided in the previous year multiplied by the change in the national efficient price relative to the previous year multiplied by 45 per cent; and
    3. volume adjustment: the net change in volume of weighted services to be provided in the relevant State (relative to the volume of weighted services provided in the previous year) multiplied by the national efficient price multiplied by 45 per cent.

    Funding Cap (clause I10 and I20 to I27)

    From 1 July 2017 to 30 June 2020, the growth in annual Commonwealth NHR funding for national public hospital services will not exceed 6.5 per cent a year (the Funding Cap) (clause I10). The Funding Cap includes:

    • a state-based Soft Cap of 6.5 per cent, to be applied to the Commonwealth NHR funding entitlement of each State throughout the financial year (clause I20a); and
    • a National Funding Cap of 6.5 per cent, to be applied to the Commonwealth NHR funding entitlement for all States throughout the financial year.
    States may be entitled to additional funding over the Soft Cap if there is funding available under the National Funding Cap (a Redistribution Amount) upon completion of the annual Reconciliation. The Redistribution Amount will be determined as the total of any funding remaining under the National Funding Cap, resulting from a State with growth less than 6.5 per cent (clause I20).

    Safety and Quality Adjustment (clause I60 to I74)

    Services that are considered to put patient safety and quality at risk will be subject to a Safety and Quality Adjustment, calculated as part of a state or territory’s actual NWAU during the Reconciliation process. From 1 July 2017 to 30 June 2020, adjustments will be included for Sentinel Events, Hospital Acquired Complications (HACs), and Avoidable Hospital Readmissions. For a service that results in the occurrence of a Sentinel Event, the adjustment will assign an NWAU weight of zero (i.e. no funding) as per clause I63. It is intended that a pricing and funding model for HACs will be introduced from 1 July 2018, subject to results of a shadow implementation period to be considered by the COAG Health Council (clause I68). An appropriate model for Avoidable Hospital Readmissions is to be agreed for implementation not before 1 July 2018, taking into account any potential advice from COAG Health Council (clause I74).

    Data Conditional Payment (clause I35 to I39)

    A temporary deferral of an agreed percentage of Commonwealth NHR funding will apply in the event a state or territory has not provided the required data for annual Reconciliation to the Administrator by 30 September of the relevant financial year (clauses I35 to I39). If the required data is not provided by 31 October of the relevant financial year, a deferral of further funds will occur.