National Health Reform Agreement

The role of the Administrator of the National Health Funding Pool (the Administrator) and the National Health Funding Body (NHFB) in Australia’s health system was the result of significant public hospital funding reforms agreed by the Commonwealth and all States and Territories in August 2011, forming the National Health Reform Agreement (NHR Agreement).

The NHR Agreement outlines the shared responsibility of the Commonwealth, State and Territory governments to work in partnership to improve health outcomes for all Australians and ensure the sustainability of the health system. 

On 29 May 2020, the Commonwealth, States and Territories entered into a new agreement through the Addendum to the National Health Reform Agreement 2020–21 to 2024–25 (see page 10). The new Addendum maintains a commitment to ensuring equitable access to public hospitals for all Australians, and reaffirms the role of the Administrator and the NHFB. 

As part of the Addendum, the signatories agreed that an external review of the NHR Agreement would be completed by December 2023. An independent review team was publicly announced on 24 February 2023 and has been tasked to examine whether:

  • the stated objectives of the Addendum – improving health outcomes, access and innovation – are being met; and in particular,
  • the Addendum’s health funding, planning and governance architecture is fit‑for‑purpose, given emerging priorities for better integrated care and more seamless interfaces between health and primary care, mental health, aged care and disability systems.  The Review will also consider potential options for future reforms and agreements.

 

Overview of health care agreements

National Healthcare Specific Purpose Payment 

Pre–2012

Prior to the NHR Agreement, State and Territories were paid a contribution for public hospital services from the Commonwealth via ‘block grants’ under the National Healthcare Specific Purpose Payment arrangements. These grants were calculated based on historical costs, negotiation and government decisions, with little transparency of the actual services delivered for the funding provided. 

National Health Reform Agreement 

2012–13 to 2016–17 

In August 2011, the Council of Australian Governments (COAG) agreed to major changes in how public hospitals were to be funded by Commonwealth, State and Territory governments, including the move from block grants to an ‘activity–based’ funding system. These changes, detailed in the NHR Agreement, included establishing the Administrator and the NHFB to improve transparency of public hospital funding arrangements.

Addendum to the National Health Reform Agreement 

2017–18 to 2019–20

In July 2017, amendments were introduced to the NHR Agreement through a time–limited Addendum. This reaffirmed universal health care for all Australians as a shared priority and committed parties to public hospital funding from 1 July 2017 to 30 June 2020. It also focused on reducing unnecessary hospitalisations and improving patient safety and service quality.

Addendum to the National Health Reform Agreement 

2020–21 to 2024–25

In May 2020, through the signing of the new Addendum, Commonwealth, State and Territory governments agreed to four strategic priorities to further guide health system reform: 

  • Improving efficiency and ensuring financial sustainability;
  • Delivering safe, high-quality care in the right place at the right time, including long-term reforms in:
    • nationally cohesive health technology assessment
    • paying for value and outcomes
    • joint planning and funding at a local level.
  • Prioritising prevention and helping people manage their health across their lifetime, including long-term reforms in:
    • empowering people through health literacy
    • prevention and wellbeing.
  • Driving best practice and performance using data and research, including long-term reforms in enhanced health data. 
The Addendum will see over $131 billion in Commonwealth funding to public hospitals over the five years of the Agreement. In conjunction with the new Addendum, the Commonwealth Government provided a Minimum Funding Guarantee (2019-20, 2020-21 and 2021‑22) to all States and Territories to ensure no jurisdiction is left worse off as a result of the COVID-19 pandemic.
 

National Partnership on COVID-19 Response (NPCR)

The NPCR was agreed to and signed by COAG on Friday, 13 March 2020. The NPCR was subsequently amended and agreed to in April 2020 to include a provision for Private Hospital Financial Viability Payment. A third update to the NPCR was made in February 2021 to support the COVID-19 vaccine rollout. The NPCR was further amended to assist residential aged care providers prevent, prepare for and respond to outbreaks of COVID-19 under Schedule D.

The objective of the NPCR was to provide financial assistance to States and Territories for the additional costs incurred in responding to COVID-19. Under the NPCR, there were a range of responsibilities and functions to be performed by the Administrator supported by the NHFB and other portfolio agencies. In March 2020, the NHFB established a new funding account in the Payments System to facilitate payments to all States and Territories. Since then, more than $14.7 billion (2019-20 to 2022-23) in Commonwealth COVID-19 funding has been paid to States and Territories:

  • Hospital Service Payments for COVID-19 related hospital activities, with the Commonwealth funding 50%
  • State Public Health Payments for public health activities associated with addressing the pandemic, with the Commonwealth funding 50%
  • Private Hospital Financial Viability Payments to enable private hospitals to retain capacity, with the Commonwealth funding 100%
  • Schedule C: COVID-19 vaccine payments including Vaccine Dose Delivery Payments and Vaccine Rollout Support Payments, with the Commonwealth funding 50%
  • Schedule D: supporting aged care prevention, preparedness and response activities including additional targeted infection prevention and control training in Residential Aged Care Facilities, with the Commonwealth funding 100%
  • Costs of the purchase, logistics and distribution of Rapid Antigen Tests (RATs), with the Commonwealth funding 50%.

The NPCR ceased on 31 December 2022. In December 2022 the Commonwealth announced the National COVID-19 Health Management Plan 2023 which focuses on testing and vaccination for priority population groups and will be in place for the 2023 calendar year. Further details on COVID-19 funding is available from the 2019-20, 2020-21, 2021-22, and 2022-23 National Health Funding Pool Annual Reports.

Future Addendum to the National Health Reform Agreement

As part of the NHR Agreement, signatories agreed that an external review of the Agreement would be completed by December 2023. Subsequently, an independent review team was tasked to examine whether the stated objectives of the Addendum – improving health outcomes, access and innovation – are being met; and in particular, whether the Addendum’s health funding, planning and governance architecture is fit-for purpose.

Following the Review, negotiations commenced on a new Addendum (2025-2030). On 6 December 2023, National Cabinet endorsed:

  1. Increasing NHRA contributions to 45% over a maximum of a 10-year glide path from 1 July 2025, with an achievement of 42.5% before 2030
  2. The current 6.5% national funding cap being replaced by a more generous approach that applies a cumulative cap over the period 2025‑2030 and includes a first year ‘catch-up’ growth premium
  3. Commencing the renegotiation of the NHRA Addendum to embed long-term, system‑wide structural health reforms, including considering the NHRA Mid-Term Review findings.

It is anticipated that outcomes of the negotiations on a new Addendum will be finalised in 2024.

Legislative basis for functions

The Administrator and the NHFB are governed by the National Health Reform (NHR) Act 2011, State and Territory legislation, the NHR Agreement and the Addendum to the NHR Agreement (the Addendum).

The functions of the Administrator and the NHFB were established under the NHR Act. In line with the NHR Agreement, this legislation is supported by common statute provisions in each State and Territory. These provisions create the Administrator’s role and sets out its functions.