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Activity based funding starts in July


The Independent Hospital Pricing Authority (IHPA) has released the National Efficient Price (NEP) and the National Efficient Costs (NEC) determinations for Australian public hospital services for 2014-2015.

The NEP and NEC determine the amount of Commonwealth funding given to public hospitals according to either hospital activity levels or, in the case of small rural hospitals, an allocation block of funding.

For the first time, from 1 July 2014 Commonwealth funding for most public hospital services will be directly determined by Activity Based Funding. Under the new system public hospitals are paid for the number and mix of patients they treat.

The NEP for 2014-2015 is set at $5007 per national weighted activity unit. Each service hospitals provide is allocated a complexity weighting, which reflects the cost of delivering that service. The weighting is multiplied by the NEP to calculate the total efficient price of the service.

For example:
• A tonsillectomy has a weighting of 0.7058, which equates to $3534 per admission; and
• A hip replacement has a weight of 4.1855, which equates to $20,957 per admission.

The NEC is used when activity based funding is not suitable to determine funding, which is often the case for small rural public hospitals. For small rural hospitals, funding is allocated based on size and location. The NEC for 2014- 2015 is $5.725 million.

For example, a small rural public hospital has an efficient cost of approximately $2.9 million, compared to a larger public hospital in a city that has an approximate efficient cost of $5.7 million.

The NEC funding is applied to 436 small rural public hospitals, which are listed in the NEC determination.

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Kirsty Waterford