IHPA and the National Efficient Price(NEP)

Independent Hospital Pricing Authority

Outline of IHPA Update

IHPA is the Independent Hospital Pricing

Authority

Why does IHPA exist?

What does IHPA do?

How will ABF make a difference?

What next?2

Primary Function of the IHPA

IHPA is being created to determine the national efficient price.

The national efficient price is the core product of IHPA.

To determine a reasonable, acceptable national efficient price.

Most importantly, the NEP is independent and transparent.

3

Why a National Efficient Price?

To deliver on key objectives of the National Health Reforms,

namely:

Improve patient access to services

Improve hospital efficiency

Ensure the sustainability of hospital funding

Improve transparency and accountability of hospital funding

4

How will it achieve these improvements?

Two key components based on the national

efficient price:

Activity based funding (ABF) which will be

introduced across Australia

The Commonwealth will fund 45% then 50% of

the increases in the national efficient price from

2014-15.

So the Commonwealth share of hospital funding

is geared to increase to nearly 50% in long

term.

5

How will the NEP be used?

Basis of Commonwealth’s funding

contributions

To local hospital networks

Relevant price signal to States and hospital

networks

6

What is the NEP?

ABF funds activity which is the treatment of a

patient

NEP is cost incurred at an efficient hospital

NEP is being set at about mean cost of treating a

patient

NEP is the national price paid per weighted

separation

NEP is one price plus a set of price weights per DRG

7

What is an NWAU?

NWAU is an National Weighted Activity Unit

An NWAU is a normalised separation at the

NEP

Each DRG has a # separations at a price

weight

Put simply, they are summed across all

DRGs as:

# NWAUs = ∑ {(price weight)i x (#

separations)i}

8

General Model

Pricing (red)

Days in Hospital

Low Inlier Boundary

Total $ Cost (green)

High Inlier Boundary Same day rates

Inlier mean price

Outliers

9

Who will be affected?

All public hospitals

Smaller country hospitals will get block funding

Some activities to be block funded – eg direct

teaching & research

All public and private patients

except those funded by self or a third party

10

Impact on Hospital Budgets Funding Local Hospital Networks (LHNs)

Commonwealth funds to LHNs rather than to states

State funding to LHNs also through new funding body

Commonwealth funding based on NEP Total funding to States is fixed for first two years Commonwealth’s share of funding to particular

hospitals will change because now determined by NEP

After first 2 years, Commonwealth will fund 45%, then 50%, of activity growth achieved by hospitals

11

Impacts on Jurisdictions

For the states currently using ABF (eg Vic, SA,

WA)

Reference NEP rather than state efficient price

Fund hospital networks rather than hospitals

Other jurisdictions are well prepared for ABF

Been preparing for this for about 20 years

National ABF approach agreed by COAG in

March 2008

12

Primary categories for NEP funding

To begin in 2012-13

Admitted acute care patients

All emergency department patients

Non-admitted outpatients

To begin in 2013-14

Sub-acute care patients

Mental health care patients

13

Cost by care category – 2009-10 prelim

14

NSW VIC QLD SA WA Tas NT ACT National0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

AdmittedAcute EmergencyCare Outpatient care Subacute Other

Jurisdiction

%T

ota

l C

ost

Considerations in setting the NEP

Reflect actual cost of delivery

Ensure reasonable access

Support clinical safety and quality

Foster efficiency and effectiveness

Ensure financial sustainability

15

Essential ingredients of the NEP

Reasonable and acceptable pricing framework

Robust accurate activity and cost data

Sound analysis of trends

Prices, wages, technology and clinical processes

Lessons from existing ABF systems

Australian and international

Effective stakeholder consultation16

Trend of Costs by care category

17

2004-05 2005-06 2006-07 2007-08 2008-09 2009-100%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Note: Round 14 NHCDC Preliminary Data

AdmittedAcute EmergencyCare Outpatient care Subacute Other

Jurisdiction

% T

ota

l C

ost

by

Wo

rkst

ream

ABF Analysis Toolbox

Analyse actual costs for 2009-10 and earlier

Calculate actual costs and cost weights

Total cost and Commonwealth contribution

Then transform them into prices for 2012-13

Use a toolbox of many analytic perspectives

18

Growth Trends

Pricing Framework

Price trends Technology trends Price Loadings

Compare to private rates

Particular cases

Budget Trends

Productivity

Analysis

E

Efficiency analysis

Other ABF

systems

Pricing Outliers

Same day

rates

Patie

nts in

scope

Internatio

nal

Experienc

e19

Where are we at?

A draft NEP for 2012-13 has been developed

NEP Determination circulated to Health

Ministers

Details of the NEP, ABF Policy Framework and

pricing model also provided

Jurisdictions have 45 days to May 16 to

comment20

Consultative Structure

IPHA board of 9 people

Jurisdictional Advisory Committee

Clinical Advisory Committee

Stakeholder Advisory Committee

Technical Advisory Committee

Associated working groups

Public submissions and ongoing consultation

21

Still to come

Final NEP Determination issued by June

Legislation to establish National Payment

Authority

Establishment of Payment Authority by 30

June 2012

Payment by activity to begin by 1 July 201322