IHPA and the National Efficient Price (NEP)

1. IHPA and the National Efficient Price(NEP) Independent Hospital Pricing Authority

2. 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?

3. 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.

4. 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

5. 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.

6. How will the NEP be used? • Basis of Commonwealth’s funding contributions • To local hospital networks • Relevant price signal to States and hospital networks

7. 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

8. 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}

9. General Model Outliers Inlier mean price Same day rates

10. 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

11. 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

12. 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

13. 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

14. Cost by care category – 2009-10 prelim

15. 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

16. 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 consultation

17. Trend of Costs by care category

18. 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

19. Patients in scope Pricing Framework Pricing Outliers Same day rates Price trends Technology trends Price Loadings Growth Trends Compare to private rates Particular cases Budget Trends Other ABF systems Efficiency analysis International Experience Productivity Analysis E

20. 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 comment

21. 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

22. 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 2013