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 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 Commonwealths 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 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 Commonwealths 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

Primary categories for NEP funding To begin in Admitted acute care patients All emergency department patients Non-admitted outpatients To begin in Sub-acute care patients Mental health care patients 13

Cost by care category – prelim 14

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 consultation 16

Trend of Costs by care category 17

ABF Analysis Toolbox Analyse actual costs for and earlier Calculate actual costs and cost weights Total cost and Commonwealth contribution Then transform them into prices for Use a toolbox of many analytic perspectives 18

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

Where are we at? A draft NEP for 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 20

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