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Legislation

The Independent Hospital Pricing Authority (IHPA) is a corporate Commonwealth entity under the Public Governance, Performance and Accountability Act 2013.

National Health Reform Agreement

IHPA was established under the National Health Reform Act 2011, giving effect to the National Health Reform Agreement signed by the Australian Government and all states and territories in August 2011.

The National Health Reform Agreement sets out the intention of all Australian governments to work together to improve health outcomes for every Australian.

Addendum to the National Health Reform Agreement 2017–20

In 2017, all Australian governments signed the Addendum to the National Health Reform Agreement.

The Addendum preserved important parts of the existing hospital funding system, including activity based funding. It also focused on reducing unnecessary hospitalisations and improving patient safety and service quality.

Under the 2017 Addendum, IHPA was required to advise on options for a comprehensive and risk‑adjusted model to determine how funding and pricing could be used to improve health outcomes for patients and decrease avoidable demand for public hospital services.

National Partnership on COVID-19 Response

On 13 March 2020, the Commonwealth and all state and territory governments signed the National Partnership on COVID-19 Response, to provide financial assistance for the additional costs incurred by health services in responding to the COVID-19 pandemic.

IHPA has worked closely with the Administrator of the National Health Funding Pool to provide assistance in implementation of the National Partnership Agreement for COVID-19 response.

In order to implement the measures under this Agreement, IHPA developed the national activity based funding classifications and updated the new coding and classification systems for reporting COVID-19 in Australian hospitals, including emergency and non-admitted care.

Comprehensive guidelines were published on the IHPA website for hospitals to classify or report COVID-19 related episodes of care, so that testing for and treatment of COVID-19 could be accurately reported and tracked. Accurately capturing hospital activity associated with the COVID-19 outbreak is critical for other purposes, such as epidemiological studies.

IHPA also drafted the national costing and pricing guidelines for COVID-19, to ensure that the costs of responding to the pandemic are consistently captured across the country.

Addendum to the National Health Reform Agreement 2020–25

On 29 May 2020, the Commonwealth and all state and territory governments signed a new Addendum, which amends the National Health Reform Agreement for the period from 1 July 2020 to 30 June 2025.

The Addendum to the National Health Reform Agreement:

  • maintains a commitment to activity based funding
  • reaffirms the independence and functions of the national agencies such as IHPA, the National Health Funding Body and the Australian Commission on Safety and Quality in Health Care
  • retains the 45 per cent Commonwealth funding contribution and the 6.5 per cent national growth cap
  • continues to integrate safety and quality reforms into the pricing and funding of public hospital services, including the current arrangements for sentinel events and hospital acquired complications.

Key changes to current arrangements introduced in the Addendum include:

  • IHPA is required to develop an updated methodology for pricing private patients in public hospitals that accounts for all hospital revenues, to ensure funding models are financially neutral with respect to all patients, regardless of whether patients elect to be private or public.
  • IHPA is required to develop a pricing model for avoidable hospital readmissions for implementation from 1 July 2021, following approval from the Council of Australian Governments (COAG) Health Council.
  • IHPA is required to shadow price for a period of two years, or a shorter period if agreed by the Commonwealth and majority of states, prior to implementation of new classifications or costing rules to mitigate the need for retrospective adjustments to the national funding model.
  • High cost, highly specialised therapies will attract 50 per cent Commonwealth funding under the new nationally cohesive health technology assessment process, and these will be considered outside the 6.5 per cent national growth cap for a period of two years.
  • IHPA is required to develop a funding methodology that does not penalise states undertaking trials of innovative models of care, for the COAG Health Council to approve by April 2021.