Pricing and funding for safety and quality work originated from the April 2016 COAG Heads of Agreement on Public Hospital Funding.

In 2017, all Australian governments signed an Addendum to the National Health Reform Agreement. Through this, parties committed to develop and implement reforms to improve health outcomes of Australians through funding and pricing approaches to safety and quality. These reforms are designed to improve patient outcomes in the public health system and decrease avoidable demand for public hospital services.

These pricing and funding approaches intend to complement existing strategies to improve safety and quality in public health care.

IHPA works together with the Australian Commission on Safety and Quality in Health Care to incorporate safety and quality measures into the determination of the national efficient price.

Under the Addendum 2017–20, IHPA is required to advise on options for a comprehensive and risk‑adjusted model to determine how funding and pricing could be used to improve patient outcomes across three key areas: sentinel events, hospital acquired complications and avoidable hospital readmissions.

The implementation of pricing and funding for safety and quality has been rolled out in stages as follows:

• Sentinel events: Sentinel events are a subset of adverse patient safety events that are wholly preventable and result in serious harm to, or the death of, a patient.
  
  Since 1 July 2017, no Commonwealth funding has been provided for any public hospital episode that includes a sentinel event. This policy applies to both activity based and block funded hospitals.
  
• Hospital acquired complications: A hospital acquired complication refers to a complication for which clinical risk mitigation strategies may reduce (but not necessarily eliminate) the risk of that complication occurring. IHPA has worked with the Australian Commission on Safety and Quality in Health Care and other stakeholders to develop an agreed list of hospital acquired complications.
  
  From 1 July 2018, funding is reduced for any episode of admitted acute care where hospital acquired complications such as falls, infections or pressure injuries occur during a hospital stay.
  
• Avoidable readmissions: Unplanned hospital readmissions are a measure of potential issues with the quality, continuity and integration of care provided to patients during or subsequent to their original hospital stay.
  
  The 2017–20 Addendum required that IHPA develop pricing and funding adjustments to target avoidable hospital readmissions, which arise from complications of the management of the patient’s original hospital admission.
  
  From 1 July 2019, IHPA has commenced analysing three options of funding adjustments to reduce avoidable hospital readmissions. These are being shadowed over a 24-month period.
  Under the new 2020–25 Addendum, IHPA is required to develop a pricing model for avoidable hospital readmissions for the COAG Health Council’s approval for implementation from 1 July 2021.