The national efficient cost underpins funding for services that are not suitable for activity based funding, such as:
- small rural and regional hospitals
- teaching, training and research in public hospitals
- non-admitted mental health.
The national efficient cost represents the average cost of Commonwealth funding contribution on a block grant basis for small rural hospitals.
The national efficient cost is determined using the in‑scope activity and expenditure data for hospitals to be block funded. For the 2020–21 national efficient cost, a new cost model based on a fixed-plus-variable structure has been introduced in consultation with states and territories. This new model has a more sophisticated approach in calculating block funding to better reflect the changes in activity delivered in small rural hospitals, and it ensures there is no disincentive for states to provide services in rural areas.