Under the NHR Agreement reforms to improve the transparency of public hospital funding, the Commonwealth, State and Territory governments are jointly responsible for funding public hospital services through the Pool. This is done through activity–based or block funding.
Figure two highlights the source, types and amount of funding that flows through as payments to LHNs.
Established on 1 July 2012 through enabling legislation in each jurisdiction, the single Pool is comprised of a Reserve Bank of Australia (RBA) account for each State and Territory. The Pool receives all (ABF and block) Commonwealth and (ABF only) State and Territory public hospital funding. Each State and Territory has also established a separate State Managed Fund to manage block funding.
Commonwealth payments into the Pool are made as equal monthly instalments of an estimated annual payment. States and Territories can determine how much and when they deposit funds into the Pool and State Managed Funds.
The Commonwealth’s contributions to LHNs are adjusted at the end of each 6 and 12 months for every financial year once actual volumes have been validated.
To ensure payments from the Pool are correct, no payment is made until the respective State or Territory has validated and instructed the Administrator to make payment on its behalf.
The Pool accounts are audited each year. They have transparent accounting and reporting, and meet all other COAG and legislative requirements.
ABF is a funding method for public hospital services based on the number of weighted services provided to patients, and the price to be paid for delivering those services.
The method uses national classifications, price weights and Commonwealth, State and Territory prices to determine the amount of funding for each activity or service.
Activity is represented by a National Weighted Activity Unit (NWAU), a measure of health service activity expressed as a common unit. This provides a way of comparing and valuing each public hospital service (whether it is an admission, emergency department presentation or outpatient episode), by weighting it for clinical complexity.
The Commonwealth’s ABF contribution to LHNs is also based on an efficient price per service known as the NEP. The NEP is the price paid per NWAU and is independently determined by the IHPA.
Block funding supports teaching, training and research in public hospitals, and Public Health programs. It is also used for certain public hospital services where block funding is more appropriate, particularly for smaller rural and regional hospitals.
Further details of the NHR funding types and payment flows (including Public Health, cross–border, interest and over–deposit funding) can be found in the ‘Overview’ section of the Administrator of the National Health Funding Pool Annual Report 2017–18.