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, using either Activity Based Funding or Block Funding.

Figure: 2018–19 Public Hospital Funding Payment Flows highlights the source, types and amount of funding that flows through as payments to LHNs.

2018-19 Public Hospital Funding Payment Flows

The Pool

The single Pool, comprising a Reserve Bank of Australia (RBA) account for each State and Territory, was established on 1 July 2012 through enabling legislation to receive all Commonwealth (ABF and block) and State and Territory (ABF only)public hospital funding. Each State and Territory has established a State Managed Fund to manage block funding.

Commonwealth payments into the Pool are made as equal monthly instalments of an estimated annual payment, while 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 in arrears at the end of each 6 and 12 months for each financial year once actual volumes have been validated.

To ensure that payments from the Pool are correct, no payment will be 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, have transparent accounting and reporting, and meet all other COAG and legislative requirements.

Activity Based Funding

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 for service types, price weights, the National Efficient Price (NEP) that is independently determined by the Independent Hospital Pricing Authority (IHPA), and the level of activity as represented by the National Weighted Activity Unit (NWAU).

An NWAU represents a measure of health service activity expressed as a common unit of resources. This provides a way of comparing and valuing each public hospital service (whether it is an emergency department presentation, admission or outpatient episode), by weighting it for clinical complexity.

The NEP is the price paid per NWAU.

Block Funding

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 NHR funding types and payment flows can be found in the Administrator of the National Health Funding Pool Annual Report 2018–19.

Legislation

The functions of the Administrator and the NHFB were established under the NHR Act. In accordance with the NHR Agreement, this legislation is supported by common provisions in statutes in each State and Territory that create the position of the Administrator and set out their functions. The list of State and Territory legislation is atFigure: State and Territory legislation supporting the NHR ACT.

State and Territory legislation supporting the NHR Act