Independent Hospital Pricing Authority National Efficient Cost Determination 2016-17

Independent Hospital Pricing Authority – National Efficient Cost Determination 2016-17

Independent Hospital Pricing Authority

National Efficient Cost Determination

2016-17

February 2016

Independent Hospital Pricing Authority Page 1 of 12

Independent Hospital Pricing Authority – National Efficient Cost Determination 2016-17

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Source: The Independent Hospital Pricing Authority

This determination is made by the Independent Hospital Pricing Authority under subsection 131(1) of the National Health Reform Act 2011(Cth).

Dated 2016

SEAL OF INDEPENDENTHOSPITAL PRICING AUTHORITY / ______
Mr Shane Solomon
Chair
______
Mr James Downie
Acting Chief Executive Officer

Table of contents

Chapter 1Overview

1.1Independent Hospital Pricing Authority

1.2Data quality

1.3Terminology

Chapter 2Block Funding Criteria

Chapter 3National Efficient Cost for Hospitals

3.1National Efficient Cost

3.2Calculation of the NEC for Small Rural Hospitals

3.3Efficient Cost for Other Hospitals

Chapter 4Block Funded Services

Chapter 5Back-casting

Appendices

Appendix ABlock Funded Small Rural Hospitals

Appendix BStandalone Hospitals Providing Specialist Mental Health Services

Appendix CStandalone Major City Hospitals Providing Specialist Services

Chapter 1Overview

1.1IndependentHospital Pricing Authority

The Independent Hospital Pricing Authority (Pricing Authority) is established under the National Health Reform Act 2011 (Cth) (Act), and by virtue of section 131(1) of the Act is invested with the following functions relevant to this 2016-17National Efficient Cost (NEC) Determination (Determination):

(a)to determine the national efficient cost for health care services provided by public hospitals where the services are block funded;

(b)to develop and specify classification systems for health care and other services provided by public hospitals;

(c)except where otherwise agreed between the Commonwealth and a State – to determine the public hospital functions that are to be funded in the state by the Commonwealth.

In this document, ‘Pricing Authority’ refers to the governing members and ‘IHPA’ refers to theagency.

1.2Data quality

In making this Determination, the Pricing Authority has relied on the National Public Hospital Establishments Database (NPHED) and the National Hospital Cost Data Collection (NHCDC) to determine the key parameters of the model.

There have been significant improvements in the completeness and accuracy of data reported to the NPHED over the past three years and further improvements are expected in future years.

The Pricing Authority remains satisfied that the data are adequate for the Pricing Authority to carry out its functions under the Act in 2016-17.

1.3Terminology

Although the Pricing Authority aims to use plain English to make its documents accessible to a wide audience, the subject matter of this Determination requires the use of some specialist terms. For ease of reference, the meaning of those terms is set out in an electronic glossary available on the IHPA website.

Chapter 2Block Funding Criteria

Clauses A27 and A28 of the National Health Reform Agreement (NHRA) detail the process that the Pricing Authority is required to follow to determine the criteria for block funded hospitals:

a. IHPA, in consultation with jurisdictions, develops Block Funding Criteria and identifies whether hospital services and functions are eligible for block funding only or mixed Activity Based Funding (ABF) and block funding;

b. States and territories, during the consultation period, assess their hospital functions and services against the Block Funding Criteria and, if necessary, provide advice to IHPA on the potential impact of the criteria;

c. IHPA provides the Block Funding Criteria to the Council of Australian Governments (COAG) for endorsement; and

d. COAG considers the Block Funding Criteria proposed by IHPA and either:

i. endorses the recommendation; or

ii. requests IHPA to refine the Block Funding Criteria and bring it back to COAG.

States and territories provide advice to IHPA on how their hospital services and functions meet the Block Funding Criteria on an annual basis. For small rural and small regional hospitals, this advice can be provided once every six years, or more frequently at the discretion of the state or territory.

The Pricing Authority provided the following draft Block Funding Criteria to COAG for consideration.

Public hospitals, or public hospital services, will be eligible for block grant funding if:

the technical requirements for applying ABF are not able to be satisfied.
there is an absence of economies of scale that mean some services would not be financially viable under ABF.

IHPA has also determined ‘low volume’ thresholds that form part of the draft Block Funding Criteria for use in 2016-17. Under these thresholds, hospitals are eligible for block funding if:

they are in a metropolitan area (defined as ‘major city’ in the Australian Statistical Geography Standard (ASGS)) and they provide ≤ 1,800 acute inpatient National Weighted Activity Units (NWAU) per annum; or
they are in a rural area (defined as all remaining areas, including ‘inner regional’, ‘outer regional’, ‘remote’ and ‘very remote’ in the ASGS) and they provide ≤ 3,500 total NWAU per annum.

Without pre-empting the decision of COAG, IHPA has applied these criteria in making this Determination.

States and territories have provided IHPA with hospitals they consider eligible for block funding in 2016-17.

IHPA has determined their eligibility by applying the three year average annual total NWAU, calculated using the IHPA data set specifications in successive IHPA Three Year Data Plans. These hospitals are listed atAppendix A.

Chapter 3National Efficient Cost for Hospitals

3.1National Efficient Cost

The NEC in 2016-17 is $5.020million. This represents the average cost of a block funded small rural hospital.

The NEC was determined using the average in-scope expenditure data for 2013-14reported to the NPHED of $4.324millionindexed at 5.1per cent per annum to account for price and activity growth over the three years.

3.2Calculation of the NEC for Small Rural Hospitals

The Pricing Authority recognises that block funded hospitals have significant fixed costs.

As detailed in Table 1, the Pricing Authority has determined eight different groupings for small rural block funded hospitals:

‘Group 0’ is for small rural block funded hospitals with in-scope expenditure which is below $0.5 million. The group is determined on the basis of in-scope expenditure.
‘Group A’ to ‘Group G’ are determined on the basis of total reported NWAU activity.

Groups are further divided by hospital location on the basis of ASGS Region:

‘Region 1’ is for inner regional, outer regional and remote areas. These hospitals are sub-divided into three types which reflect the services they provide.

-‘Type A’ is for hospitals reporting more than 30 NWAUs of either surgical or obstetric episodes.

-‘Type B’ is for hospitals that do not fall into the above category, but have more than 40 per cent of their total NWAU reported as admitted activity.

-‘Type C’ is for the remaining ‘Region 1’ block funded small rural hospitals that do not meet the above two criteria.

‘Region 2’ is for small rural block funded hospitals in very remote areas.

The efficient cost of a hospital is determined by multiplying the cost weight of the relevant cell inTable 1 by the NEC.

Table 1: Groupings for Small Rural Hospitals by service volume, ASGS region and type– 2016-17

Service Volume Grouping (Total NWAU)
ASGS Region / Type / Group 0
$0.5 million / Group A
0 - 259.9
NWAU / Group B
260 - 459.9
NWAU / Group C
460 - 659.9
NWAU / Group D
660 - 1049.9
NWAU / Group E
1050 - 1699.9
NWAU / Group F
1700 - 2499.9
NWAU / Group G
2500 - 3500
NWAU
Region 1 / Type A / N/A / N/A / N/A / 0.858 / 1.163 / 1.615 / 2.210 / 3.494
Type B / N/A / N/A / 0.536 / 0.756 / 1.025 / 1.423 / 1.948 / 3.080
Type C / 0.028 / 0.352 / 0.467 / 0.659 / 0.894 / 1.241 / 1.699 / N/A
Region 2 / 0.078 / 0.232 / 0.624 / 0.914 / 1.132 / 1.815 / 2.818 / 7.062

N/A = no hospitals are present in that combination of service volume, ASGS region and type.

3.3Efficient Cost for Other Hospitals

Other blockfunded hospitals,treated separately from the cost model, are defined as:

Standalone hospitals providing specialist mental health services (e.g. Psychiatric Hospitals); and
Standalone major city hospitals providing specialist services (e.g. mothercraft, dental and dialysis).

In 2016-17, the Pricing Authority has determined the efficient cost of these hospitals will be determined in consultation with the relevant state or territory, with reference to their total
in-scope reported expenditure in the NPHED in 2013-14.

Chapter 4Block Funded Services

In 2016-17, the Pricing Authority has determined that the following services in ABF hospitals are eligible for block funding as the technical requirements for applying ABF are not able to be satisfied:

Teaching, Training and Research;
Non-admitted Mental Health Services; and
A17 List[1] services not otherwise priced.

The efficient cost of these services has been determined for 2016-17 on the advice of states and territories, and is detailed in Table 2.

Table 2: Block Funded Services

State/ Territory / Teaching, Training and Research / Non-admitted Mental Health / A17 List
NSW / $440,776,971 / $504,000,000 / N/A
Vic / $293,283,000 / $602,735,000 / $66,000
Qld / $300,666,025 / $350,130,100 / $7,010,586
SA / $101,009,877 / $112,432,146 / $6,095,624
WA / $253,894,762 / $234,592,839 / N/A
Tas / $40,944,413 / $31,599,585 / N/A
NT / $22,568,835 / $19,854,327 / N/A
ACT / $22,373,999 / $37,376,963 / N/A

Chapter 5Back-casting

The following back-cast figures are for use by the Administrator of the National Health Funding Pool as the base for calculating the growth in Commonwealth funding under the NHRA in
2016-17 from 2015-16.

Thesefigures take account of changes in the methodology used to determine the NEC between years and to account for the addition and removal of block funded services as required by the NHRA.

The Pricing Authority has determined the back-cast NEC15 is $4.826 million for the purpose of determining Commonwealth growth funding estimated between 2015-16 and 2016-17.

Table 3: Block funded back-casting multiplier by jurisdiction in 2016-17

State/ Territory / Small Rural Hospital / Teaching, Training and Research / Non-admitted Mental Health / A17 List
NSW / 0.9818 / 1.0000 / 1.0000 / N/A
Vic / 1.0014 / 1.0000 / 1.0000 / 1.0000
Qld / 1.0076 / 1.0000 / 1.0000 / 1.0000
SA / 1.0326 / 1.0000 / 1.0000 / 1.0000
WA / 0.9911 / 1.0000 / 1.0000 / N/A
Tas / 1.0130 / 1.0000 / 1.0000 / N/A
NT / 1.0023 / 1.0000 / 1.0000 / N/A
ACT / N/A / 1.0000 / 0.8051 / N/A

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Appendix ABlock Funded Small Rural Hospitals

Table 4: Block funded small rural hospitals in2016-17

Hospital Number / State / Territory / Name / ASGS Region / Group / Region / Type
1.001 / NSW / Balranald Health Service / Outer Regional / B / 1 / B
1.002 / NSW / Baradine Multi Purpose Service / Remote / B / 1 / B
1.003 / NSW / Barham Hospital / Outer Regional / C / 1 / B
1.004 / NSW / Barraba Multi Purpose Service / Outer Regional / D / 1 / C
1.005 / NSW / Batlow Hospital / Outer Regional / B / 1 / B
1.006 / NSW / Bellinger River District Hospital / Outer Regional / F / 1 / A
1.007 / NSW / Berrigan Hospital / Outer Regional / A / 1 / C
1.008 / NSW / Bingara Multipurpose Service / Outer Regional / C / 1 / B
1.009 / NSW / Blayney Multipurpose Service / Inner Regional / B / 1 / B
1.010 / NSW / Boggabri Health Service / Outer Regional / A / 1 / C
1.011 / NSW / Bombala Hospital / Outer Regional / B / 1 / B
1.012 / NSW / Bonalbo Health Service / Outer Regional / B / 1 / C
1.013 / NSW / Boorowa Hospital / Inner Regional / B / 1 / B
1.014 / NSW / Bourke Multi Purpose Service / Very Remote / E / 2 / N/A
1.015 / NSW / Braidwood District Hospital / Inner Regional / B / 1 / C
1.016 / NSW / Brewarrina Multi Purpose Service / Very Remote / D / 2 / N/A
1.017 / NSW / Bulahdelah Community Hospital / Inner Regional / B / 1 / C
1.018 / NSW / Byron District Hospital / Inner Regional / F / 1 / B
1.019 / NSW / Canowindra Hospital / Inner Regional / E / 1 / B
1.020 / NSW / Cobar Hospital / Remote / E / 1 / B
1.021 / NSW / Collarenebri Health Service / Remote / A / 1 / C
1.022 / NSW / Condobolin Hospital / Outer Regional / D / 1 / B
1.023 / NSW / Coolah Multi Purpose Service / Outer Regional / B / 1 / B
1.024 / NSW / Coolamon Hospital / Inner Regional / B / 1 / C
1.025 / NSW / Coonabarabran Hospital / Outer Regional / E / 1 / B
1.026 / NSW / Coonamble Health Service / Remote / D / 1 / C
1.027 / NSW / Cootamundra District Hospital / Inner Regional / F / 1 / A
1.028 / NSW / Corowa Hospital / Inner Regional / E / 1 / A
1.029 / NSW / Crookwell Hospital / Inner Regional / E / 1 / B
1.030 / NSW / Culcairn Hospital / Inner Regional / B / 1 / B
1.031 / NSW / Delegate (MPS) / Outer Regional / B / 1 / B
1.032 / NSW / Denman Muswellbrook (MPS) / Inner Regional / B / 1 / B
1.033 / NSW / Dorrigo Multi Purpose Service / Outer Regional / C / 1 / C
1.034 / NSW / Dunedoo War Memorial Health Service / Outer Regional / B / 1 / B
1.035 / NSW / Dungog Community Hospital / Inner Regional / C / 1 / B
1.036 / NSW / Emmaville Mulit Purpose Service / Outer Regional / A / 1 / C
1.037 / NSW / Eugowra Hospital / Outer Regional / A / 1 / C
1.038 / NSW / Finley Hospital / Inner Regional / D / 1 / B
1.039 / NSW / Gilgandra Multi Purpose Service / Outer Regional / E / 1 / B
1.040 / NSW / Glen Innes Hospital / Outer Regional / F / 1 / A
1.041 / NSW / Gloucester Soldiers Memorial Hospital / Inner Regional / E / 1 / A
1.042 / NSW / Goodooga / Very Remote / A / 2 / N/A
1.043 / NSW / Gower Wilson Memorial Hospital / Very Remote / A / 2 / N/A
1.044 / NSW / Grenfell Health Service / Outer Regional / B / 1 / B
1.045 / NSW / Gulargambone Multi Purpose Service / Outer Regional / A / 1 / C
1.046 / NSW / Gulgong Health Service / Outer Regional / B / 1 / C
1.047 / NSW / Gundagai Hospital / Inner Regional / D / 1 / B
1.048 / NSW / Gunnedah District Health Service / Outer Regional / G / 1 / A
1.049 / NSW / Guyra Multi Purpose Service / Outer Regional / C / 1 / C
1.050 / NSW / Harden Hospital / Inner Regional / C / 1 / B
1.051 / NSW / Hay District Hospital / Outer Regional / D / 1 / B
1.052 / NSW / Henty Hospital / Inner Regional / A / 1 / C
1.053 / NSW / Hillston Hospital / Remote / C / 1 / B
1.054 / NSW / Holbrook Hospital / Inner Regional / C / 1 / B
1.055 / NSW / Inverell Tingha / Outer Regional / B / 1 / B
1.056 / NSW / Ivanhoe / Very Remote / 0 / 2 / N/A
1.057 / NSW / Jerilderie Hospital / Outer Regional / A / 1 / C
1.058 / NSW / Junee Hospital / Inner Regional / D / 1 / B
1.059 / NSW / Kiama Hospital / Inner Regional / D / 1 / B
1.060 / NSW / Kyogle Memorial Multi Purpose Service / Inner Regional / D / 1 / B
1.061 / NSW / Lake Cargelligo Multi Purpose Service / Remote / C / 1 / B
1.062 / NSW / Leeton Hospital / Outer Regional / F / 1 / A
1.063 / NSW / Lightning Ridge Multipurpose Health Service / Remote / D / 1 / C
1.064 / NSW / Lismore Base Hospital - Riverlands Drug & Alcohol Service / Inner Regional / F / 1 / C
1.065 / NSW / Lockhart & District Hospital / Outer Regional / B / 1 / B
1.066 / NSW / Manilla Health Service / Outer Regional / D / 1 / B
1.067 / NSW / Menindee / Very Remote / B / 2 / N/A
1.068 / NSW / Merriwa Community Hospital / Outer Regional / A / 1 / C
1.069 / NSW / Milton Ulladulla Hospital / Inner Regional / G / 1 / A
1.070 / NSW / Molong Hospital / Inner Regional / C / 1 / B
1.071 / NSW / Mullumbimby & District War Memorial Hospital / Inner Regional / E / 1 / A
1.072 / NSW / Muswellbrook District Health Service / Inner Regional / G / 1 / A
1.073 / NSW / Narrabri District Health Service / Outer Regional / G / 1 / A
1.074 / NSW / Narrandera Hospital / Outer Regional / F / 1 / A
1.075 / NSW / Narromine Health Service / Outer Regional / E / 1 / B
1.076 / NSW / Nimbin Multi Purpose Service / Inner Regional / C / 1 / C
1.077 / NSW / Nyngan Health Service / Remote / C / 1 / C
1.078 / NSW / Oberon Multi Purpose Service / Inner Regional / C / 1 / B
1.079 / NSW / Pambula District Hospital / Outer Regional / F / 1 / A
1.080 / NSW / Peak Hill Hospital / Outer Regional / B / 1 / B
1.081 / NSW / Portland Tabulam Health Centre / Inner Regional / A / 1 / C
1.082 / NSW / Prince Albert Memorial Tenterfield / Outer Regional / C / 1 / B
1.083 / NSW / Quirindi Community Hospital / Outer Regional / D / 1 / B
1.084 / NSW / Rylstone Health Service / Outer Regional / C / 1 / B
1.085 / NSW / Scone District Hospital / Inner Regional / F / 1 / A
1.087 / NSW / Temora Hospital / Outer Regional / F / 1 / A
1.088 / NSW / The Campbell Hospital, Coraki / Inner Regional / 0 / 1 / C
1.089 / NSW / Tibooburra / Very Remote / 0 / 2 / N/A
1.090 / NSW / Tocumwal Hospital / Inner Regional / C / 1 / B
1.091 / NSW / Tomaree Community Hospital / Inner Regional / E / 1 / C
1.092 / NSW / Tottenham Hospital / Remote / A / 1 / C
1.093 / NSW / Trangie Multi Purpose Health Service / Outer Regional / A / 1 / C
1.094 / NSW / Trundle Multi Purpose Service / Outer Regional / A / 1 / C
1.095 / NSW / Tullamore Multi Purpose Health Service / Outer Regional / A / 1 / C
1.096 / NSW / Tumbarumba District Hospital / Outer Regional / B / 1 / B
1.097 / NSW / Tumut Hospital / Inner Regional / F / 1 / A
1.098 / NSW / Urana Hospital / Outer Regional / A / 1 / C
1.099 / NSW / Urbenville Multi Purpose Service / Outer Regional / A / 1 / C
1.100 / NSW / Walcha Multipurpose Service / Outer Regional / C / 1 / B
1.101 / NSW / Walgett Health Service / Remote / D / 1 / B
1.102 / NSW / Warialda Multipurpose Service / Outer Regional / C / 1 / B
1.103 / NSW / Warren Multi Purpose Health Service / Outer Regional / E / 1 / C
1.104 / NSW / Wauchope District Memorial Hospital / Inner Regional / F / 1 / A
1.105 / NSW / Wee Waa Health Service / Outer Regional / D / 1 / B
1.106 / NSW / Wellington Hospital / Outer Regional / F / 1 / B
1.107 / NSW / Wentworth District Hospital and Health Service / Outer Regional / B / 1 / B
1.108 / NSW / Werris Creek Community Hospital / Inner Regional / A / 1 / C
1.109 / NSW / West Wyalong Hospital / Outer Regional / D / 1 / B
1.110 / NSW / Wilcannia Health Service / Very Remote / B / 2 / N/A
1.111 / NSW / Wilson Memorial Community Hospital / Outer Regional / B / 1 / B
1.112 / NSW / Wingham Community Hospital / Inner Regional / E / 1 / B
1.113 / NSW / Yass District Hospital / Inner Regional / E / 1 / C
1.114 / NSW / Young District Hospital / Inner Regional / G / 1 / A
2.001 / Vic / Alexandra District Hospital / Inner Regional / E / 1 / A
2.002 / Vic / Alpine Health (Bright) / Outer Regional / C / 1 / A
2.003 / Vic / Alpine Health (Mount Beauty) / Outer Regional / B / 1 / B
2.004 / Vic / Alpine Health (Myrtleford) / Inner Regional / C / 1 / A
2.005 / Vic / Beaufort & Skipton Health Services - Beaufort Campus / Inner Regional / A / 1 / C
2.006 / Vic / Beaufort & Skipton Health Services - Skipton Campus / Inner Regional / A / 1 / C
2.007 / Vic / Beechworth Health Service / Inner Regional / B / 1 / B
2.008 / Vic / Boort District Health / Outer Regional / A / 1 / C
2.009 / Vic / Casterton Memorial Hospital / Outer Regional / C / 1 / A
2.010 / Vic / Cobram District Hospital / Inner Regional / D / 1 / A
2.011 / Vic / Cohuna District Hospital / Outer Regional / D / 1 / A
2.012 / Vic / Dunmunkle Health Services / Outer Regional / A / 1 / C
2.013 / Vic / East Wimmera Health Service (Birchip) / Outer Regional / A / 1 / C
2.014 / Vic / East Wimmera Health Service (Charlton) / Outer Regional / A / 1 / C
2.015 / Vic / East Wimmera Health Service (Donald) / Outer Regional / B / 1 / B
2.016 / Vic / East Wimmera Health Service (St Arnaud) / Outer Regional / C / 1 / B
2.017 / Vic / East Wimmera Health Service (Wycheproof) / Outer Regional / A / 1 / C
2.018 / Vic / Edenhope and District Memorial Hospital / Outer Regional / D / 1 / B
2.019 / Vic / Heathcote Health / Inner Regional / B / 1 / B
2.020 / Vic / Hepburn Health Service (Creswick) / Inner Regional / A / 1 / C
2.021 / Vic / Hepburn Health Service (Daylesford) / Inner Regional / D / 1 / A
2.022 / Vic / Hesse Rural Health Service / Inner Regional / A / 1 / C
2.023 / Vic / Heywood Rural Health / Outer Regional / A / 1 / C
2.024 / Vic / Inglewood and District Health Service / Inner Regional / A / 1 / C
2.025 / Vic / Kerang District Health / Outer Regional / E / 1 / A
2.026 / Vic / Kilmore and District Hospital / Inner Regional / F / 1 / A
2.027 / Vic / Kooweerup Regional Health Service / Inner Regional / B / 1 / B
2.028 / Vic / Kyneton District Health Service / Inner Regional / E / 1 / A
2.029 / Vic / Lorne Community Hospital / Inner Regional / A / 1 / C
2.030 / Vic / Maldon Hospital / Inner Regional / A / 1 / C
2.031 / Vic / Mallee Track Health and Community Service / Outer Regional / A / 1 / C
2.032 / Vic / Manangatang and District Hospital / Outer Regional / 0 / 1 / C