VHA recommendations included in report on pricing framework for public hospitals

December 9, 2021

The Independent Hospital Pricing Authority (IHPA) has released its consultation report on the Pricing Framework for Australian Public Hospital Services 2022–23 (referred to as NEP22).

In July 2021, the VHA made a submission to this consultation based on high-level discussions with VHA member services. The key focus of the VHA submission was on how the effects of COVID-19 – direct and indirect – will be encapsulated in the pricing for NEP22.

We are pleased to see that some of our key themes have now been incorporated into the IHPA’s consultation report. Specific VHA recommendations and relevant IHPA responses are highlighted below.


Impacts of COVID-19

The VHA recommended greater consideration of the regional impact of the pandemic, noting that Victoria underwent the longest lockdown and therefore has been disproportionately affected by the pandemic.

In response, the IHPA reports that it is working with jurisdictions to ensure that variations in service delivery, volume, casemix, and cost are taken into account in refining the national pricing model for NEP22.

We also emphasised the importance of the NEP22 accurately reflecting the impact of the COVID-19 pandemic on the cost of care, as this sets a precedent for how the pricing framework will reflect the ongoing effects of the pandemic on health services.

 The IHPA indicates it will review updated cost and activity data as it becomes available to ensure that long-term or permanent impacts of COVID-19 on costs and changing models of care are accounted for in the national pricing model for future determinations. The IHPA states that increased demand and any additional costs associated with delivering new and emerging models of care will be evaluated to ensure that they are captured and priced appropriately. The impacts of COVID-19 on patient complexity due to delayed treatment or the yet unknown longer-term complications or chronic conditions arising from patients exposed to COVID-19 will also be assessed as updated data is received.


Setting the national efficient price

The VHA recommended a further adjustment for patient transport in rural areas be implemented for NEP22. Current adjustments fail to accurately reflect the costs involved for Victorian health services, and also fail to accurately reflect the costs associated with changes in demographics and demand.

The IHPA acknowledges the challenges and the additional costs associated with patient transport that are captured inconsistently by the current national pricing model and existing adjustments. It has determined that further investigation is required to support the development of a new adjustment for patient transport, due to the current lack of patient-level data and significant variation in cost reporting across jurisdictions. The IHPA will work with jurisdictions to consider the feasibility of a new adjustment for the NEP Determination 2023–24 (NEP23).


Setting the national efficient cost

The VHA noted that while the move to Activity Based Funding (ABF) has its benefits, it fails to accurately reflect the true costs of care, especially for complex conditions. Standalone hospitals that provide specialist mental health services are not suitable for ABF; it has the potential to lead to worse outcomes for patients and failure to deliver the care required due to cost concerns. We recommended the IHPA evaluate the impact of ABF on other areas of mental health before exploring changing the funding model in this area.

The IHPA acknowledges that premature transition to ABF for block-funded standalone hospitals may not adequately capture the costs associated with service delivery, which could lead to a negative impact on funding. The IHPA will work with jurisdictions to facilitate the transition of block-funded standalone hospitals providing specialist mental health services to ABF.


Through our submission, the VHA was also able to make a difference in the classifications used to describe and price public hospitals services. For instance, we recommended that, in recommencing the non-admitted care costing study, the IHPA should explore longer timeframes to enable the Victorian health system to respond and engage. The IHPA indicates that future work will include consideration of whether methodology changes are required and monitoring of site and jurisdiction capacity for recommencement, noting the ongoing impact of COVID-19 on jurisdiction readiness and changing models of care in the non-admitted setting.