The basis of Commonwealth NHR funding for 2017-18, 2018-19 and 2019-20 as specified in the Agreement and the Addendum is as follows:
Public Health (clause A43 and I19)
Payments for Public Health activities for 2017-18, 2018-19 and 2019-20 will be equal to the previous year's payment indexed by the former National Healthcare SPP growth factor.
Block Funding (clause A50 and I18)
Payments for 2017-18, 2018-19 and 2019-20 will consist of the previous year's payment plus 45 per cent of the growth in the efficient cost of providing the services, adjusted for the addition or removal of block services as provided in clauses A27-A30 (calculated in accordance with clause A4).
Activity Based Funding (clause A34, I15 and I16)
In 2017-18, 2018-19 and 2019-20, the Commonwealth's funding for each Activity Based Funding (ABF) service category will be calculated individually for each State by summing:
- previous year amount: the Commonwealth's percentage funding rate for the relevant State in the previous year multiplied by the volume of weighted services provided in the previous year multiplied by the National Efficient Price (NEP) in the previous year;
- price adjustment: the volume of weighted services provided in the previous year multiplied by the change in the NEP relative to the previous year multiplied by 45 per cent; and
- volume adjustment: the net change in volume of weighted services to be provided in the relevant State (relative to the volume of weighted services provided in the previous year) multiplied by the NEP multiplied by 45 per cent.
Funding Cap (clause I10 and I20 to I27)
For 2017-18, 2018-19 and 2019-20, the growth in annual Commonwealth NHR funding for national public hospital services will not exceed 6.5 per cent a year (the Funding Cap) (clause I10). The Funding Cap includes:
- a state-based Soft Cap of 6.5 per cent, to be applied to the Commonwealth NHR funding entitlement of each State throughout the financial year (clause I20a); and
- a National Funding Cap of 6.5 per cent, to be applied to the Commonwealth NHR funding entitlement for all States throughout the financial year.
States may be entitled to additional funding over the Soft Cap if there is funding available under the National Funding Cap (a Redistribution Amount) upon completion of the annual Reconciliation. The Redistribution Amount will be determined as the total of any funding remaining under the National Funding Cap, resulting from a State with growth less than 6.5 per cent (clause I20).
Safety and Quality Adjustment (clause I60 to I74)
Services that are considered to put patient safety and quality at risk will be subject to a Safety and Quality Adjustment, calculated as part of a state or territory’s actual National Weighted Activity Unit (NWAU) during the Reconciliation process. For 2017-18, 2018-19 and 2019-20, adjustments will be included for Sentinel Events, Hospital Acquired Complications (HACs), and Avoidable Hospital Readmissions. For a service that results in the occurrence of a Sentinel Event, the adjustment will assign an NWAU weight of zero (i.e. no funding) as per clause I63. It is intended that a pricing and funding model for HACs will be introduced from 1 July 2018, subject to results of a shadow implementation period to be considered by the COAG Health Council (clause I68). An appropriate model for Avoidable Hospital Readmissions is to be agreed for implementation not before 1 July 2018, taking into account any potential advice from the COAG Health Council (clause I74).
Data Conditional Payment (clause I35 to I39)
A temporary deferral of an agreed percentage of Commonwealth NHR funding will apply in the event a state or territory has not provided the required data for Annual Reconciliation to the Administrator by 30 September of the relevant financial year (clauses I35 to I39). If the required data is not provided by 31 October of the relevant financial year, a deferral of further funds will occur.