The basis for NHR payments to LHNs in New South Wales was advised by the NSW Ministry of Health to be as follows:

Basis used to determine NHR payments to Local Hospital Networks (LHNs) – New South Wales

The process for determining 2012-13 NHR payments to Local Hospital Networks encompassed three distinct elements of preparation for the individual LHN Service Agreements, including development of annual activity estimates, discussion/negotiation of activity levels with individual Local Hospital Networks, and total State-wide activity across each activity type.

Annual activity estimates for inpatient and emergency department services were developed from actual historical activity levels over the previous five years and forecast 2011-12 actual.

Generally, a linear extrapolation model was used to produce a provisional activity estimate for 2012-13 for each Local Hospital Network. The provisional results were then reviewed to take into account volume variations considered excessive (for example, unusually high peaks or troughs in any given year), known capacity enhancements or limitations to physical capacity, population growth projections, current year activity relative to targets.

The resulting activity estimates were provided for the basis of discussion and negotiation with individual Local Hospital Networks to determine agreed 2012-13 activity targets. Activity weights used in these calculations were NSW cost weighted separations – for acute admitted/inpatient services and cost weighted attendances (UDAG) – for emergency department services.

The projections for the acute admitted activity were further split between public, private and compensable weighted patient activity, based on the historic trends at each facility. This allowed for differential funding mechanisms to be applied to the respective service groups to reflect the variation in funding sources available to an individual Local Hospital Network.

Provisional activity estimates for each Activity-Based Funding (ABF) service type were provided to individual Local Hospital Networks for each facility in-scope for ABF funding. The provisional estimates and historical activity measures provided the basis for discussions with individual Local Hospital Networks. Following feedback from Local Hospital Networks, the resultant weighted activity volumes were then incorporated within the Service Agreements issued to all Local Hospital Networks in June 2012.

It is important to note that the activity volume information was subsequently converted into the National Weighted Activity Unit (NWAU) to be multiplied by the State price or average cost. The result led to the development of a Service Agreement for each Local Hospital Network. Also included in the LHN Service Agreement, which is available on each Local Hospital Network website, was activity information in both ‘activity currencies’ those being the standard NSW cost weights, and the new National Weighted Activity Unit (NWAUs).

Due to the lack of available national systems for counting, coding and classification for mental health, subacute, and teaching, training and research services, the amounts presented for these services under Block Funding are based on an extrapolation from the 2009-10 National Health Cost Data Collection. These cash amounts are estimations for the amounts spent by Local Hospital Networks in 2012-13 and do not necessarily relate directly to numbers of services provided. NSW Health is working with national bodies and other jurisdictions to progress standardised costing methodology for these services.

Cash payments processed within the National Health Funding Pool (NHFP) Payments System and included within the Administrator’s monthly reports are based on the accrued budget for both ABF and in-scope Block Funding derived from the LHN Service Agreements after deducting an allowance to recognise own sourced revenue earned, and retained by the Local Hospital Networks and liabilities for superannuation and long service leave which are accepted by the Crown.

The resultant cash value is processed through the State Pool Account (ABF) or the State Managed Fund (in-scope block). Although a consistent methodology has been applied, variations in cash prices between Local Hospital Networks reflect the differing mix of the above components (own sourced revenue and Crown accepted liabilities) of each Local Hospital Network’s accrued cost.

In addition to receiving weekly cash payments from the State Pool Account and the State Managed Fund, Local Hospital Networks also receive direct State Government funding for new initiatives implemented in 2012-13, including start-up funding for new services, such as new intensive care beds and increasing the number of new nurses within Local Hospital Networks to support a reasonable nursing workload. In addition, further cash payments for all “out of scope” services not subject to the National Health Reform Agreement arrangements are also provided to Local Hospital Networks as required under their 2012-13 Service Agreements.

Monthly reports – Basis on which payments were made

For NSW, all dollar values included in the tables issued by the Administrator are cash payments from either the NSW State Pool Account to Local Hospital Networks or cash payments from the State Managed Fund to Local Hospital Networks, and one exception that requires a quarterly cash payment to the Victorian Department of Health for NSW contribution for the Albury-Wodonga inter-jurisdictional agreement.

The weekly cash payment to a Local Hospital Network reflects the estimated cost of patient related services anticipated to be delivered during the monthly cash payment period. The estimated monthly activity and the weekly cash payments are determined based on the annual LHN Service Agreements.

Cash payments from the NSW State Pool Account and from the State Managed Fund to Local Hospital Networks are processed each Tuesday. Reporting by the Administrator is based on cash payments made during a given month and is therefore dependent on the number of Tuesdays in a particular month. During 2012-13, July 2012, October 2012, January 2013 and April 2013 each have five Tuesdays, with all other months having four Tuesdays. If accrual accounting principles were being applied within the NHFA Payments System, the value of the reported cash payments would recognise only the number of calendar days in a particular month, not the 35 days (five weeks paid) or 28 days (four weeks paid), as reported by the Administrator.

Cash payments to Local Hospital Networks from both the NSW State Pool Account and State Managed Fund are generally calculated based on equal weekly instalments to health services unless otherwise negotiated.

Other payments will occur in 2012-13 that are outside the regular weekly (Tuesday) payment cycle. Such payments include the full year insurance premium, quarterly payments to the Australian Red Cross Blood Service, quarterly payments to Victoria Health for the Albury-Wodonga inter-jurisdictional agreement, and payments to other States and Territories for NSW residents treated in their public hospitals. Payments to Local Hospital Networks may also vary where their cash entitlement alters during the financial year.

Monthly comparison of cash payments from the NSW State pool and State Managed Fund can vary month to month predominately due to these planned payments.

The cash payments from the NSW State Pool Account or State Managed Fund do not reflect the full budgeted funding available to health services in NSW. Other sources of funds available to Local Hospital Networks include separate payments from the Crown (for example, defined superannuation scheme and long service leave cash recovery) as well as own source revenues earned and retained by each Local Hospital Network.

For more information on budget allocations, see the 2012-13 LHN Service Agreements which are available on each NSW Local Hospital Network website.