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 2013-14 NHR payments to LHNs 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 LHNs, and total State-wide activity across each activity type.
Consistent with last year’s methodology and pursuant with the National Health Reform Agreement (the Agreement), the Ministry of Health has adopted the National Weighted Activity Unit (NWAU) as the currency for Activity-Based Funding with the applicable version being NWAU13, which is different from the previous year (NWAU12). In addition, the scope of services under the Agreement from 1 July 2013 has now been expanded to include Mental Health services (Admitted only) and Sub and non-acute services (Admitted and Non Admitted), as such a greater number of facilities are now in scope for ABF.
The Independent Hospital Pricing Authority (IHPA) has also introduced a National Efficient Cost funding model that applies to small regional and remote hospitals. NSW has adopted the mechanics of this funding model expressed in a matrix to determine the funding allocation to LHNs for these small hospitals.
Ensuring access to health services for local populations is a key objective of NSW health policy. The Health Services Act 1997 stipulates that in determining LHN budgets, the Minister have regard to the size and health needs of the local population and provision of services to residents outside the local area. Accordingly, targets are adjusted considering factors appropriate to each LHN and service type, rather than simple extrapolation from historical activity data. The factors considered are reviewed on an annual basis.
In 2013-14 a series of elements were applied to each in scope service stream to ensure that activity targets are tailored to the requirements and patterns of each LHN. Activity targets are developed by the Ministry and LHNs based on analysis of activity levels over four years to 2011-12 plus forecast 2012-13 activity. This analysis was further informed in 2013-14 by the following factors:
- Weighted population change: providing an indication of expected ‘natural’ growth
- Rate of unplanned re-admissions within 28 days, to offset growth
- Potentially preventable hospitalisation (PPH), to offset growth
- Relative Utilisation Rate (RUR) and Health Need Index (HNI)
- Inter-district and cross-border flows (where relevant)
- Current year activity relative to targets
- Known service changes and developments, including planned capacity increases
Price weight adjustments which are being applied in 2013-14 include:
- Specialist paediatric hospitals
- Aboriginal patients
- Patients from outer regional, remote or very remote locations
- Private patients (service and accommodation adjustments)
Provisional activity estimates are generally created at a facility level to provide the basis for discussion and negotiation with individual health services to determine agreed LHN level activity targets, with the activity volumes measured using the weights for each Service Category. Additionally, where applicable, activity estimation is split by financial class to allow differential funding mechanisms to be applied to the respective service groups to reflect the variation in funding source. These financial classes include Public, Private and Compensable (DVA, MVA, Workers Compensation, Other Compensable).
Provisional estimates and historical activity measures provide the basis for discussions with individual Health Services and subsequent negotiations for approval or adjustment.
The negotiation process allows for relevant local LHN service issues and activity impact to be communicated with the NSW Ministry of Health (Ministry) to assess the potential impact on future year activity volumes and the relevance of related service strategies to address these. It is important that negotiation processes recognise that funding and purchasing are undertaken in the environment of a capped State/Commonwealth funding pool for 2013-14 and recognition that NSW contributes the larger portion of these funds as well as being responsible for management of the system as a whole. When negotiations have concluded, the Ministry incorporates the final activity targets in each LHN’s annual Service Agreement. Where an LHN achieves delivery of selected services through Affiliated Health Organisations or contracted services with a private provider these arrangements are to be specified in agreements between the LHN and the respective provider. Both the funding (and subsidy) and associated activity pertaining to such providers are included in the budget and the activity estimates appearing in the LHN’s annual Service Agreement.
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 LHNs 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 LHNs 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, LHNs also receive direct State Government funding for 2013-14 for all “out of scope” services not subject to the National Health Reform Agreement arrangements as required under their 2013-14 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 LHNs or cash payments from the State Managed Fund to LHNs, 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 an LHN 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 LHNs 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 2013-14, July 2013, October 2013, December 2013 and April 2014 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 LHNs 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 2013-14 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/Territories for NSW residents treated in their public hospitals. Payments to LHNs 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.
Adjustments are made for cash flow needs and costs administered by the Ministry of Health on behalf of LHDs. Due to the timing and processing of these adjustments, Nepean Blue Mountains Local Hospital District shows a negative amount for the block payment in June 2014.
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 LHNs include separate payments from the Crown (for example, defined superannuation scheme and long service leave cash recovery) as well as own sourced revenues earned and retained by each LHN.
In June 2014, the residual amount of May Commonwealth funding ($7,149,404.58) in the NSW State Pool Account relating to Western Sydney Local Hospital District was disbursed.
Due to cashflow timing needs, the State was required to make an additional deposit into the NHFP to meet operational requirements in the first week of June prior to the Commonwealth making its monthly payment to the NHFP in the second week of June. The value of this cashflow timing payment by the State was $24,795,608.65. It was disbursed to the following LHNs: Hunter New England Local Hospital District ($10,097,958.44), Murrumbidgee Local Hospital District ($5,679,367.54), Western NSW Local Hospital District ($4,590,326.50), Western Sydney Local Hospital District ($732,639.81) and St Vincents Health Network ($3,695,316.36). This money was re-cashflowed once the Commonwealth had made its deposit. This cashflow adjustment was one off and related solely to ensuring the timing of payments into the NHFP matched disbursements.
In 2013-14, LHNs were fully paid their State and Commonwealth entitlement.
For more information on budget allocations, see the 2013-14 LHN Service Agreements which are available on each NSW LHN website from 1 September 2013.
Between March and June 2014, the Commonwealth provided New South Wales with additional public hospital funding of $44,543,791.21 under the funding measure: National Partnership on public hospital system - additional funding. This funding was provided to offset the downward adjustments to 2013-14 NHR funding applied at the 2013-14 Mid-Year Economic and Fiscal Outlook (MYEFO) and the 2014-15 Budget, due to the application of updated NHR funding indexation parameters. A requirement of the provision of this funding was that it is passed on in full through the National Health Funding Pool and/or State Managed Fund to LHNs for activity based and Block Funding, and State and Territory health departments for public health funding.