In August 2011, the then Council of Australian Governments (now National Cabinet) agreed to major changes in how public hospitals were to be funded by Commonwealth, State and Territory governments, including the move from block grants to an ‘activity-based’ funding system (ABF).
These changes included establishing the Administrator of the National Health Funding Pool (the Administrator) and the National Health Funding Body (NHFB) to improve transparency of public hospital funding arrangements.
The National Health Reform Agreement 2011 (NHR Agreement) outlines the shared responsibility of the Commonwealth, State and Territory governments to work in partnership to improve health outcomes for all Australians and ensure the sustainability of the Australian health system.
This document sets out the approach and processes used by the Administrator to calculate Commonwealth NHR funding paid to States and Territories (hereafter, the States).
The calculation policy includes funding for ABF, Block and Public Health funding categories as well as the approach to reconciliation activities.
The policy has been updated to reflect the revised funding arrangements resulting from the Addendum to National Health Reform Agreement 2026-2031 signed on 27 February 2026. It undergoes annual updates to reflect the calculations for the upcoming year, with the current iteration focusing on financial year 2026-27 calculations.
Modifications for the Addendum to National Health Reform Agreement 2026-2031 include:
- Transition from a growth formula to a glide path formula
- Base Year for 2025–26 to include additional funding (i.e. Schedule K), with subsequent base years reflecting the prior year’s funding cap
- An increase in the funding cap from 6.5% to 10.25% in the first year, and 8% in following years
- Introduction of a minimum funding guarantee (additional $15 billion)
- Introduction of a new funding stream for Service Model Reform Funding (SMRF) commencing 2027-28
- Continuation of existing Public Health Funding arrangements until Public Health Funding is incorporated into the Block Funding stream
- Transition from no reconciliation of Block Funding to reconciling Block Funding against actual payments from State Managed Funds
