The role of the Administrator of the National Health Funding Pool (the Administrator) and the National Health Funding Body (NHFB) in Australia’s health system was the result of significant public hospital funding reforms agreed by the Commonwealth and all States and Territories in August 2011.

The National Health Reform (NHR) Agreement sets out the architecture to deliver major structural reforms required to establish the foundations of Australia’s future health system. It is the shared intention of the Commonwealth, and State and Territory governments to work in partnership to improve health outcomes for all Australians and ensure the sustainability of the Australian health system.

The figure below provides an overview of recent health care agreements in Australia.

The information provided here highlights the dynamic nature of recent health care agreements and provides context to the role the Administrator and the NHFB have in improving the transparency of public hospital funding in Australia.

The National Healthcare Specific Purpose Payments Pre–2012

Prior to the National Health Reform Agreement, States and Territories were paid a contribution for public hospital services from the Commonwealth via ‘block grants’ under the National Healthcare Specific Purpose Payment arrangements. 

These grants (commonly referred to as ‘block funding’) were calculated based on historical costs, negotiation and government decisions. There was little transparency of the actual services delivered for the funding provided under block grants. 

Their growth was also simply linked to an indexation factor under the Intergovernmental Agreement on Federal Financial Relations. This indexation factor was a combination of health-specific cost index, the growth in population estimates weighted for the hospital utilisation and a productivity commission derived index of technology growth.

The National Health Reform Agreement 2012–13 to 2016–17

In August 2011, the Council of Australian Governments (COAG) agreed to major changes in how public hospitals were to be funded by Commonwealth, State and Territory governments.

The most significant change moved the Commonwealth from block funding public hospitals to an ‘activity-based’ funding (ABF) system. These changes, detailed in the National Health Reform Agreement, included establishing the Administrator and the National Health Funding Body to improve transparency of public hospital funding arrangements.

The Addendum to the National Health Reform Agreement 2017–18 to 2019–20

In July 2017, amendments were introduced to the National Health Reform Agreement through a time–limited Addendum. The Addendum reaffirmed universal health care for all Australians as a shared priority and committed parties to public hospital funding from 1 July 2017 to 30 June 2020.

The Addendum preserves important parts of the existing hospital system, including activity based funding, the National Efficient Price (NEP), and the role of the Independent Hospital Pricing Authority (IHPA) and the Administrator. It also focuses on reducing unnecessary hospitalisations and improving patient safety and service quality.

The Future Agreement 2020–21 to 2024–25

In February 2018, COAG drafted the Heads of Agreement between the Commonwealth and the States and Territories on public hospital funding and health reform (the HoA). The HoA sets out the public hospital funding arrangements for the period 2020–21 to 2024–25.

The HoA maintains a commitment to activity based funding and extends reforms under the Addendum to focus on improved safety and quality, health innovation and coordinated care to reduce avoidable hospital admissions.

These arrangements agreed to by jurisdictions include the:

  • National Funding Cap, which limits growth in Commonwealth national health reform funding at 6.5 per cent a year
  • Safety and Quality Adjustment, a reduction in funding for poor safety and quality outcomes
  • Data Conditional Payment, a temporary funding reduction due to delayed submission of data.

The HoA also reaffirms the role of the Administrator and NHFB in the transparent and efficient administration of public hospital funding, providing certainty for the future operations of the NHFB.

The Commonwealth, States and Territories will, within the framework of the HoA, negotiate a new NHR Agreement for the period 2020–21 to 2024–25.

Legislative basis for functions

The Administrator and the NHFB are governed by the National Health Reform (NHR) Act 2011, State and Territory legislation, the NHR Agreement and the Addendum to the NHR Agreement (the Addendum).

The functions of the Administrator and the NHFB were established under the NHR Act. In line with the NHR Agreement, this legislation is supported by common statute provisions in each State and Territory. These provisions create the Administrator’s role and sets out its functions.