The Independent Hospital Pricing
Authority’s first year
Shane Solomon, Chair, IHPA
Wednesday 15 May 2013
Why does this matter?
Fairness – same service, same price
(no special deals)
Consumer focus – paid for treating
people (not reducing services to cut
Innovation globally – an ABF system
that recognises out of hospital work
and hospital avoidance
Accountability for public funds –
transparency and efficiency
A “currency” for making better
purchasing decisions (ABF is just the
price….system manager must decide
what to buy)
IHPA’s establishment
The National Health Reform
Agreement signed by all
first Ministers in August
IHPA legislation passed in
November 2011 by federal
Pricing Authority members
appointed in January 2012
(approved by COAG, with
each state nominating)
The Pricing Authority
What does IHPA do?
Independently set the national efficient “price” for activity
based funded public hospital services
Determine loadings for unavoidable costs
Determine what is a “hospital service” and so eligible for
Commonwealth funding
Specify all of the classification, costing, data and modelling
standards that are required to develop the national efficient
Determine the criteria for defining block funded services and
their national efficient cost
Resolve cross border disputes and assess cost shifting
IHPA’s strategic intent – modus operandi
• Transparency
• Value for money efficiency
• Independence through
• National consistency
• Evidence-based
A lot has been done in a short time…
Key determinations included:
Resolving what is a “hospital service” for Commonwealth funding purposes
ABF classification systems for acute inpatients, emergency department services,
outpatient services, sub-acute, and mental health adjustments
IHPA’s Pricing Framework and National Efficient Price for ABF services using a
single currency (NWAU)(x two years):
Indexation factor used to translate historical costs to future prices
Pricing private patients in public hospitals
Loadings for indigeneity, remoteness and specialist paediatric
hospitals based on empirical data
For Block Funded services:
Block funding criteria to COAG for approval
Small rural hospitals (weighting matrix based on size and location, at
$4.738 million per weighted unit)
The threshold challenge: what is a “hospital service”
All admitted programs including hospital in the home and
forensic mental health inpatients
All emergency department services
Non-admitted services:
o Outpatient clinics
o Other non-admitted services that meet the criteria
The non-admitted service must be:
1. Directly related to inpatient admission or emergency
department attendance; OR
2. Intended to substitute directly an inpatient admission or
emergency department attendance; OR
3. Expected to improve the health or better manage the
symptoms of persons with physical or mental health
conditions who have a history of frequent hospital
attendance or admission; OR
4. Reported as a public hospital service in the Public Hospitals
Establishment Collection 2010
Critical Success Factors....
The Health Reform Agreement – gives
the building blocks and $ for future
IHPA behaves independently, is driven by
evidence, and takes a national approach
Collaboration with jurisdictions – strong
governance framework
Testing of ideas (Draft Pricing
Framework), and openness to respond to
sound arguments
Commitment of each jurisdiction to
introduce ABF funding
The transition years…time to get it right,
or as right as possible before ‘go live’
Commonwealth ABF funding in 2104-15
What next – the core?
After the transition – from 2014-15
onwards greater focus on system
manager’s purchasing policy frameworks
Improved costing information – still
variable quality
New mental health classification system –
cross care type boundaries
Teaching, training and research
Review classification systems for
emergency department and outpatient
What next – towards international standard
Towards world leading pricing:
Incentives for the more efficient/efffective
service option?
Quality incentives, P4P?
Pre-defined care pathways?
Bundled payments that incentivise
substitution of better care options?
Paying for value?
Normative pricing demands greater
clinician engagement and will be a
challenging debate that has to happen

Shane Solomon, Chair, Pricing Authority (PowerPoint 1679 KB)