The Independent Hospital Pricing Authority (IHPA) is an independent government agency established under the National Health Reform Act 2011, giving effect to the National Health Reform Agreement signed by the Australian Government and all states and territories in August 2011.
IHPA’s primary function is to enable Activity Based Funding (ABF) for Australian public hospital services by delivering an annual National Efficient Price (NEP) and National Efficient Cost (NEC). The NEP and NEC are a major determinant of the level of Commonwealth Government funding for public hospital services and provide a benchmark for the efficient cost of providing public hospital services.
Activity Based Funding is a way of funding public hospitals whereby they get paid for the number and mix of patients they treat. If a hospital treats more patients, it receives more funding. Activity Based Funding takes into account the fact that some patients are more complicated to treat than others. Activity Based Funding enables efficiency comparisons between hospitals, and allows system and hospital managers to identify inefficient practices, manage costs and optimise resource allocation. It is a useful tool to measure hospital performance and to establish appropriate benchmarks. The implementation of ABF will improve transparency and strengthen incentives for efficiency in the delivery of public hospital services.
IHPA is also responsible for developing national classifications for health care and other services delivered by public hospitals and, as required, resolving disputes on cost-shifting and cross-border issues.