The 2016–17 Budget re-affirms commitments for public
hospital and public health funding made by the Commonwealth at the Council of
Australian Governments (COAG) meeting on 1 April 2016 and contained in the Heads of Agreement (the Agreement). The Budget provides up to $2.9 billion over three years in additional hospital
funding to the states and territories commencing in 2017–18. The Agreement committed the Commonwealth to meet 45 per cent of the efficient
growth in the cost of hospital
services for the period 2017–2020 (capped at 6.5 per cent growth in
Commonwealth funding per annum) and retained activity based funding (ABF) and
the National Efficient Price (NEP) as the basis for hospital funding for this
The Budget indicates that the Commonwealth’s contribution
to public hospitals will be $17.9 billion in 2016–17, rising to $21.1 billion
ABF is a key component of the National Health Reform
Agreement (NHRA) signed in 2011. ABF applies a funding
methodology based on the level of hospital activity and the complexity of cases
(case-mix) using the NEP to calculate the cost of these. Since 2014 most public
hospitals have been funded using ABF although some smaller or regional
hospitals have continued to receive block grant funding. In the 2014–15 Budget it
was announced that the ABF methodology would be abolished from 2017 onwards and
replaced with a formula using population growth and movements in the Consumer
Price Index (CPI). The Agreement has
effectively reversed this earlier budget decision. The Commonwealth has also
agreed to meet 45 per cent of the efficient growth in block grant funding for
smaller or regional hospitals. Payments for public health activities for the
period will be consistent with the process as outlined in the NHRA. The
Agreement will be the basis for an addendum to the NHRA to be negotiated with
the states and territories before commencement on 1 July 2017.
This NHRA addendum anticipates the development of a
longer-term public hospital funding agreement to commence from 1 July 2020.
This longer-term agreement will be developed by the Commonwealth and all
jurisdictions and be considered by COAG before September 2018.
The abolition of some key agencies supporting ABF that was announced
in the Mid Year Economic and Fiscal Outlook (MYEFO) 2015–16, will not
proceed.  The National Health Funding Body (NHFB) and the Administrator of the National
Health Funding Pool (NHFP), which administers and makes payments from the NHFP,
will receive $8.5 million over three years from 2017–18 to continue operating. The operational functions of the Independent Hospital Pricing Authority (IHPA)—an
independent agency which determines the NEP and resolves disputes over
cost-shifting and cross-border issues—will be transferred to the Department of
Health from 1 July 2016.
The Agreement also committed all parties to begin to
implement a range of reforms designed to improve health outcomes for patients
and decrease potentially avoidable demand for public hospital services. This
includes initiatives to support coordinated care and flexible funding models for
patients with complex and chronic conditions, including implementation of a
pilot of Health Care Homes (HCH) in selected Primary Health Networks (PHN).
The COAG announcement followed a concerted campaign by the
states and territories to oppose the 2014–15 budget changes, supported by the
Australian Medical Association (AMA), the Australian Healthcare and Hospitals
Association (AHHA), consumer health groups and other stakeholders.
There was a broadly positive response when the COAG Agreement
was announced, although some state governments argued that the amount of
funding still fell short of what was needed. The Queensland Government
described the funding as a ‘small first step in addressing the funding gap
created by the Federal Government’s 2014–15 Budget’. The AMA went further, stating that ‘the COAG agreement is an inadequate
short-term public hospital funding down-payment to appease desperate States and
Territories ahead of the Federal election’ which ‘will not be sufficient to
meet current and future demand’. The AHHA described the
Agreement as a ‘partial turnaround from the $57 billion cuts to health funding
imposed in the 2014 Budget’, and strongly welcomed the continuing commitment to
The initial response to the Budget announcement has been similar,
with both the AMA and AHHA welcoming the confirmation of hospital funding,
although both expressed the view that it remained insufficient. The AMA
characterised the funding as a ‘down-payment only’, while the AHHA argued ‘it
returns less than half of the expected funding that was removed’. At this stage, the Library is not aware of any comments made by state and
territory governments. However, the transfer of the IHPA’s functions to the
Department of Health may raise questions over its capacity to remain
All online articles accessed May 2016.
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