National Health Reform

In August 2011, the Council of Australian Governments (COAG) agreed to major structural reforms to the organisation, funding and delivery of health care, and new financial and governance arrangements for Australian public hospital services, to enable the future sustainability of the Australian health system. Following the COAG meeting, the Commonwealth and all state and territory governments entered into the National Health Reform Agreement (the Agreement) outlining their shared intentions to work together to establish the foundations of Australia’s future health system. Under the Agreement, the Commonwealth, state and territory governments are jointly responsible for funding public hospital services by using either activity based or block funding. The aim of the Agreement is to deliver a nationally unified and locally controlled health system through:

  • introducing new financial arrangements for the partnerships of the Commonwealth, state and territory governments
  • confirming the roles state and territory governments play in public health and as system managers for public hospital services
  • using activity based funding to improve public hospital efficiency and patient access to services
  • increasing Commonwealth contributions to public hospital funding to ensure funding sustainability
  • improving the transparency of public hospital funding through a National Health Funding Pool (the Pool)
  • improving local accountability and responsiveness to the needs of communities through establishing local hospital networks
  • introducing new national performance standards and better outcomes for hospital patients.

The creation of the Administrator of the National Health Funding Pool (the Administrator) and the National Health Funding Body (Funding Body) encompass the agreed transparency arrangements of the Agreement. These roles incorporate funding determination, administration and reporting to the general public, the Commonwealth, states and territories, local hospital networks and other users. The National Health Funding Body Annual Report 2012–13 outlines the activities undertaken during the 2012–13 financial year to support the delivery of these obligations.

The Administrator of the National Health Funding Pool

The Administrator is a single, independent statutory office holder, appointed by the Standing Council on Health and is not subject to the control or direction of the Commonwealth Minister. The Administrator was created through the Agreement and the Act and associated national health reform legislation in all states and territories. The role of the Administrator is to administer the Pool according to the Agreement, to oversee payments into and out of the Pool account for each state and territory, and to report on various funding and service delivery matters. The Funding Body, a Commonwealth interjurisdictional agency, was created to assist the Administrator in the discharge of these legislative requirements. The Act, the Agreement, and the relevant legislation of each state and territory govern the role, functions and responsibilities of the Administrator, which include:

  • calculating the Commonwealth national health reform funding contribution to states and territories, and ensuring funds are deposited into Pool accounts in line with the Agreement
  • administering the Pool, which receives all Commonwealth and activity based state and territory hospital funding
  • authorising payment instructions
  • reporting publicly on all activities of the Pool and other relevant aspects
  • reconciling estimated and actual service delivery volumes.

The funding provided through these arrangements is the biggest single investment in health services made by the Commonwealth and states and territories.

National Health Funding Pool

The Pool, which consists of eight state and territory bank accounts, is held with the Reserve Bank of Australia. The bank accounts that make up the Pool are known as state pool accounts and are established under state and territory legislation for the purpose of:

  • receiving all Commonwealth block funding
  • receiving activity–based state and territory public hospital funding
  • distributing funds and making payments according to the Agreement.

The Administrator governs the Pool, with the assistance of the Funding Body whose role it is to assist the Administrator in performing his functions under the relevant legislation. The Funding Body also provides effective and efficient administrative mechanisms and primary policy advice in the development and operation of those functions. The national health reform funding and payment flows are outlined in Figure 1. As depicted in Figure 1, Funding contributors and payment recipients are described as:

Funding contributors

The funding contributors are the Commonwealth Government and state or territory governments for their own state and territory activity, and cross–border funding for interstate patients. National health reform funding occurs when contributors have paid into a state pool account or state managed fund.

Payment recipients

The payment recipients are the local hospital networks, third parties on behalf of the local hospital networks, state and territory Health Departments and other providers. Recipients receive payments from the state pool account or state managed fund.

Figure 1: Commonwealth national health reform funding and payment flows

Flowchart of funding and payment distributions

The types of funding and payments available are described in Table 1.

Table 1: National health reform funding types
Funding type Description
Activity based funding A system of funding based on the number of services provided to patients and the cost to be paid for delivering those services
Block funding Block funding is provided to states and territories to support teaching and research undertaken in public hospitals, particularly for smaller rural and regional hospitals
Public health funding Funding identified in the Agreement and paid by the Commonwealth to state and territory Health Departments for national public health, youth health services and essential vaccines
Cross–border activity based funding When a resident of one state or territory receives hospital treatment in another state or territory, the ‘resident’ state or territory compensates the ‘provider’ state or territory for the cost of that care via a cross–border activity based payment
Interest When a state pool account has an overnight credit balance, interest accrues in the account and is paid by the Reserve Bank of Australia to the state or territory
Over deposit If more money is deposited than required, this can be paid to the state or territory Health Department or used for the next payment to the state or territory

Funding Body: Supporting States and Territories transition to the Pool

In signing the Agreement, all states and territories intended to participate in the Pool from 1 July 2012. However, not all states and territories had the necessary legislation in place by that date.1 During the year, the Funding Body actively worked with and supported states and territories transition to the national health reform funding arrangements as their legislation was enacted. This involved undertaking and satisfying local requirements, such as compliance and assurance, training and support in using the National Health Funding Administrator Payments System (Payments System) and assisting with establishing Reserve Bank of Australia Pool requirements to manage the payments flows. The Funding Body successfully supported all states and territories in implementing these arrangements, with no risk to funding continuity to local hospital networks.

  • New South Wales, Western Australia and Tasmania commenced Pool transactions through the National Payments System on 1 July 2012
  • Queensland commenced on 1 August 2012
  • Victoria commenced on 28 September 2012
  • Northern Territory and South Australia commenced on 1 October 2012
  • Australia Capital Territory commenced on 1 March 2013

Funding and payments through the Pool

Table 2 provides details of the national health reform funding and payments for 2012–13 relating to each state and territory and includes funding and payments made under state and territory national health legislative and notional amounts.

Table 2: National health reform funding and payments for each state and territory — 2012–13
State/territory National health reform funding2012–13 $ National health reform payments2012–13 $
NSW 11,004,866,836 11,004,866,836
VIC 7,559,910,397 7,559,910,396
QLD 7,790,507,472 7,790,409,592
WA 4,807,912,042 4,807,912,042
SA 2,775,518,139 2,757,713,742
TAS 781,087,610 781,087,611
ACT 641,619,313 641,619,313
NT 661,435,336 661,420,139
Total 36,022,857,146 36,004,939,671

Further detailed information on the national health reform payments into and out of the Pool, and state managed funds, is reported under the Administrator’s monthly reporting requirements, available at www.publichospitalfunding.gov.au. This information aligns to the information detailed in the Administrator of the National Health Funding Pool Annual Report 2012–13.

Working together to develop the Public Hospital Funding website and monthly reports

The successful development and launch of the Administrator’s Public Hospital Funding website highlighted the strength of the Funding Body’s skills and core qualities of commitment, resilience, the ability to work cohesively, and openly consult with stakeholders to deliver on a key transparency requirement of the national health reform agenda.

The concept

The purpose of the website is to meet the Administrator’s obligation to report publicly on required national health reform funding and payments, and provide monthly reports on these matters to jurisdictions and the general public. In developing the monthly reports, the Funding Body had to ensure the disclosure requirements of the National Health Reform Act 2011 and corresponding jurisdictional legislation were met. The challenges of meeting these requirements and working within a tight timeframe were significant; from developing an informative and clear narrative to presenting this information in a meaningful way to the general public. Stakeholders were involved throughout the development process in a series of collegiate and consultative discussions and workshops, which occured for a number of months.

The result

On 7 November 2012, the Administrator’s Public Hospital website (www.publichospitalfunding.gov.au) was launched together with three months of reports. Once completed all subsequent monthly reports were released on the website. Achieving this major milestone was a testament to the commitment and professionalism that has characterised the culture within the Funding Body and demonstrates how significant progress has been possible in just one year of operation. The Funding Body remains committed to continuous improvement of the website and monthly reports; reviewing the structure of the reporting and ensuring the website is accessible, current and accurate, and meets user needs.

1 Prior to March 2013, the states and territories without the necessary legislation in place received equivalent funding from the Commonwealth Treasury, referred to as ‘notional’ payments, and made payments from departmental bank accounts to local hospital networks.

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