Webinar 78: Introduction to the National Efficient Price for Australian Public Hospital Services

Funding Benchmark Pressures

The National Efficient Price (NEP) serves as the cornerstone of Australia's activity-based funding system for public hospitals. Set annually by the Independent Health and Aged Care Pricing Authority (IHACPA), it calculates the Australian Government's contribution—typically around 45% of efficient growth—to state and territory public hospital services under the National Health Reform Agreement.

For the 2025–26 financial year, IHACPA determined the NEP at $7,258 per national weighted activity unit (NWAU), up from previous years, reflecting updated cost data, classification refinements, and adjustments for legitimate cost variations. This figure applies to in-scope services such as acute admitted care, emergency departments, and non-admitted outpatient services. A companion National Efficient Cost (NEC) determination sets block funding for small rural hospitals at a fixed $2.637 million plus $7,617 variable per unit.

The timing matters because the 2025–26 NEP took effect from July 2025, following its March 2025 release and the extension of the current National Health Reform Agreement addendum to cover 2025–26. Negotiations for the next long-term agreement loom, with potential shifts in funding models or caps. Recent determinations also advanced the phase-out of remaining temporary COVID-19 pricing measures, restoring adjustments for hospital-acquired complications and avoidable readmissions while removing specific COVID-19 treatment loadings, assuming cost profiles have normalised.

Real-world effects hit state budgets, hospital networks, and patient access. If a state's costs outpace the NEP—due to higher wages, workforce shortages, or complex cases—local hospital networks absorb the gap, risking deferred maintenance, staff cuts, or rationed elective surgeries. Rural and remote facilities rely on NEC loadings (up to 35.3% for very remote areas) to offset diseconomies of scale, but any miscalibration amplifies inequities.

Less visible tensions include the trade-off between efficiency incentives and safety-net protections. Pricing penalises avoidable readmissions or complications to drive quality, yet stakeholders argue insufficient adjustments for unavoidable factors—like patient complexity or workforce pressures—could unfairly reduce funding. Stakeholder submissions during pricing framework consultations highlighted concerns over volatility if COVID-era measures end abruptly, alongside calls for better accounting of high-cost treatments outside standard schemes.

Broader context involves Australia's ongoing struggle to balance universal access with fiscal sustainability, especially as demand grows from ageing populations and chronic disease burdens.