In 2013–14, the running costs of public hospitals ($44 billion) represented the largest proportion of the $154.6 billion that was spent on health by all governments, insurers and patients.1,2 Across Australia, data are available and comparable across time for 41 major metropolitan public hospitals, with limited information available for a further six. These 47 hospitals account for nearly $10 billion of the $24.8 billion providing care to acute admitted patients.3
This report shows the amounts of money each of those 47 hospitals spent in 2013–14 to provide a notional ‘average’ hospital service to their acute admitted patients. These results were calculated by comparing a hospital’s running costs to a measure of output, using something called a National Weighted Activity Unit (NWAU). More detail about this measure and what it means is in the section ‘How average cost of care is measured’.
A hospital’s Cost per NWAU can help us to understand how efficiently a hospital is delivering an ‘average’ hospital service relative to other hospitals or relative to itself over time. Generally speaking, a low or falling Cost per NWAU indicates relatively high or improving efficiency, and a high or rising Cost per NWAU indicates low or worsening efficiency. For the purposes of this report the average cost of a given output is considered a measure of efficiency.
However, Cost per NWAU takes no account of other aspects of the quality or effectiveness of that ‘average’ hospital service besides efficiency, and changes in efficiency may or may not affect the quality or effectiveness of the care provided. This means that Cost per NWAU results are best considered in light of other indicators of the quality or effectiveness of hospital services.
Results for Cost per NWAU may be affected by service volume as well as expenditure. In other words, a hospital’s Cost per NWAU will fall (suggesting an improvement in efficiency) if it spends the same amount of money but provides an increased number of services. Alternatively, a hospital’s Cost per NWAU will increase (suggesting worsening efficiency) if it spends a similar amount of money but provides fewer services.
Every day, decisions are made in a hospital, or within governments, that influence the efficiency of a hospital, for example, the number and types of tests, treatments, devices, procedures, the number of days a patient stays in hospital, whether a patient is admitted and the staffing levels required. These decisions affect the cost of delivering services.
Accordingly, this report aims to equip decision makers with comparable performance information to support their work in delivering patient care without placing unreasonable resource demands on health care providers or funders.
About the data
Data used to calculate the measures in this report were sourced from the National Hospital Cost Data Collection (NHCDC) and the Admitted Patient Care National Minimum Data Set (APC NMDS) and the Hospital Casemix Protocol (HCP) data collection. These collections receive data from the states and territories, and private health insurers; all of whom rely on data recorded by individual hospitals.
The Authority determined that, to support the national fair comparison of the efficiency of Australia’s largest public hospitals, the report would use a subset of total costs. The report focuses on the costs of providing acute admitted care, which represents about 70% of the running costs of a hospital.3
The Authority also determined that nominal costs (costs unadjusted for inflation) would be used in the analysis. Hospitals are highlighted where growth in the nominal cost of care was less than the inflation rate. This below-inflation increase in the average cost of care is presented as an improvement in efficiency.
How average cost of care is measured
What is an NWAU?
The National Weighted Activity Unit (NWAU) was developed by the Independent Hospital Pricing Authority to set the pricing of public hospital services. The NWAU allows different hospital activities to be expressed in terms of a common unit of activity.
An ‘average’ public hospital service is worth one NWAU. More intensive and expensive activities are worth multiple NWAUs, and simpler and less expensive activities are worth fractions of an NWAU. For example, a typical case of cellulitis is assigned 0.8 NWAUs, as this condition requires fewer hospital resources than (say) a typical hip replacement, which is assigned 4.2 NWAUs.
Because of this weighting, the NWAU accounts for the differences in the complexity of patients’ conditions or procedures, and a selection of individual patient characteristics.
What is Cost per NWAU?
Cost per NWAU is the cost of a notional ‘average’ public hospital service that was provided to acute admitted patients whose treatment was eligible for Activity Based Funding. It allows an assessment of hospital efficiency.
To ensure the national comparability of public hospitals the Cost per NWAU:
- Includes a subset of comparable running costs, costs which were accounted for similarly across states and territories. For example, it excludes property, plant and equipment costs
- Counts similar services to similar acute patients by using the NWAU. The NWAU represents both the volume and complexity of acute admitted patients; accounting for sicker patients, or patients requiring more complex care.
Cost per NWAU is calculated by dividing the total comparable running costs by the total NWAU for acute admitted patients to calculate the average cost of care to a hospital. This provides a measure of a hospital’s efficiency.