Explanatory Note
2015-16 Annual Reconciliation of National Health Reform funding

Page last updated: 06 April 2018

The National Health Reform Agreement (NHRA) is an agreement between the Commonwealth and the states and territories on public hospital funding arrangements, to ensure the sustainability of Australia’s public hospital system.

Under the NHRA, the Commonwealth makes a significant contribution to the states and territories for the delivery of public hospital services. The Commonwealth’s National Health Reform (NHR) funding payments are based on:

  • public hospital activity estimates provided by the states and territories;
  • pricing advice from the Independent Hospital Pricing Authority (IHPA); and
  • a funding calculation by the Administrator of the National Health Funding Pool (the Administrator).
Payments are made during the year on the basis of activity data and estimates provided by the states and territories. At the end of each financial year, the Administrator undertakes a reconciliation of the activity estimates with actual public hospital services delivered, and provides final payment advice to the Commonwealth Treasurer (the Treasurer).

During the 2015-16 financial year, the Commonwealth provided a total of $16.9 billion for public hospital services to the states and territories, an increase in funding of $1.4 billion from the previous year.

In November 2016, the Administrator provided the Treasurer with preliminary advice on the outcomes of the 2015 16 annual reconciliation. The reconciliation proposed a revised growth in funding from $1.4 billion to $2.0 billion, an increase of $0.6 billion or 43 per cent.

In December 2016, the Treasurer wrote to the Administrator seeking his advice in relation to the underlying drivers of this significant and unexpected growth in 2015-16.

The Administrator did not respond to this correspondence and instead wrote to the Treasurer in April 2017 advising and requesting that the Treasurer make a final Determination of Commonwealth National Health Reform funding entitlement for 2015 16.

In the absence of the requested advice from the Administrator, the Treasurer wrote to the Commonwealth Minister for Health requesting that he investigate the underlying drivers in funding and activity growth for 2015-16.

In May 2017, the Minister for Health wrote to the IHPA requesting an analysis of public hospital activity.

In June 2017, the Administrator provided his ‘Analysis of Growth in Commonwealth NHR Funding’ report to the Treasurer which provided some insight in to the underlying drivers of the significant funding growth in 2015-16.

The Administrator’s report identified unusual growth in the non-admitted service category, notably that a 4.5 per cent increase in hospital services had led to a 26.3 per cent increase in the Commonwealth’s funding contribution.

In August 2017, the IHPA provided its ‘Review of public hospital activity data’ report which identified:
  • a discrepancy between the activity growth calculated by the IHPA and the activity growth calculated by the Administrator for funding purposes;
  • that the pricing methodology for non-admitted home delivered ventilation services may have had an unintended impact on funding growth calculations and required further investigation;
    • Growth in non-admitted home delivered ventilation services in Victoria increased by more than 600 per cent between 2014-15 and 2015-16; and
    • Growth in non-admitted home delivered ventilation services in Queensland increased by more than 3000 per cent between 2014-15 and 2015-16.
  • there was evidence that some states and territories had not correctly transitioned to a new counting methodology for non-admitted home delivered renal dialysis services; and
  • the introduction of a new classification system for non-admitted obstetric services led to an increase in the funding growth calculated despite a decrease in the number of hospital services delivered.
In light of the new information provided by the Administrator and the IHPA, and following consultation with all Health Ministers, the Commonwealth Minister for Health issued a Direction to the IHPA, to review and take any necessary steps to address any unintended consequences in the calculation of the Commonwealth contribution to public hospital services for 2015-16.

In January 2018, the Administrator issued a public statement that a review of the 2015-16 reconciliation had identified anomalies in the growth calculations for a small number of non admitted services, in particular home delivered ventilation and dialysis services.

The Administrator’s statement can be found at:

On 4 April 2018, the IHPA issued a public statement in relation to a significant pricing error in non-admitted home delivered ventilation services and to provide updated activity information for non-admitted obstetric services.

The IHPA’s statement can be found at:

Having regard to the public statements made by the Administrator and the IHPA, the Treasurer has made a final Determination of Commonwealth NHR funding entitlement for 2015-16. The Determination was calculated using the Administrator’s payment advice in April 2017 and the IHPA’s public statement on 4 April 2018.

The Treasurer’s Determination can be found at: www.legislation.gov.au/Details/F2018L00468

Table 1: Final Determination of National Health Reform Funding, 2015-16
$ millions
2015-16 Determination

National Health Reform Funding Entitlement

Final 2015-16 reconciliation payments to states and territories
Western Australia
South Australia
Northern Territory
Australian Capital Territory
New South Wales