Implementation of Activity Based Funding Framework and Implementation Plan

Project Type - Acute Care, Funding


  • 2009


Through the National Partnership Agreement on Hospital and Health Workforce Reform (the National Partnership Agreement) the Commonwealth and the States and Territories have agreed to move to a more nationally consistent approach to activity based funding for public hospitals – but one which also reflects the Community Services obligations required for the maintenance of small and regional hospital services.

The agreement is reflected in the COAG communiqué of 29 November 2008, which states that the Commonwealth and the States have agreed to provide a basis for more efficient use of taxpayer funding of hospitals, and for increased transparency in the use of those funds through the introduction of Activity Based Funding. It will also allow comparisons of efficiency across public hospitals.

Health Outcomes International in conjunction with Ernst & Young were commissioned by the Department of Health and Ageing to develop a national framework and implementation plan for ABF costing. The National Framework developed in this project describes the activity based funding infrastructure that will be collaboratively developed by the Commonwealth and the States and Territories over the period of the National Partnership Agreement. 

The primary methodological components included:

  • consultations with a range of stakeholders including:
    • jurisdictional consultations- met with key policy makers, patient classification and costing officers and finance officers. Jurisdictions responded to a set of interview questions covering the key areas of typology, classification, costing and funding to describe their current and proposed costing and funding processes.
    • Commonwealth consultations- met with representatives from the Commonwealth in order to understand the drivers for ABF, and dependencies associated with implementation.  Discussion was also held with DOHA at weekly status update meetings.  We also consulted with DOHA on national processes and priorities for Mental Health costing and funding.
  • attending a number of meetings with all jurisdictional representatives to discuss policy drivers for ABF and to test directions proposed for the National Framework and Implementation Plan as they progressed. An additional meeting was held in May with jurisdictions to finalise the interim report.
  • a Workshop was held to discuss and receive feedback on the draft National Framework and Implementation Plan and the resource allocation priorities associated with them. 
  • a literature scan was undertaken through journals, websites and internet to identify recent national and international initiatives in Activity Based Costing and Funding.

HOI in conjunction with Ernst & Young produced a comprehensive Activity Based Funding Framework and Implementation Plan. The report identified the key elements of a fully operational, nationally consistent activity based funding regime, addressing patient typology, classification, costing and funding in public hospitals. It also addressed activities such as research and training which are not directly related to the treatments provided to individual patients and to Community Service Obligations for small and rural hospitals for which an activity based funding approach may not be appropriate.