Health Expenditure Australia 2019-20

The differences in purpose, scope and coverage are the key reasons for the observed differences in health expenditure statistics across the different reports. In recent years the AIHW has worked with stakeholders in the HEAC to better understand the similarities and differences across the various health expenditure reporting entities. The first phase of this work was published in the Health expenditure Australia 2018–19 report (published in 2020) with the inclusion of a report section which descibes the various reports and the drivers of varying health expenditure estimates.

This section provides an analysis of the drivers of different health expenditure estimates across the various reporting entities.

   Variances in health expenditure statistics are due to the different scope and classifications systems used. For example, where spending through health insurance is considered part of the health system under the ANHA, it is considered part of the insurance sector in the System of National Accounts. Another reason for variation comes from the ABS use of the GFS as a source for government spending, which varies from the source used by the AIHW, which has been tailored specifically for the ANHA. While the basis for both systems is the general ledger transactions that are recorded by the various government agencies, including Departments of Health, the two vary for a number of reasons.

The relevant point of comparison between Government Finance Statistics (GFS) on health expenditure based on the Classification of the Functions of Government (COFOG) and those in the ANHA relates to statistics on Australian and jurisdictional government funding of expenditures. Reasons for differences include:

COFOG is a ‘purpose’ classification, which means that the basis for classifying expenditures is the purpose for which the expenditure relates, rather than the nature of the activity. This means, for example, that remote housing constructed for the purpose of housing doctors would be treated as health expenditure in COFOG.

The health division in COFOG potentially includes activities that are outside of the scope of the ANHA (for example, nursing and convalescent home services) and may exclude activities that are within the scope of the ANHA.

Within GFS, unconsolidated statistics of expenditures by state and territory governments include expenditures financed by transfers from the Australian Government. Consolidated statistics remove transactions between levels of government. This process is known as consolidation, and is performed to avoid double-counting of government transactions. Likewise, within GFS, statistics of expenditures by state governments includes expenditure financed by payments from non-government sources, which are excluded from health expenditures funded by state and territory governments in the ANHA.

Likewise, within GFS, statistics of expenditures by state governments includes expenditure financed by payments from non-government sources, which are excluded from health expenditures funded by state and territory governments in the ANHA.

The estimates of government final consumption expenditure in the System of National Accounts (SNA) can be compared with estimates of government funded health expenditure in the ANHA. Reasons for differences include:

Differences between GFS health expenditure statistics and ANHA expenditure statistics as described above, as the GFS statistics form the basis for the SNA estimates of government final consumption expenditure.

Health-related transfers from governments to households will not be included as government household final consumption expenditure. Instead, they will be reflected in estimates of private final consumption expenditure in the SNA. However, these transfers, because they are funded by government, are included as government funded expenditure in the ANHA.

Likewise, the estimates of household final consumption expenditure on health can be compared with estimates of non-government expenditures in the ANHA. Reasons for differences include:

Household final expenditure funded by government transfer to households, which will be shown as government funded expenditure in the ANHA.

Health expenditure by residents and non-residents on health care. Spending by non-residents in Australia is included in ANHA expenditure estimates, but is deducted from HFCE, while spending by Australian residents abroad are added to HFCE. These adjustments are recorded as net expenditure overseas (NEO).

The inclusion of any non-government expenditure in the ANHA that is treated as intermediate consumption expenditures in the SNA rather than HFCE (i.e. any health expenditures by businesses).

The treatment of health insurance providers administrative expenses. These are shown as part of non-government health expenditure in the ANHA. However, they are excluded from household final consumption expenditure in the SNA. In the SNA, these expenses are treated as input costs of the insurance industry, which produces insurance services. The household acquisition of health insurance services is recorded in the miscellaneous goods and services component of household final consumption expenses.

Furthermore, a range of different sources and methods are used to compile the various estimates of final consumption expenditure in the SNA and the ANHA estimates of non-government expenditure. The use of these different sources and methods will likely cause differences in the estimates in addition to the conceptual and scope differences mentioned above.

While these jurisdictional reports generally use the same source data as are provided to the AIHW for the ANHA (audited financial statements and ‘general ledgers’), variations in scope and methods can occur. Classifying the data to fit the ANHA classification system can require adjusting specific items to avoid duplication, or drawing on other data sources, such as hospital activity data, to ‘fit’ the spending into ANHA categories.

The ANHA data vary from the jurisdictional annual reports primarily because the ANHA is national in scope, not limited to a single department or jurisdiction, and must avoid double counting where there are transfers between agencies (and the same spending may be reported by both). An important contributor to this are the federal transfers and, in particular, National Health Reform Agreement payments as well as payments for programs such as for highly specialised drugs. The ANHA effectively 'removes' these amounts from state and territory spending and reports them under the Australian Government 'Health and other' category. Other reasons for variation include payments from insurers. To create an illustrative comparison with annual report figures here, a number of adjustments have been made to account for the main reasons for variation. In particular, where the transfers have been added back in to the state and territory figures, they have been removed from the Australian Government 'Health and other' category as they are not managed directly by the Department of Health so do not appear in the annual report.

Some examples of drivers of variability between annual reports and the ANHA include:

• In some jurisdictions there are departments which encompass both health and human services functions which produce a single annual report across both areas.
• Staff engaged by a specific health service might technically be considered departmental staff in some states and territories. In these cases, spending can essentially be captured twice in the annual report but this duplication is eliminated for reporting to the AIHW.
• Health workforce programs are not considered in-scope for the ANHA but generally are considered health spending in the annual reports.
• Transfers between states and territories for the provision of health services may be duplicated in annual reports.

In preparing their submissions for the ANHA each year, the state and territories remove these scope and duplication issues from the data that is provided to the AIHW. To ensure this is done consistently over time and between jurisdictions, this work is overseen by the Health Expenditure Advisory Committee, which includes representatives from all jurisdictions and the AIHW is continuing to work with all jurisdictions to ensure transparency.

The National Health Funding Body (NHFB) was established in 2011 to support funding and payments made under the National Health Reform Act 2011. The NHFB estimates comprise two components – a state pool and a state managed fund. Payments into the state pool include:

• Australian Government payments for Activity Based Funding (ABF). These are payments based on activity levels in public hospitals. ABF funding is determined on the basis of the National Efficient Price, which is calculated by the Independent Hospital Pricing Authority (IHPA).
• Australian Government block funding to support teaching and research undertaken in public hospitals, and for some public hospital services where it is more appropriate to be block funded, particularly for smaller rural and regional hospitals.
• State government ABF payments. These payments are calculated by the states as the system manager of the public hospital system. The service agreement between the state and each LHN specifies the service delivery and funding parameters.
• A public health component paid by the Commonwealth for disbursement to state governments for public health activities (such as vaccinations).

There are two relevant points of comparison between the statistics published by the NHFB and those in the ANHA:

• Comparison of total public hospital expenditure.
• Comparison of state funding for public hospitals.

On the Australian Government side, NHFB’s published numbers on the Commonwealth contribution of the National Health Reform Agreement (NHRA) funding are directly used as the main component of Commonwealth public hospital funding in the ANHA. The ANHA estimates are calculated using information on total public hospital expenditure provided by jurisdictional departments of health. State and territory governments’ own funding on public hospitals are derived by offsetting NHRA and other grants and revenues that states and territories received from the Australian Government and other sources.

The estimates of total public hospital funding from NHFB statistics and in the ANHA will differ because of:

• Consumption of fixed capital is included in the ANHA estimates, whereas it is not included in the NHFB statistics.
• Public hospital expenditure funded by other (ie non- NHRA) Australian Government grants, such as funding from the Department of Veterans’ Affairs, Department of Health funded programs such as blood and organ programs, funding relating to PBS Section 100 highly specialised drugs, and funding relating to health insurance premium rebates are included in the ANHA estimates and not included the NHFB estimates.
• Public hospital expenditure funded by state and territory governments that is not covered by the NHRA are included in the ANHA estimates but not in the NHFB estimates. These include:
  • The amounts paid into the pool reflect the jurisdiction’s contribution based on the IHPA’s calculated national efficient price for the delivery of ABF services. As the actual cost of delivering these services can be greater than the national minimum price, jurisdictions provide top-up-funding to hospitals that does not go through the pool.
  • In regard to the block funding pool, jurisdictions are free to determine the scope of the payments they make into the pool; and may also provide block funding to hospitals outside of the pool.
  • Jurisdictions provide centrally-managed services to public hospitals, such as administrative and pathology services, that do not involve payments to hospitals. These services are part of expenditure on public hospital services but are not reflected in the NHFB estimates.
• Payments to LHNs by the NHFB that are used to fund non-public hospital services will be excluded in the ANHA public hospital expenditure estimates but included in the NHFB estimates. For example, in some jurisdictions it appears that block funding payments may include amounts related to community health services that are delivered through public hospitals.
• Interest payments are included in the NHFB estimates but not in the ANHA estimates.
• Difference between cash and accrual accounting whereby NHRA-related expenditure may occur in one period but the cash funding may be provided in another. This expenditure will be recorded in the ANHA (which is on an accruals basis) in the period when the expenditure is incurred, and in the ANHA in the period when the funding is provided.