About this report

This report provides insights into the relative efficiency of public hospitals by allowing fair comparisons of the costs they incur in caring for their patients. A hospital is considered more efficient if it is able to deliver more services while consuming fewer resources. In this light, measuring hospital costs for a given service helps to show how efficient hospitals are relative to each other.

In 2011–12, the entire health sector was estimated to have cost federal, state and territory governments, private health insurers and individuals $140.2 billion.1 Public hospitals represented the largest portion of this, accounting for $42.0 billion (excluding property, plant and equipment costs), including $26.1 billion for acute and emergency department (ED) services.1,2

Effective approaches to help assess the efficiency of different hospitals are therefore important, because the size of the hospital sector means efforts to improve efficiency, if well targeted, have a large potential to yield significant benefits towards ensuring money is spent more effectively.

This report has national significance because it is the first time this information about the costs of delivering services to acute admitted patients has been made publicly available. The report discusses results for 86 of Australia’s largest hospitals, and also provides a summary in tabular form (Appendix 1). Results for a further 11 hospitals are available on the MyHospitals website. These hospitals have not been included in the report because their results are not fully comparable. A list of these hospitals can be found in Appendix 2.

The National Health Performance Authority (the Authority) bases its performance reports on indicators agreed by the Council of Australian Governments (COAG). This report provides insights into the following indicators:

  • Cost per weighted separation and total case weighted separations
  • Relative Stay Index for multi-day stay patients.

As public hospitals provide a range of services to a variety of patients, the report focuses on patients that consume the largest portion of costs, namely those who are admitted for acute care. To ensure results are comparable between hospitals, the report accounts for known legitimate increases in costs. These include costs associated with the complexity of the patient’s condition or procedure, and individual patient characteristics, such as the additional costs of treating patients who live in remote areas.

The report excludes costs that are accounted for in different ways across states and territories, such as costs of consumables (for example, blood) and other costs of property, plant and equipment. This approach enhances confidence in the reliability of the results.

The Authority’s approach of concentrating on a comparable subset of total costs means that, across 82 hospitals with results for Comparable Cost of Care, the total value of the costs being examined in this report amounts to $16.0 billion of the $26.1 billion spent nationally on acute admitted and ED patients in public hospitals in 2011–12.

This report provides information about the relative efficiency of public hospitals, using two separate measures:

  • Cost per National Weighted Activity Unit (NWAU) is a measure of the average cost of a unit of activity provided to acute admitted patients in a public hospital
  • Comparable Cost of Care is a measure that focuses on the comparable costs of acute admitted patients and includes the costs of emergency department patients who are subsequently admitted to allow for an assessment of the relative efficiency of public hospitals.

The Authority uses two headline measures in the report, Cost per NWAU and Comparable Cost of Care, to provide additional confidence in the reliability of the results.

By including both measures, which use different methods of calculation, the Authority has demonstrated that results for individual hospitals are broadly the same regardless of which measure is used. In other words, hospitals that appear either more efficient or less efficient using one measure have very similar results using the other measure. The fact that results for hospitals are similar using both measures creates additional confidence in the reliability of the report’s findings and of the relativities in hospital efficiency (Appendix 3).

Additionally, the report includes information for 16 conditions and procedures using the following two measures:

  • Cost per admission is a measure that shows how much money different hospitals spend to treat patients admitted for any of the 16 conditions or procedures
  • Length of stay is a relevant contextual measure using data for 2011–12 which shows the average number of days a patient stayed in hospital.

For the part of the report focusing on the average cost for specific types of admissions, the 16 conditions or procedures were selected by clinicians and hospital managers to represent major areas of medical and surgical care for major metropolitan and major regional public hospitals. This information has been provided to allow health care professionals to better understand how their day-to-day activities may contribute to their hospital’s overall result.

As length of stay in hospital is a driver of the cost of treating many patients, this report includes information on the length of these stays for the 16 conditions or procedures, and the costs involved. This information is provided to give health care professionals transparent information about factors they can influence in a more immediate way.

It is important to note that cost figures for the 16 conditions and procedures are not adjusted to take account of differences in the complexity of the condition or patient characteristics that can lead to legitimate increases in costs. They also do not reflect 100% of the actual costs for each condition or procedure. The quoted costs are instead a subset of total costs that are considered comparable (see ‘More about the contextual measures’).

Importantly, while the report compares the relative efficiency of hospitals by using their average cost of a unit of activity, it has not been possible to consider the quality of care provided or the health outcomes experienced by patients. As a result, it is not possible to conclude whether a hospital with lower or higher efficiency results provides better or worse health outcomes than other hospitals, and therefore the Authority makes no determination in this report that any particular hospital is performing well or poorly.

Why is comparing the costs of hospital services important?

The efficiency of Australia’s health system would increase if steps were taken to reduce hospital costs while retaining or improving quality of care and patient outcomes.

Every day, clinicians make decisions that influence, for example, the number and types of tests, treatments, devices, procedures and the number of days a patient stays in hospital.

Accordingly, this report aims to equip health care professionals with comparable performance information to support their work to deliver patient care without placing undue resource demands on the health care system.

About the data

Data used in this report are calculated from the National Hospital Cost Data Collection (NHCDC) and the Admitted Patient Care National Minimum Data Set.

The NHCDC is recognised internationally as an important and unique resource, used by the Independent Hospital Pricing Authority (IHPA) to establish prices for public hospital services which are eligible for funding under the National Health Reform Agreement (NHRA). The national consistency and completeness of the NHCDC has undergone assurances and review by external auditors.3,4,5

The data submitted to the NHCDC is owned by state and territory governments. Some governments release more recent data on their websites comparing the efficiency of their public hospitals. However, measures designed for comparison of public hospitals within a state or territory are not necessarily comparable to other jurisdictions. The measures used in this report support the national fair comparison of the relative efficiency of Australia’s largest public hospitals.

This report is based on 2011–12 data because of the length of time required for this information to be collected nationally, and to carry out the work required to make this information comparable between states and territories. With the report’s methods now established, it is anticipated that future reports will be able to use more timely data, which will also show if relativities between hospitals have shifted since 2011–12.