Hospital Performance: Costs of acute admitted patients in public hospitals in 2011–12

Cost per NWAU

The National Weighted Activity Unit (NWAU) was developed by the Independent Hospital Pricing Authority (IHPA) 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 a weighted unit of activity of 0.8 since this condition requires fewer hospital resources than a typical hip replacement, which is assigned a weighted unit of activity of 4.2.

The NWAU accounts for the differences in the complexity of patients’ conditions or procedures and individual patient characteristics.

Cost per NWAU for acute admitted patients is a measure of the average cost of one NWAU for patients who are admitted to a hospital from the emergency department, pre-admission clinic or specialist clinic. Therefore, it does not include any emergency department costs associated with these patients.

The measure focuses on the hospital costs of patients whose treatment is eligible for Commonwealth funding under the National Health Reform Agreement. It excludes costs relating to hospital services funded by other Commonwealth programmes, for example highly specialised drugs for chemotherapy, or services for patients funded by the Department of Veterans’ Affairs, motor vehicle accident insurance, workers’ compensation or public liability damage claims.

Comparable Cost of Care

Comparable Cost of Care is a term coined by the Authority to denote a method of measuring the average cost of a unit of activity for acute admitted patients. It uses comparable costs to allow an assessment of the relative efficiency of hospitals. But unlike Cost per NWAU, Comparable Cost of Care includes costs associated with the care provided in the emergency department (ED) prior to admission, as the Authority has previously found large variation between hospitals in the length of time patients stayed in ED.⁶

Additionally, Comparable Cost of Care includes patients whose treatment is not funded under the National Health Reform Agreement by Activity Based Funding, such as patients covered by the Department of Veterans’ Affairs or motor vehicle accident and workers’ compensation schemes.

As with Cost per NWAU, the measure includes comparable costs that are recorded consistently across the nation’s public hospitals, calculated with reference to a standardised unit of activity. It excludes costs related to property, plant and equipment and where accounting practices differ between states and territories.

The unit of activity is weighted to account for the differences in the complexity of patients’ conditions or procedures and particular individual patient characteristics that are known to increase costs unavoidably, for example patients who live in remote areas.

Table 1: Differences between the measures of Cost per NWAU and Comparable Cost of Care

Cost per NWAU
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 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.

* As defined by the Australian Hospital Patient Costing Standards (AHPCS), version 2.0.
† NWAUs are discounted to account for private patient revenues.