## How average cost of care is measured

### What is an NWAU?

The National Weighted Activity Unit (NWAU) was developed by the Independent Hospital Pricing Authority 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 0.8 NWAUs, as this condition requires fewer hospital resources than (say) a typical hip replacement, which is assigned 4.2 NWAUs.

Because of this weighting, the NWAU accounts for the differences in the complexity of patients’ conditions or procedures, and a selection of individual patient characteristics.

For more detailed information on the comparable costs and adjustments see Technical Supplements.

### What is Cost per NWAU?

Cost per NWAU is the cost of a notional ‘average’ public hospital service that was provided to acute admitted patients whose treatment was eligible for Activity Based Funding. It allows an assessment of hospital efficiency.

To ensure the national comparability of public hospitals the Cost per NWAU:

• Includes a subset of comparable running costs, costs which were accounted for similarly across states and territories. For example, it excludes property, plant and equipment costs
• Counts similar services to similar acute patients by using the NWAU. The NWAU represents both the volume and complexity of acute admitted patients; accounting for sicker patients, or patients requiring more complex care.

Cost per NWAU is calculated by dividing the total comparable running costs by the total NWAU for acute admitted patients to calculate the average cost of care to a hospital. This provides a measure of a hospital’s efficiency.

Amount spent (which is the running cost to a hospital to treat acute admitted patients) divided by volume and complexity of patients (acute admitted patients are allocated a number of NWAUs based on the complexity of their condition) gives the Hospital efficiency (which is the average cost of care \$/unit, or Cost per NWAU).