The report presents data on the efficiency of Australia’s largest public hospitals focusing on acute admitted patients using the measure Cost per National Weighted Activity Unit (NWAU), including total NWAU.

What is an admission?

The APC NMDS contains information about a patient’s admission in hospital, termed ‘episode of admitted patient care’.

An ‘episode of admitted patient care’ is defined as ‘the period of admitted patient care between a formal or statistical admission, and a formal or statistical separation (that is, discharge), characterised by only one care type’.5 For example, it defines the period between the patient’s arrival and when the patient is discharged or moved to a ward for subacute care, such as rehabilitation.

The ‘episode of admitted patient care’ records information about the patient’s characteristics, including their age and sex, information about the care they received in hospital such as diagnosis and any procedures they underwent during their admission and when they arrived and left hospital.

For the purposes of this report an ‘episode of admitted patient care’ is referred to as an ‘admission’, which is synonymous with a ‘separation’.

What is a National Weighted Activity Unit?

Each ‘admission’ is allocated to an AR–DRG, allowing us to understand the mix and the relative complexity of patients admitted to a hospital.

The AR–DRG is derived from the codes allocated to diagnose(s) and procedure(s) that are recorded in the patient’s medical record for each admission for acute care.

Each AR–DRG is allocated a defined ‘cost weight’, which is a relative measure of a patient’s complexity, as measured by the relative cost of care as calculated as the ratio of the average cost of a given AR–DRG compared to the average cost of all AR–DRGs, for hospitals submitting data to the NHCDC.

After allocating each patient (that is, each individual patient unit record) a cost-weight based on its AR–DRG, the weight is adjusted according to individual patient characteristics which are known to lead to legitimate cost variations. The result is an NWAU.

This provides the basis for understanding the activity undertaken at a hospital during the financial year, a measure that represents the number of admissions, adjusted for the relative complexity of patients who were admitted to the hospital and their individual patient characteristics which may have led to legitimate cost variations.

More intensive and expensive activities receive multiple NWAUs and simpler and less expensive activities are allocated fractions of an NWAU.

For more information on the AR-DRG version used and the individual patient characteristic adjustments see Table 2.

What is Cost per NWAU?

Cost per NWAU, developed by IHPA, measures the average cost of a notional ‘average’ public hospital service that was eligible for Activity Based Funding in a public hospital. This report compares the cost of acute admitted patients against an NWAU, a measure of hospital activity which takes into account the relative complexity of conditions as well as individual patient characteristics. See Table 1 and Table 2 for more information.

The Cost per NWAU measure excludes patients whose services are not eligible for Commonwealth funding under Activity Based Funding, such as patients funded by the Department of Veterans’ Affairs (DVA) or motor vehicle accident insurance.

The Authority used this measure to compare 115 major and large public hospitals against their peers, based on the size and location of the hospital. Cost per NWAU results were published for:

  2011-12 2012-13 2013-14

Major metropolitan hospitals

46 46 47

Large metropolitan hospitals

13 14 14

Major regional hospitals

25 20 27

Large regional hospitals

11 12 13

For more information see the National Efficient Price Determination 2014–15 and 2015–16.6,7

What costs are included?

There are some instances where state and territory governments account for costs differently, for example how they account for depreciation. To deal with this, the report uses only a subset of costs that are nationally comparable (Table 1).

The report focuses on acute admitted patients and does not include emergency department costs.

The costs included in the analysis and prepared for this report were based on and prepared using the methods detailed in the National Efficient Price Determination. Those methods account for the cost of private patients in public hospitals; and make adjustments for costs not reported to the NHCDC. In 2013–14, the impact of this on the majority of hospitals is marginal, that is ≤$100 Cost per NWAU (rounded), with the exception of hospitals in New South Wales and Victoria. Of the 36 major and large metropolitan and regional public hospitals with an emergency department in New South Wales, 11 hospitals had their rounded Cost per NWAU inflated by more than $100 Cost per NWAU; and of the 26 major and large metropolitan and regional public hospitals with an emergency department in Victoria, one hospital had its rounded Cost per NWAU inflated by more than $100 Cost per NWAU. It is noted that none of the major public hospitals reported in the top 10% of their peer group had its Cost per NWAU inflated by more than $100.

As Cost per NWAU was developed based on the methods used for Commonwealth Activity Based Funding (i.e. the National Efficient Price Determination) the costs included in the derivation of Cost per NWAU are net of private patient revenues; and the NWAU is also adjusted to account for private patient revenues (See the National Efficient Price Determination6,7 for further information).

Table 1: Measuring Cost per National Weighted Activity Unit (Cost per NWAU) in the Hospital Performance: Costs of acute admitted patients in public hospitals from 2011–12 to 2013–14 report


Cost per NWAU

Comparable costs
Allied health; Imaging; Pharmacy; Pathology
Critical care
Hotel goods and services*
Non-clinical and on-costs
Operating room
Specialised procedure suite
Ward medical, nursing and supplies
ED costs x
Blood costs x
Teaching, training & research (direct) x
Depreciation x
Excluded costs* x
Payroll tax x
Medications subsidised by Commonwealth programmes (e.g. PBS) x
Property, plant and equipment x
Patients included

Public and private patients†

Admitted and discharged in the financial year

Acute admitted patients (including qualified newborns)‡

Compensable and Department of Veterans’ Affairs


Rehabilitation, palliative care, outpatients

Adjustments for legitimate cost variations §

Specialist paediatric; Specialist psychiatric age; Indigenous; Remoteness area; Intensive care unit; Radiotherapy; Dialysis

* As defined by the Australian Hospital Patient Costing Standards. For 2011–12 and 2012–13 data refer to version 2.0. For 2013–14 data refer to version 3.1.
† NWAUs are discounted to account for private patient revenues.
‡ See Appendix, Table 5, for more information.
§ Further information on these adjustments is available in Table 2.

Source: National Health Performance Authority Hospital Performance: Costs of acute admitted patients in public hospitals in 2011–12, Technical Supplement.