Concepts and definitions

Government funding sources

Australian Government

The Australian Government health funding includes:

  • the Medicare Benefits Schedule (MBS)
  • the Pharmaceutical Benefits Scheme (PBS)
  • supporting and regulating Private Health Insurance (PHI)
  • monitoring the quality, effectiveness and efficiency of primary health care services
  • funding health and medical research
  • funding veterans’ health care through the Department of Veterans’ Affairs (DVA)
  • funding community controlled Aboriginal and Torres Strait Islander primary health care organisations
  • buying vaccines for the National Immunisation Program
  • subsidising hearing services.

It also funds: 

  • the Department of Health and Aged Care (DoHAC)
  • Services Australia (who deliver government payments and services)
  • universities and other health-related bodies on health and medical research
  • private health insurance premium rebates.

Up until 2018–19 when it ceased, the Australian Government also funded the net medical expenses tax rebate (the small amount presented in 2019–20 related to late claims/processing).

The Australian Government shares responsibilities with the states and territories for activities including:

  • funding public hospital services
  • preventive services such as:
    • cancer screening programs
    • funding palliative care
    • national mental health reform.

Funding is provided from the Australian Government under the National Health Reform Agreement (NHRA) and for specific projects and priority areas through the National Partnership Agreement (NPA) on health services (Box 2.1).

Australian Government funding to the states and territories occurs primarily under the National Health Reform Agreement (NHRA) and (Box 2.1).

Most Australian Government spending can be readily allocated on a state and territory basis:

  • National Health Reform (NHR) funding (referred to as the National Healthcare Specific Purpose Payments before 1 July 2012)
  • health-related National Partnership Payments (NPP) to the states and territories
  • MBS and PBS payments, and most DVA spending (based on residence of patient).

Other Australian Government health spending is generally not explicitly allocated to states and territories. In these cases, estimation methods are used to derive state and territory spending. For example, non-MBS payments to primary health care medical service providers are allocated according to the proportion of vocationally registered general practitioners in each state or territory.

Box 2.1: Australian Government funding to states and territories

Australian Government funding to the states and territories is through 2 agreements: the NHRA and the NPA on health services.

National Health Reform Agreement

The NHRA, signed in 2011, outlines the shared roles of the Australian Government and state and territory governments to work in partnership to improve health outcomes and ensure the sustainability of the health system. It recognises the states and territories as the managers of the public hospital system and the Australian Government as having a lead role for delivering general practitioner (GP) and primary health care.

The NHRA was initiated to:

  • improve patient access to services and public hospital efficiency through Activity Based Funding (ABF)
  • improve the transparency of public hospital funding through the National Health Funding Pool (NHFP)
  • improve standards of clinical care through the Australian Commission on Safety and Quality in Health Care
  • improve performance reporting through the NHPA
  • improve accountability through the Performance and Accountability Framework
  • improve local accountability and responsiveness to the needs of communities through the Local Hospital Networks and Medicare Locals
  • improve the provision of GP and primary health care services through better integrated systems.

There are 2 types of NHR funding: ABF is a way of funding hospitals whereby they get paid for the number and mix of patients they treat. Block funding supports teaching, training and research in public hospitals, and public health programs. It is also used for certain public hospital services where block funding is more appropriate, particularly for smaller rural and regional hospitals.

National Partnership Agreement on health services

NPPs are paid under the NPA on health services aimed at improving the health and well-being of Australians through delivering high quality health services. The amount the Australian Government pays to each state and territory is determined by specified performance benchmarks related to each bilateral agreement.

NPPs fall under the following categories:

  • health services, such as additional assistance for public hospitals; comprehensive palliative care across the life course; expansion of the BreastScreen Australia program
  • health infrastructure, such as upgrade of Ballina hospital (NSW) and Albury-Wodonga Cardiac Catheterisation Laboratory
  • Indigenous health, such as the NT remote Aboriginal investment – health component and the Rheumatic fever strategy
  • other health payments, including Community Health, Hospitals and Infrastructure projects, Encouraging more clinical trials in Australia, the Health Innovation Fund, Public dental services for adults and Suicide prevention.

Since 2019–20, the Australian Government also contributes funding to states and territories under the National Partnership on COVID-19 Response (NPCR), which includes funding in public hospitals, private hospitals, public health, patient transport, community health, and minor capital expenditure.

Department of Veterans’ Affairs

DVA funds health-related services and programs for eligible veterans, their families and their carers. DVA-supported health services and treatments include:

  • hospital services
  • mental health services
  • various medical and allied health services
  • rehabilitation support (including adaptive equipment, aids and appliances, and support to return to work)
  • benefit-paid pharmaceuticals.

Health services are provided under the: Veterans’ Entitlements Act 1986; Safety, Rehabilitation and Compensation (Defence-related Claims) Act 1988; Military Rehabilitation and Compensation Act 2004 (MRCA) and services that qualify for benefit under the Department of Veterans' Affairs National Treatment Account.

DVA issues various health cards that entitle holders to a range of health service benefits. Eligibility for DVA funded health support is dependent on whether an entitled person holds a Veteran Gold or White Card.

Medical expenses tax rebate

The medical expenses tax rebate (or net medical expenses tax offset) was an Australian Government subsidy to assist with the cost of medical expenses that was phased out at the end of 2018–19 (ATO 2020a). Prior to this, taxpayers who spent large amounts of money on health-related goods and services were able to claim a tax rebate.

Before 2012–13, the tax rebate was 20 cents in the dollar and applied to the amount spent over the threshold for a financial year. From July 2012, the tax rebate became means tested. In March 2014, eligibility for it changed again, restricting who could claim and the type of medical expenses that could be claimed.

The rebate is shown as being funded by the Australian Government, and therefore the original expenditure made by individuals is deducted from individual spending. However, it is not possible to allocate funding to specific categories of health spending as the areas of spending the rebate funded cannot be identified separately.

Private health insurance premium rebates

The private health insurance (PHI) premium rebate is a refund on PHI premiums paid by individuals. It replaced the Private Health Insurance Incentives Scheme subsidy in 1999.

The rebate is regarded as an indirect Australian Government subsidy of all the types of services funded through PHI. It includes rebates paid either to health insurance providers when individuals have paid a reduced premium, or through the tax system when individuals have paid the full premium (Box 2.2).

In the ANHA, the premium rebate is pro-rated across all expense categories. Since not all revenues that PHI providers receive are spent on health goods and services for their members (and not therefore considered health expenditure), the rebate amount reported in the HEA is an estimate of the rebate (direct and through the tax system) paid out through health benefits. It is therefore smaller than the total rebate paid to individuals to reduce premiums, which are reported elsewhere, such as by DoHAC and Australian Taxation Office (ATO) annual reports. More details on the estimation can be found in the Data processing section.

Defence force spending

The HED 2020–21 includes health expenditure by the Australian Department of Defence (Department of Defence, Joint Health Command 2021), which started providing data since the 2019–20 report.

State and territory governments

State and territory governments are taking the main role for: management and administration of public hospitals, with shared funding arrangements with the Australian Government through the NHR funding; delivery of preventive services such as breast cancer screening and immunisation programs; funding and management of community mental health services; public dental clinics; and ambulance and emergency services.

Each jurisdiction provides information about health expenditure through the Government Health Expenditure National Minimum Data Set (GHE NMDS). These data are supplied on an accrual basis: expenditure is recorded when a good or service has been delivered rather than at the point that payment is made.

More information on the GHE NMDS is on the AIHW’s Metadata Online Registry.

When state and territory governments receive funding from the Australian Government, such as NHR funding and health-related NPPs, the expenditure is reported as spending by the Australian Government. The corresponding amount is deducted, or offset, from the state or territory government to remove double counting.

Comparing state and territory data

Caution should be exercised when comparing results between states and territories. Where possible, consistent estimation methods and data sources have been applied, but some differences in the data on which estimation methods are based exist between jurisdictions.

Estimating per person spending

Health spending estimates for individual states and territories may include health goods and services provided to patients from other states and territories (except for public hospital spending, where adjustments have been made through the NHR funding to account for cross-border service provision). In calculating spending per person, the population that provides the denominator is the estimated resident population of the state or territory in which the spending was incurred. Since not all cross-border goods and services can be accounted for, this can lead to an overestimation or underestimation of spending per capita in each state and territory.

Health expenditure estimates per person for the Australian Capital Territory (ACT) should be treated with some caution as the ACT provides a high volume of services to New South Wales (NSW) residents.

Local governments

Health spending data are not collected separately from local government authorities. Where these authorities received funding from the Australian Government or state or territory governments, it is included as spending from that body.

Own source funding by local government authorities is not included.

Goods and services tax in government revenues

The goods and services tax (GST) is collected by the Australian Government on behalf of states and territories and then distributed to them. Therefore, Australian Government tax revenues exclude revenues from GST, while state and territory tax revenues include GST.

Non-government funding sources

Private health insurance providers

Individuals pay fees (premiums) to PHI providers, who subsidise treatment and hospital costs in private hospitals or as a private patient in public hospitals and some primary health care services not covered under the MBS (such as dental, optometry and physiotherapy). Premiums are partly subsidised by the Australian Government, which provides eligible members with a rebate (Box 2.2).

Box 2.2: Private health insurance premium rebate

Two mechanisms exist for rebates on PHI premiums:

  • PHI providers offer members a reduced premium and then claim reimbursement from the Australian Government.
  • PHI members pay the full premium and claim the rebate through the tax system at the end of the financial year.

The PHI rebate on premiums paid by individuals was introduced in 1999, initially providing a 30% discount for people aged under 65, with older Australians received higher rebates.

In July 2012, the Australian Government introduced income testing of the rebate by creating income thresholds (income tiers). These thresholds attracted different rebate levels. This meant higher income earners would progressively receive lower rebates, or no rebate.

In 2014, the Australian Government changed the way the rebate was calculated, resulting in a lower rebate being available. Since then, the rebate has progressively declined. For example, in 2014 it ranged from around 29% for lower income earners (Base tier rate) to no rebate for highest income earners (Tier 3). In 2018, the Base tier rebate was 25%.

Also in 2014, income tiers that had been indexed annually until 2014–15 were frozen. In the 2016–17 Budget, the Australian Government announced it would maintain this freeze until 2021. This has the effect of decreasing rebates if incomes are rising.

Sources: Biggs 2017; Australian Taxation Office (ATO) 2020b.

Health spending by PHI providers are the amounts paid to health care providers. To avoid double counting, PHI provider spending estimates do not include the subsidies from the Australian Government through health insurance premium rebates – the subsidy amount is subtracted from total spending of PHI providers and is attributed to the Australian Government. This results in total PHI provider spending that is less than the amount paid out.

The spending also shows the payments made by PHI providers over the year, which may not align with the timing of the health services being funded.

Private health insurance provider spending by states and territories

PHI provider health spending for each state and territory is assumed to be equal to the amount of benefits paid by PHI providers to PHI members who live in that state or territory minus the private health insurance premium rebate.

Australian Capital Territory

Before 2010–11, data on PHI spending for the ACT were included in the total for NSW. To estimate spending for the ACT, the AIHW used the ACT’s admitted patient separation numbers for public and private hospitals to derive its proportion of total ACT and NSW separations. It then applied this proportion to PHI spending.

From 2010–11, PHI expenditure data for the ACT have been available separately; however, these figures have not been used retrospectively to update earlier data.


Most non-government funding for health goods and services in Australia comes from out-of-pocket payments by individuals.

Individuals incur medical costs through:

  • co-payments (or out-of-pocket expenses) for subsidised goods and services – for example, co-payments for specialist services subsidised through the MBS and medications through the PBS
  • co-payments for the cost of health goods and services with third party payers – for example, PHI providers
  • co-payments for treatment in a private hospital or as a private patient in a public hospital
  • meeting the full cost of goods and services – for example, medications the PBS or RPBS does not subsidise and over-the-counter medications.

Individual spending estimates do not include the premiums paid to PHI providers as these do not in themselves constitute spending on health goods and services. Private health insurance premiums play the role as the main revenue source for PHI providers. PHI health benefits paid out to members are counted as PHI’s health spending, as discussed above.

Estimates of individuals’ spending on dental services, other health practitioners, and aids and appliances rely mostly on the growths in the PHI cost of services and the growth of the proportion of the population who have general treatment cover through PHI from year-to-year, and historical data. Benefits that individuals received from PHI, Medicare and injury compensation insurers are offset from the total estimates to derive the out-of-pocket spending.

Individual spending on over-the-counter medications is sourced primarily from Information Resources Incorporated (IRI), a private research organisation. State and territory level spending is derived using proportions in historical ABS Household Final Consumption Expenditure (HFCE).

In some states and territories where individual spending appears to be negative (such as expenditure on private hospitals or other services), it can be interpreted that individuals are subsidised by another funding sources, including DVA, PHI providers, workers’ compensation and compulsory third party motor vehicle insurance (CTPI) providers.

Workers compensation insurance providers

Workers compensation is a form of insurance payment to employees if they are injured at work or become sick due to their work. It can include payments to cover medical expenses and rehabilitation costs, and lump sum payments where an injury is deemed permanent. It can also include payments to families for work-related deaths.

Workers’ compensation laws are based on a ‘no fault’ principle and benefits can include compensation of earnings, medical and hospital treatment, rehabilitation, legal costs, and lump sum payments. The arrangements for workers’ compensation differ across states and territories in relation to scheme funding, access to legal advice or representation, coverage and eligibility, level of entitlements and return to work policies.

There are also two federal workers’ compensation insurance systems that apply to certain types of workers, one for approved workers in the Comcare system (employees of Australian Government agencies and authorities; employees of national companies licensed by the Safety, Rehabilitation and Compensation Commission.

Expenditure by providers of workers’ compensation relates to benefit payments to providers of health goods and services, such as:

  • medical
  • dental
  • hospital
  • ambulance
  • other professional services
    • pharmaceuticals
    • aids
    • appliances.

The expenditure estimates do not include amounts paid in respect of future medical costs.

Workers’ compensation payments data are obtained from Comcare and the respective injury compensation insurance regulatory authorities in each state and territory (Box 2.4). Data from the GHD NMDS are also used for workers’ compensation estimates in Queensland (QLD), Western Australia (WA), South Australia (SA) and the Northern Territory (NT).

Box 2.3: State and territory workers’ compensation insurance regulatory authorities

  • New South Wales: State Insurance Regulatory Authority (NSW)
  • Victoria: WorkSafe Victoria
  • Queensland: WorkCover Queensland
  • Western Australian: WorkCover WA
  • South Australia: ReturnToWork SA
  • Tasmania: WorkSafe Tasmania
  • Australian Capital Territory: WorkSafe ACT
  • Northern Territory: NT WorkSafe
  • Norfolk Island: Norfolk Island workers compensation agency (data unavailable)

Compulsory third party motor vehicle insurance providers

CTPI provides compensation for anyone injured or killed in a motor vehicle accident. Compensation can include medical and rehabilitation expenses, loss of income, damages for any disability caused by the accident, damages to immediate family in the event of death, and legal expenses.

Expenditure by CTPI providers relates to benefit payments to providers of health goods and services, such as:

  • medical
  • dental
  • hospital
  • ambulance
  • other professional services
    • pharmaceuticals
    • aids
    • appliances.

The expenditure estimates do not include amounts paid in respect of future medical costs.

CTPI payments data are obtained from the respective compulsory third-party insurance regulatory authorities in each state and territory (Box 2.4). Data from the GHE NMDS are also used for workers’ compensation estimates in WA, SA and the NT.

Box 2.4: State and territory compulsory third-party insurance regulatory authorities

  • New South Wales: The State Insurance Regulatory Authority
  • Victoria: Transport Accident Commission
  • Queensland: Motor Accident Insurance Commission in Queensland
  • Western Australia: Insurance Commission of Western Australian
  • South Australia: Motor Accident Commission
  • Tasmania: Motor Accidents Insurance Board
  • Australian Capital Territory: ACT compulsory third party insurance regulator (data unavailable)
  • Northern Territory: Territory Insurance Office

Other private

This component of non-government funding of health goods and services, includes payments such as:

  • non-patient revenue that private hospitals receive (for example, from donations)
  • university and other research spending funded by non-government sources
  • private capital expenditure
  • revenue that state and territory governments received from private sources other than individuals.

Areas of spending

Public hospitals

In Australia, public hospitals offer a broad range of free services to eligible admitted and non-admitted patients:

  • Admitted patient services are for patients formally admitted to hospital, either on the same day or involving an overnight stay of one or more nights in hospital. They include medical, surgical and other acute care, as well as child birth, mental health and non-acute care.
  • Non-admitted patient services are provided in emergency departments and outpatient clinics. They include dispensing medicines, district nursing and some community health services.

Public hospitals and the services they provide are jointly funded by the Australian Government and state and territory governments, complemented by payments from non‑government sources. State and territory governments manage and operate public hospital services, which are provided free to public patients. Patients can elect to be treated as either a public or private patient.

Australian Government funds are primarily based on activity levels – ABF (Box 2.1). Public hospitals are administered by the relevant state or territory health authority which provide additional funds for them. Non-government sources provide funds to public hospitals for services such as ambulatory care and programs not covered by the MBS.

State and territory health authorities provide estimates of spending on public hospital services through the GHE NMDS. These reflect public hospital expenses used only in providing hospital services. This can include services provided off-site, such as hospital-in-the-home and dialysis.

Public hospital spending excludes expenses incurred in providing community and public health services, dental, patient transport services, and health research undertaken by public hospitals. The excluded expenses are captured under their respective categories, such as Other services or Primary health care.

In some cases, public hospitals receive fees from medical practitioners in return for the right to practise privately within the hospital. The medical practitioner may then receive payment from the MBS, individuals and/or private health insurance providers for these services. Up to now, public hospital spending estimates have not explicitly treated any MBS spending as public hospital spending (it is treated as spending on ‘referred’ or ‘unreferred’ medical services by the AIHW). More information is available in MBS in hospitals.

Cross-border service provision

For public hospitals, cross‑border ABF under the NHRA is paid directly through the NHFP to the jurisdiction in which services were provided.

PBS Section 100 programs (public hospital)

Australian Government funding for the PBS Section 100 programs for public hospital patients is conditional on prescriber and patient eligibility criteria (Box 2.5). Payments for this program are considered to be spending on Public hospitals where they have been prescribed for a public inpatient of a public hospital.

Private hospitals

Private hospitals cater for patients treated by a doctor of their choice. Patients are charged fees for accommodation and other services provided by the hospital and relevant medical and paramedical practitioners. Acute care and psychiatric hospitals are included, as are private free‑standing day hospital facilities.

Private hospitals are largely owned and operated by private (non-government) organisations – either for-profit companies or non-profit organisations. State and territory governments license or register private hospitals.

Until 2018–19, estimates of individual and other private spending on private hospitals come from the annual ABS Private Health Establishments Collection (PHEC), with results published in Private Hospitals, Australia, 2016–17 (ABS 2018). The 2016–17 ABS PHEC was the final data collection in this series, and spending estimates for 2017–18 were modelled on the 2016–17 data.

From 2018–19, the Private Hospitals Data Bureau (PHDB) (DHAC 2020) has been used to estimate the patient revenue (individual expenditure) component of private hospitals. The non-patient revenue component is estimated using historical data and the growth of the patient revenue.

Contracting of private hospital services

Private hospital spending also includes spending by private hospitals in providing contracted and/or ad hoc treatments for public patients, where:

  • state and territory governments had contracts with private hospitals to provide services to public patients
  • individual public hospitals purchased services from private hospitals for public patients.

This expenditure is collected through the GHE NMDS, which includes reporting of funding by state and territory governments for services private hospitals provide.

PBS Section 100 programs (private hospital)

Australian Government funding for the PBS section 100 programs for private hospital patients is conditional on prescriber and patient eligibility criteria (Box 2.5). Payments for this program are considered to be spending on Private hospitals.

Primary health care

Primary health care (PHC) is typically a person’s first contact with the health system. It generally encompasses care not related to a hospital visit (although includes a small amount of in-hospital MBS reported as spending on unreferred medical services).

PHC comes under numerous funding arrangements and expenditure on this area of health includes unreferred medical services (for example, GP visits), dental services, other health practitioner services, pharmaceuticals, and community and public health services. Referred non-hospital medical services (for example, specialist visits) are not classified as PHC. PHC includes activities such as prevention, health promotion, early intervention, treatment of acute conditions and management of chronic conditions.

Unreferred medical services

Unreferred medical services are those provided to a person by, or under the supervision of, a medical practitioner that have not been referred to that practitioner by another medical practitioner or person with referring rights. For example, visits to a GP.

A small proportion of in-hospital MBS – less than 1% of all in-hospital MBS – is reported as unreferred medical services. These include in-hospital:

  • GP attendances
  • practice nurses
  • enhanced primary care
  • other unreferred attendances.

Dental services

Dental services are services provided by registered dental practitioners. They include oral and maxillofacial surgery items, orthodontic, pedodontic and periodontic services, cleft lip and palate services, dental assessment and other dental items listed in the MBS. They cover services funded by health insurance funds, state and territory governments and individual out‑of‑pocket expenses.

Other health practitioners

These include:

  • practice nurses
  • chiropractors, optometrists
  • physiotherapists
  • occupational therapists
  • speech therapists
  • audiologists
  • dieticians
  • podiatrists
  • homeopaths
  • naturopaths
  • practitioners of Chinese medicine
  • other forms of traditional and complementary medicine.

Community health and other

Community health and other refer to non-residential health services offered to patients and clients in an integrated and coordinated manner in a community setting, or the coordination of health services elsewhere in the community. Such services are provided by, or on behalf of, state and territory governments.

The term ‘other’ in ‘community health and other’ includes health spending that could not be allocated to a specific category. For example, providers of: substance abuse treatment; general health administration; or regional health services with no specified purpose.

Public health

Public health involves activities and services funded or delivered by state and territory health departments that aims to protect and promote the health of the whole population or specified population subgroups, rather than individuals. Examples of public health programs include communicable disease control, organised immunisation, food standards and hygiene, cancer screening, and prevention of hazardous and harmful drug use.

Benefit-paid pharmaceuticals

Benefit-paid pharmaceuticals are medications listed in the schedule of the PBS and the Repatriation Pharmaceutical Benefits Scheme (RPBS) for which pharmaceutical benefits have been paid or are payable (Box 2.5). They do not include listed pharmaceutical items where the full cost is met by the patient.

All other medications

These are pharmaceuticals for which no PBS or Repatriation Pharmaceutical Benefits Scheme (RPBS) benefit is paid. They include:

  • pharmaceuticals listed in the PBS or RPBS, the total costs of which are equal to, or less than, the statutory patient contribution for the class of patient (under co-payment pharmaceuticals)
  • pharmaceuticals dispensed through private prescriptions that do not fulfil the criteria for payment of benefit under the PBS
  • over-the-counter medicines, including pharmacy-only medicines, aspirin, cough and cold medicines, vitamins and minerals, herbal and other complementary medicines, and medical non‑durables such as condoms, adhesive and non-adhesive bandages.

Box 2.5: The Pharmaceutical Benefits Scheme

The PBS, established under the National Health Act 1953 (NHA), is the Australian Government program which subsidises the cost of medicines. The PBS is managed by DoHAC and administered by Services Australia. The RPBS is subsidised by DVA.

PBS Section 85

Most general medicines are dispensed by community pharmacies and used by patients at home. These are known as Section 85 medicines because they are dispensed under section 85 of the NHA.

PBS Section 100

Section 100 provides alternative ways of providing a medicine when the usual supply through community pharmacies is unsuitable. The reasons include the cost of storage, requirements for particular controls over dispensing, the need for medical supervision or administration during treatment or constraints on patient access to community pharmacies (such as the supply of medicines to promote area Aboriginal Health Services).

There are several programs funded under this provision including the:

  • Highly Specialised Drugs Program
  • Efficient Funding of Chemotherapy
  • Botulinum Toxin Program; Human Growth Hormone Program
  • IVF program
  • the Opiate Dependence Treatment Program.

Paying for medications

Patients pay a co-payment towards the cost of each PBS medicine, with the Australian Government covering the remaining cost.

The PBS Safety Net scheme is intended to protect patients needing a large number of medicines in one year from excessive out-of-pocket costs. Individuals and families who spend an amount equal to their safety net threshold on co-payments receive further prescriptions free for that year.

Under co-payment is when medications are priced below the general patient co-payment.

Sometimes people have to pay more than the co-payment for prescriptions; this occurs if their particular brand of medicine listed on the PBS costs more than another brand of the same medicine.

The Highly Specialised Drugs Program

HSDs are subsidised through the PBS and administered under section 100 of the NHA. They are for the treatment of complex medical conditions that require ongoing specialised medical supervision. The HSD program is part of the PBS.

There are restrictions on where HSDs can be prescribed and supplied. In most cases, medical practitioners are required to undertake specific training or be affiliated with a specialised hospital unit to prescribe these medicines.

There are 3 components to the program: Public hospital (recorded as public hospital spending); Private hospital (recorded as private hospital spending); and Community access (recorded as benefit-paid pharmaceuticals). Community access arrangements which relate to HIV antiretroviral therapy, hepatitis B medicines and clozapine (maintenance therapy for schizophrenia treatment), can be dispensed from community pharmacies.

Sources: DoHAC 2021; Grove 2016.

Referred medical services

Referred medical services are those where the person has been referred by a GP or medical specialist. Typically, GPs refers patients to specialists, allied health professionals, diagnostic pathology and/or medical imaging providers.

In-hospital MBS services (except for dental) are mainly allocated to this area of spending, as it is not possible to identify whether the service occurred in a public or private hospital. The MBS benefit paid is attributed to Australian Government expenditure, while the fee charged minus benefit paid is attributed to individual spending. Spending by PHI funds on in-hospital medical services is allocated directly from the data supplied by Australian Prudential Regulation Authority (APRA), and the amount is offset from individual referred medical spending.

As a result of allocating in-hospital MBS services to referred medical services, spending by the Australian Government, individuals and PHI providers on public and private hospital services is under-estimated and the spending on referred medical services is over-estimated.

Prior to 2012–13, ‘Medical services’ had been used as an area of expenditure in HEA reporting, which included both referred and unreferred services. Since 2012–13, in order to differentiate between primary health care and non-primary health care, this area has been split into two separate areas: ‘Referred medical services’ and ‘Unreferred medical services’.

The majority of in-hospital MBS services are allocated to Referred medical services (except for items related to in-hospital dental services and to primary health care, such as GP and practice nurses in hospitals), with the funding contributed by the Australian Government, PHI providers and individual out-of-pocket costs.

Other services

Patient transport services

These are services or organisations primarily engaged in transporting patients, including the provision of health or medical care. They are often provided for a medical emergency, but not restricted to this. Vehicles used are generally equipped with lifesaving equipment and operated by medically trained personnel. Patient transport services include public ambulance services or flying doctor services, such as the Royal Flying Doctor Service and Care Flight.

Patient transport includes programs, such as patient transport vouchers or support programs to help isolated patients with travel to get specialised health care. Since 2003–04, these costs have been included in the operating costs of public hospitals.

Aids and appliances

These are medical goods used more than once for therapeutic purposes, such as glasses, hearing aids, wheelchairs, orthopaedic appliances, and prostheses fitted externally (rather than implanted surgically).


Administration relates to formulating and administering government and non‑government health policy, and regulating and licensing providers of health services. Administrative services include only those that cannot be allocated to a particular health good or service. Such services might include maintaining an office for the chief medical officer, a departmental liaison officer in the office of the minister, or other agency‑wide items for which it is not possible to derive appropriate or meaningful allocations to particular health programs.

Until 2008–09, departmental costs for some Australian Government regulators were reported under public health services. Regulators were the Therapeutic Goods Administration, Office of the Gene Technology Regulator, and National Industrial Chemicals Notification and Assessment Scheme. These are now reported as administration expenses.


The Australian Government provides funding for research through:

  • DoHAC programs for research
  • DVA
  • Capital consumption allocated to research
  • University research

Some research is also funded by state and territory governments and non-government sources. This is research with a health socioeconomic objective undertaken in tertiary institutions, private non-profit organisations or government facilities. It excludes commercially oriented research funded by private business, the costs of which are assumed to be included in prices charged for the goods and services (for example, medications developed and/or supported by research activities).

Research spending data in this report mainly come from ABS Research and Experimental Development statistics, generally only available every second year. Where data were unavailable, estimates are calculated on the latest year available. Data on research spending from state and territory governments are also used.

Capital expenditure and depreciation

Capital expenditure is spending on large-scale fixed assets (for example, new buildings and equipment with a useful life extending over a number of years). Australian Government capital spending is often through grants and subsidies to other levels of government or to non-government organisations. In contrast, much of the resources of state and territory governments is apportioned to new and replacement capital for government service providers (for example, hospitals and community health facilities). Non-government capital spending is mainly on private hospitals.

In the ANHA, capital expenditure cannot be disaggregated by the area in which it has been spent. For example, it is not possible to determine the proportion of capital expenditure related to hospitals or primary health care.

Depreciation of capital is the amount of fixed capital used each year and is included in recurrent expenditure. It is sometimes referred to as capital consumption. Because depreciation is considered part recurrent expenditure in the ANHA, it is allocated and reported to different areas of health spending.

Prior to the HEA 2007–08 (AIHW 2009) private capital depreciation was included as part of recurrent spending, while government capital depreciation was reported as part of total health expenditure but not recurrent expenditure.

The data for capital expenditure and capital depreciation are mainly sourced from the ABS’s government finance statistics.


A price index, also known as a deflator, is a measure of inflation. It shows the amount a price of good or service has changed over time relative to a base year. For example, the Consumer Price Index is a measure of the average change over time in the prices paid by households for a fixed basket of goods and services.

The deflator is used to derive constant price estimates. The AIHW uses annually re‑weighted Laspeyres (base‑period‑weighted) chain price indexes and IPDs to calculate constant prices in the HEA. Chain price indexes are calculated at a detailed level and give a close approximation to measures of pure price change. IPDs are affected by changes in the composition of goods. Chain indexes, which give better measures of pure price change, are preferred to IPDs, but available indexes are not always ideal. In some cases, it has been necessary to use proxies for preferred indexes.

The reference, or base, year for deflators used in HEA report is the latest financial year (for example, in the HEA 2020–21, prices are calculated to 2020–21). As such, constant price estimates indicate what spending would have been had the base year price applied in all previous years. Therefore, any reported change in spending is a measure of changes in the volume of goods and services purchased, and not the cost of the goods and services.

In HEA reports, the measure used for general inflation is the IPD for Gross National Expenditure (GNE). GNE is a broad measure of the value of final expenditures on the goods and services purchased in the economy, including personal consumption, investment and purchases made by governments and foreigners, which includes imports but excludes exports. An IPD gives an indication of changes in the purchase price of these goods.

For comparative purposes, some analysis is also presented using the Gross Domestic Product (GDP) IPD. This measures change in the total value of goods and services Australian residents produce, including exports but excluding imports. For example, where exports form a major part of an economy’s production, the GDP inflation figure can reflect international trends more than shifts in domestic pricing. In these cases, GNE may give a more accurate indication of inflation in domestic prices.

The total health price index is the AIHW’s index of annual ratios of estimated total national health spending at current prices to estimated total national health spending at constant prices. Since the national total health price index is a measure of the change in average health prices from year to year at the national level, it can be used as a broad deflator for the health sector. The AIHW’s method for deriving constant price estimates also allows it to produce total health price indexes for each state and territory.

At the subsection level for the health sector, the AIHW uses indexes where the scope matches the particular health services being analysed, rather than broad‑brush indexes covering all health services (Box 2.6). Most are specific to the type of spending to which they are applied. For hospitals, for example, the government final consumption expenditure (GFCE) hospitals and nursing homes deflator is used.

These deflators are sourced from the ABS:

  • GFCE for hospitals and nursing homes
  • professional health workers wage rate index
  • HFCE for chemist goods
  • gross fixed capital formation.
Box 2.6: Area of health spending, by type of deflator applied

Area of spending

Deflator applied

Public hospitals(a)/Public hospitals services(a)

GFCE hospitals and nursing homes

Private hospitals

GFCE hospitals and nursing homes

Patient transport services

GFCE hospitals and nursing homes

Medical services

MBS medical services fees charged

Dental services

Dental services

Other health practitioners

Other health practitioners

Community health and other(b)

Professional health workers wage rate index

Public health

GFCE hospitals and nursing homes

Benefit-paid pharmaceuticals

PBS pharmaceuticals

All other medications

HFCE on chemist goods

Aids and appliances

Aids and appliances


Professional health workers wage rate index


Professional health workers wage rate index

Capital expenditure

Gross fixed capital formation

Medical expenses tax rebate

Professional health workers wage rate index

(a) Public hospital services exclude certain services provided in hospitals, and can include services provided off site, such as hospital in the home and dialysis.

(b) ‘Other’ includes recurrent health spending that could not be allocated to a specific area of spending. For example, spending by substance abuse treatment centres, providers of general health administration, or providers of regional health services not further defined.

The AIHW derives the chain price index from the MBS medical services fees charged and the IPD for PBS pharmaceuticals from data provided by DoHAC. The IPDs for dental services, other health practitioners, and aids and appliances were derived from ABS and APRA data.