Hospitals account for a large share of the funds Australia spends on the health sector each year. In 2011–12, about 30% of the estimated $140.2 billion that Australia spent on health was spent on running costs for public hospitals (excluding property, plant and equipment costs).1 Having effective measures to help assess the efficiency of hospitals is 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.

One way to assess hospital efficiency is to see how much money each hospital uses in comparison to its peers to provide specific treatments or procedures. Conducting such comparisons is however very difficult, because sicker or more complex patients cost more to treat, and because there are a variety of reasons why some cost variations are unavoidable or why some hospitals use more resources than others. It is important to adjust for unavoidable cost variations and to adjust for these other differences before comparisons can be considered meaningful.

This report is the result of innovative development work by the National Health Performance Authority (the Authority) that for the first time allows these meaningful comparisons of the relative efficiency of more than 80 of Australia’s largest public hospitals.

To achieve this, the Authority includes two headline measures in the report, Cost per National Weighted Activity Unit (NWAU) and Comparable Cost of Care, both of which adjust as much as possible for the factors that can push hospital costs up unavoidably or in ways that mean they cannot fairly be compared to others. The main difference between the two measures is that Comparable Cost of Care includes emergency department (ED) costs for patients admitted through EDs (Figure 1).

The first part of the report compares the overall performance of Australian public hospitals using Cost per NWAU and Comparable Cost of Care for acute admitted patients. Both measures report costs for activity units, which allow different treatments and operations to be compared fairly. The second part of the report breaks this down further into costs across major hospitals for 16 selected medical conditions or surgical procedures.