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 eligible for Activity Based Funding (ABF).
ABF is a system that funds hospitals according to the number and complexity of patients they treat; and the NWAU allows different hospital activities to be expressed in terms of a common unit of activity.
An ‘average’ public hospital service is worth 1 NWAU. More intensive and expensive activities are worth more than 1 NWAU, and simpler and less expensive activities are worth less. For example, a typical case of cellulitis is assigned 0.7 NWAUs, as this condition requires fewer hospital resources than, for example, a typical knee replacement, which is assigned 4.0 NWAUs.
Because of this weighting, the NWAU accounts for differences in the complexity of patients’ conditions or procedures, and a selection of individual patient characteristics. For example, the patient remoteness area.
What is cost per NWAU?
Cost per NWAU is the cost associated with providing one ‘average’ unit (1 NWAU) of public hospital service, based on public hospital services provided to acute admitted patients whose treatment was eligible for ABF. It is an indicator of hospital efficiency.
To ensure the national comparability of public hospitals, the cost per NWAU:
- includes a subset of comparable running costs, which were accounted for similarly across states and territories. For example, property, plant and equipment costs are excluded from the calculations.
- counts similar services for similar acute patients by using the NWAU.
Cost per NWAU is calculated by dividing the total comparable running costs by the total NWAUs for acute admitted patients. This reflects the average cost of care for a hospital, providing an indication of efficiency.
For more detailed information on the comparable costs and adjustments see the Technical Supplement.