In 2014–15, a total of $161.6 billion was spent on health by all governments, insurers and patients. The largest share of this spending went to running public hospitals ($48 billion), which included $26.4 billion to provide care for acute admitted patients (AIHW 2016).

Across Australia, data on costs and activity levels are available and comparable across time for 27 major public hospitals (with limited information for 4 more). Together, the costs captured in this report for these 27 hospitals accounted for approximately $8.7 billion (33% of the total $26.4 billion) spent on acute admitted patients in 2014–15 (IHPA 2015).

This report shows how much each of those 27 hospitals spent in 2014–15 to provide an ‘average’ hospital service to their acute admitted patients. The results were calculated by comparing a hospital’s running costs to a measure of output, called a National Weighted Activity Unit (NWAU). More detail about this measure is available in the section on How average cost of care is measured.

A hospital’s cost per NWAU can help us to understand how efficiently a hospital is delivering an ‘average’ hospital service over time, or compared with other hospitals. A low or falling cost per NWAU can indicate relatively high or improving efficiency, and a high or rising cost per NWAU can indicate low or worsening efficiency. In this report, the average cost of a service or activity is considered an indicator of efficiency.

While cost per NWAU is an efficiency indicator, it doesn’t account for other aspects of quality or effectiveness for that ‘average’ hospital service; noting that changes in efficiency may (or may not) affect the quality or effectiveness of care provided. This means cost per NWAU results are best considered in light of other indicators of the quality or effectiveness of hospital services.

Results for cost per NWAU may be affected by service volume as well as expenditure, since a hospital’s cost per NWAU will fall (suggesting an improvement in efficiency) if it spends the same amount of money but provides an increased number of services. Conversely, cost per NWAU will increase (suggesting worsening efficiency) if a hospital spends a similar amount of money but provides fewer services.

Every day, decisions are made in a hospital, or by governments, that influence the cost of delivering services and the efficiency of a hospital. These decisions include, for example:

  • the number and types of tests, treatments and procedures to be performed
  • whether a patient is admitted
  • the number of days a patient stays in hospital
  • staffing levels required.

This report aims to equip decision makers with comparable performance information to support their work in delivering care without placing unreasonable resource demands on health care providers or funders.