About the measures

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

What is an admission?

The APC NMDS collects information about a patient’s admission in hospital, termed ‘episode of admitted patient care’. It 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’ (AIHW 2017b). For example, the period between the patient’s arrival and when the patient is discharged or moved to a ward for subacute care.

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

What classification system is used?

Each admission is allocated to an AR–DRG, allowing measurement of the type and complexity of patients at a hospital. An AR–DRG is assigned based on the diagnosis and procedure codes or other individual patient characteristics that are recorded in the patient medical record.

AR–DRG v8.0 is applied to calculate NWAU for all published years. AR–DRG v8.0 is applied in this report as it is the corresponding AR–DRG version used by IHPA in the National Efficient Price Determination (NEP 2017–18).

What is a National Weighted Activity Unit?

An NWAU is a measure of health service activity expressed as a common unit. It provides a way of comparing and valuing each public hospital service by weighting it for its clinical complexity.

Calculating the NWAU involves allocating each AR–DRG as a defined ‘cost weight’, which is a relative measure of a patient’s complexity. This is calculated as a 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 admission a cost weight based on its AR–DRG, this weight is then adjusted according to individual patient characteristics which are known to lead to higher costs. This adjustment is undertaken by IHPA for development of the National Efficient Price Determination and this report. Including these adjustments in the calculation minimises their impact on overall costs and allows a more accurate comparison across hospitals. The following price weight adjustments were made when calculating the NWAU:

  • Paediatric
  • Specialist psychiatric age
  • Patient remoteness area
  • Indigenous
  • Radiotherapy
  • Dialysis
  • Intensive care unit (ICU)
  • Private patient service
  • Private patient accommodation

Applying these adjustments to the cost weight results in an NWAU value for each episode.

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

What is cost per NWAU?

Cost per NWAU, developed by the IHPA, measures the average cost of a public hospital service eligible for Activity Based Funding (ABF).

The cost per NWAU measure excludes services that are not eligible for funding under ABF, such as patients funded by the Department of Veterans’ Affairs or other sources such as motor vehicle accident insurance, workers’ compensation or public liability damage claims.

Cost per NWAU is calculated for acute admitted patients only and does not include emergency department costs associated with each patient’s admission.

For more information on how the NWAU is calculated see the NEP Determination 2017–18 (IHPA 2017).

The IHPA reports a similar measure to cost per NWAU called cost per weighted separation, which is not designed for performance reporting. This measure uses the DRG cost weights as the denominator, rather than price weights. Therefore the measure is unadjusted for both inlier/outliers by DRG, and specific characteristics of patient (e.g. remoteness), care (e.g. ICU) and funding (private patients). This measure is reported nationally and by jurisdiction in the NHCDC Cost Report.

What costs are included?

There are some instances where state and territory governments account for costs differently, for example, in accounting for depreciation. The report uses only a subset of costs that are nationally comparable to address these differences.

A complete list of costs (Table 2) and patient types (Table 3) can be found in the scope summary tables.

Table 2: Scope summary–Costs
Costs Included
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
Table 3: Scope summary–Patient type
Patient type Included
Public patients
Private patients (insured)
Other hospital or public authority (contracted care)
Self-funded patients
Department of Veterans’ Affairs x
Department of Defence x
Compensable patients x
Motor vehicle third party personal claim x