{"id":"F2016L01377","name":"Direction to the Independent Hospital Pricing Authority on the performance of its functions under section 226 of the National Health Reform Act 2011 - No. 1/2016","slug":"f2016l01377","collection":"legislative_instrument","jurisdiction":"commonwealth","status":"in_force","isInForce":true,"actNumber":null,"makingDate":null,"administeringDepartment":null,"currentVersion":{"id":438925,"registerId":"F2016L01377-fast-fetch-1775955141356","compilationNumber":null,"startDate":"2026-04-12","status":"InForce","reasons":null,"registeredAt":null},"sections":[{"sectionNumber":"1","sectionType":"section","heading":"Direction to the Independent Hospital Pricing Authority on the performance of its functions under section 226 of the National Health Reform Act 2011 - No. 1/2016","content":"---\nmeta-content-style-type: text/css\nmeta-content-type: application/xhtml+xml; charset=utf-8\nmeta-generator: Aspose.Words for .NET 20.2\n---\n\n?xml version=\"1.0\" encoding=\"utf-8\" standalone=\"no\"?>\n\n![](image.001.png)\n\n \n\n \n\nDirection to the Independent Hospital Pricing Authority on the performance of its functions under section 226 of the National Health Reform Act 2011 - No. 1/2016\n\n \n\n \n\nI, SUSSAN LEY, Minister for Health and Aged Care, acting under subsection 226(1) of the National Health Reform Act 2011 (the Act), having consulted with the Standing Council on Health, DIRECT that the Independent Hospital Pricing Authority provide the relevant advice set out in Item 1 of the Schedule to this instrument, and have regard to the matters set out in Item 2 of the Schedule to this instrument.\n\n \n\n \n\n \n\n \n\n \n\nDated:                     29th August 2016\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nSUSSAN LEY\n\nMinister for Health and Aged Care\n\n \n\n \n\n#### Contents\n\n \n\n \n\nPART 1 PRELIMINARY 3\n\n \n\n1 Name of Direction 3\n\n2. Commencement 3\n\n3. Authority 3\n\n4. Definition 3\n\n5. Schedule 3\n\n \n\n \n\n \n\nSchedule    4\n\n \n\nPart 1 Preliminary\n\n \n\n1.                    Name of Direction\n\n\n \n\nThis Instrument is the Direction to the Independent Hospital Pricing Authority on the performance of its functions under section 226 of the National Health Reform Act 2011 - No. 1/2016.\n\n \n\n## 2.                      Commencement\n\n \n\nThis Direction takes effect on the day after it is registered on the Federal Register of Legislative Instruments.\n\n \n\n## 3.                      Authority\n\n \n\nThis Direction is made under subsection 226(1) of the National Health Reform Act 2011.\n\n \n\n## 4.                      Definition\n\n \n\nIn this Direction:\n\n \n\nAct means the National Health Reform Act 2011.\n\n \n\nhospital acquired condition means a hospital acquired patient complication, as defined by the Australian Commission on Safety and Quality in Health Care, for which clinical risk mitigation strategies may reduce (but not necessarily eliminate) the risk of that complication occurring.\n\n \n\navoidable hospital readmission means readmission to hospital within 28 days of discharge, with a particular focus on avoidable readmission within 5 days of discharge, for a condition or conditions arising from complications of the management of the original condition.\n\n \n\nsentinel event means one of a subset of adverse events that result in death or serious harm to a patient.\n\n \n\n## 5.                      Schedule\n\n \n\nThe Schedule to this Instrument describes the direction given to the Independent Hospital Pricing Authority on the performance of its functions.  \n\n \n\nSchedule  \n\n \n\n1. Functions\n\n\n \n\n(i)                 The Independent Hospital Pricing Authority, in relation to its functions under paragraphs 131(1)(a) and (h) of the Act must advise the Commonwealth, the States and the Territories (the Parties) on an option or options for:\n\n \n\n(a)   a comprehensive and risk-adjusted model to determine how funding and pricing can be used to improve patient outcomes and reduce the amount the Commonwealth pays for sentinel events, and a set of preventable hospital acquired conditions, defined by the Australian Commission on Safety and Quality in Health Care and agreed by the Parties, that occur in public hospitals; and\n\n \n\n(b)   a comprehensive and risk-adjusted strategy and funding model to reduce avoidable readmissions to hospital that will adjust the funding to hospitals that exceed a predetermined avoidable readmission rate for an agreed set of conditions and the circumstances in which they occur.\n\n \n\n(ii)               In performing the activity referred to in Item 1(i)(a), the Independent Hospital Pricing Authority must have regard to the Parties’ intention to:\n\n \n\n(a)   implement a model for sentinel events from 1 July 2017; and\n\n \n\n(b)   implement a model for an agreed set of preventable hospital acquired conditions not before 1 July 2018, with a preceding shadow year.\n\n \n\n(iii)            In performing the activity referred to in Item 1(i)(b), the Independent Hospital Pricing Authority must have regard to the Parties’ intention to focus on avoidable hospital readmissions within 5 days of discharge for conditions referred to in Item 1(i)(b) arising from complications of the management of the original condition that was the reason for the patient’s original hospital stay.\n\n \n\n(iv)             In performing the activities referred to in Item 1(i), the Independent Hospital Pricing Authority must ensure that any option developed reflects the Parties’ intention to send a signal at the health system level of the need to reduce instances of preventable poor quality patient care, while supporting improvements in data quality and information available to inform clinicians’ practice.\n\n \n\n(v)               In performing the activities referred to in Item 1(i), the Independent Hospital Pricing Authority, should give consideration to any probable known costs and expected benefits.\n\n \n\n(vi)             The Independent Hospital Pricing Authority must provide the advice referred to in Item 1(i) of this Direction to COAG Health Council by 30 November 2016.\n\n \n\n \n\n2.      Matters the Independent Hospital Pricing Authority is to have regard to\n\n \n\n(i)                 In performing the activity described in Item 1 of this Schedule, the Independent Hospital Pricing Authority must have regard to the matters set out in subsection 131(3) of the Act.\n\n \n\n(ii)               In addition, in relation to performing the activity described in Item 1 of this Schedule, the Independent Hospital Pricing Authority must, under section 132 of the Act, have regard to the Heads of Agreement on Public Hospital Funding, signed by the Parties on 1 April 2016.\n\n \n\n(iii)            In providing the advice described in Item 1 of this Schedule, the Independent Hospital Pricing Authority is to have regard to the following design principles:\n\n \n\n(a)   Options prioritise patient outcomes and are evidence based:\n\n \n\n1. Better patient health outcomes underpin the design and implementation of reform.\n\n\n \n\nii.      The design and implementation of pricing and funding models for safety and quality, and reducing avoidable readmissions, are based on robust evidence.\n\n \n\niii.      Adjustments are based on evidence of a causal link to the condition or complication, and are commensurate with the additional care required as a result of the complication.\n\n \n\niv.      Adjustments relate to conditions or complications which clinicians and other health professionals are reasonably able to take action to reduce their incidence or impact.\n\n \n\nv.      Any models should add to the evidence base for strategies to address safety and quality, with robust monitoring of the effectiveness of implementation and ultimately, their impact on patient outcomes.\n\n \n\n(b)   Options are consistent with whole-of-system efforts to deliver improved patient health outcomes:\n\n \n\n1. Adjustments complement existing national and state measures to improve patient health outcomes and reduce avoidable hospital demand, including but not limited to the Australian Commission on Safety and Quality in Health Care’s goals, national benchmarking, data reporting, and accreditation.\n\n\n \n\nii.      The design and implementation of pricing and funding models acknowledges that mechanisms other than pricing and funding have a role in achieving the reform intention and that complementarity of all mechanisms is desirable.\n\n \n\niii.      The design and implementation of pricing and funding models should not compromise state system financial sustainability and quality and should therefore be focused on system level performance improvement.\n\n \n\n(c)   Options are transparent and comparable:\n\n \n\n1. As far as practicable, the financial levers are designed to ensure there is transparency between the approach and the intended outcome\n\n\n \n\nii.      The model uses an appropriate risk adjustment methodology to consider different patient complexity levels or specialisation across jurisdictions and hospitals.\n\n \n\n(iv)             In addition, in relation to performing the activity described in Item 1 of this Schedule, the Independent Hospital Pricing Authority is to have regard to submissions from the Australian Commission on Safety and Quality in Health Care, the National Health Funding Body, the Commonwealth, states and territories, and other parties deemed relevant by the Independent Hospital Pricing Authority.\n\n \n","sortOrder":0}],"analysis":{"flash_summary_failed":{"failed":true,"reason":"Unauthenticated. Configure AI_GATEWAY_API_KEY or use a provider module. Learn more: https://ai-sdk.dev/unauthenticated-ai-gateway","source":"analysis-cron"},"kimi_summary":{"content_quality":"ok","complexity_score":3,"scope_assessment":{"changed":false,"description":"This direction aligns precisely with the original intent of the National Health Reform Act 2011, which established the IHPA to develop pricing and funding models for public hospitals. Section 226 specifically empowers the Minister to give directions about the performance of the IHPA's functions. The content — advising on safety and quality funding adjustments — falls squarely within the IHPA's core mandate under sections 131 and 132 of the Act."},"complexity_factors":["Only 4 defined terms in section 4 (Act, hospital acquired condition, avoidable hospital readmission, sentinel event)","Single clear directive with two main components (safety/quality penalties + readmission penalties)","Straightforward structure: preliminary provisions followed by a schedule with two items (functions and matters to consider)","Limited cross-referencing — only references to sections 131, 132, and 226 of the parent Act, plus one external document (Heads of Agreement on Public Hospital Funding)","Some conditional logic in sub-items (e.g., 'must have regard to' various principles) but no nested exceptions or complex triggering conditions","Design principles in Item 2(iii) use nested numbering (a, b, c with sub-points) but remain conceptually clear"],"plain_english_summary":"The Health Minister has instructed the Independent Hospital Pricing Authority to develop funding models that reduce government payments to public hospitals when preventable harms occur—serious sentinel events, hospital‑acquired conditions, or avoidable readmissions—so payment is tied to safety and outcomes. This affects public hospitals, state/territory governments and patients by shifting toward value‑based purchasing. The IHPA must report evidence‑based, risk‑adjusted options by 30 November 2016."},"flash_summary":{"complexity_score":6,"scope_assessment":{"changed":false,"description":"The Direction refines and prioritises the Independent Hospital Pricing Authority's statutory advisory functions by specifying subject matter (sentinel events, certain preventable hospital‑acquired conditions, avoidable readmissions), timelines and design principles (Schedule Items 1 and 2). It operates under the authority of subsection 226(1) and references IHPA functions in paragraph 131(1)(a) and (h), but does not itself expand IHPA's statutory powers — it narrows and operationalises the scope rather than altering legal competence."},"complexity_factors":["Direction made under subsection 226(1) of the National Health Reform Act and asks IHPA to perform functions under paragraphs 131(1)(a) and (h) — legal cross‑referencing increases interpretive complexity (Schedule Item 1(i)).","Technical requirement for a 'comprehensive and risk‑adjusted' model requires developing or selecting a risk‑adjustment methodology suitable across jurisdictions and specialisations (Schedule Item 1(i)(a); design principle Schedule Item 2(iii)(c)(ii)).","Multiple, specific timelines and staged implementation (sentinel model from 1 July 2017; other conditions not before 1 July 2018 with a shadow year) create tight delivery and transition constraints (Schedule Item 1(ii)).","Narrow focus on avoidable readmissions within 5 days introduces detailed clinical attribution and coding challenges to link readmissions to original care (Schedule Item 1(iii)).","Requirement to weigh probable known costs and expected benefits adds actuarial and economic appraisal work (Schedule Item 1(v)).","Obligation to have regard to subsection 131(3) and the Heads of Agreement on Public Hospital Funding adds intergovernmental policy alignment and potential conflicting priorities (Schedule Item 2(i)–(ii)).","Design principles demand evidence of causal links, transparency, monitoring and complementarity with existing state/national measures — increasing data, measurement and reporting burdens (Schedule Item 2(iii)(a)–(c)).","Requirement to consider submissions from multiple bodies (Australian Commission on Safety and Quality in Health Care, National Health Funding Body, Commonwealth, states and territories) increases stakeholder coordination and implementation risk (Schedule Item 2(iv)).","A hard deadline to provide advice to COAG Health Council by 30 November 2016 concentrates analytical and consultative effort (Schedule Item 1(vi))."],"plain_english_summary":"This Direction tells the Independent Hospital Pricing Authority to advise the Commonwealth, states and territories on risk‑adjusted funding and pricing options that link hospital payments to sentinel events, specified preventable hospital‑acquired conditions, and avoidable readmissions. It sets implementation timings (sentinel model from 1 July 2017; other conditions not before 1 July 2018 with a shadow year), asks for cost–benefit consideration and improved data, and requires the advice by 30 November 2016. It affects public hospitals, funders and clinicians by changing financial incentives and reporting expectations."}},"importantCases":[],"_links":{"self":"/api/acts/f2016l01377","history":"/api/acts/f2016l01377/history","analysis":"/api/acts/f2016l01377/analysis","conflicts":"/api/acts/f2016l01377/conflicts","importantCases":"/api/acts/f2016l01377/important-cases","documents":"/api/acts/f2016l01377/documents"}}