Key messages

  • Clinical costing is a key building block of Activity Based Funding.
  • Public hospitals are expected to maintain clinical costing systems as part of good management practice.
  • Clinical costing informs funding required to deliver patient care.

Clinical costing is a key building block of Activity Based Funding (ABF). The discipline studies the cost and mix of resources used to deliver patient care.

Victorian public hospitals are required to report costs for all operational funded activity, and are expected to maintain activity and costing systems as part of good management practice.

Costing methods

Methods of costing include patient costing (bottom-up costing) and cost modelling (top-down costing).

Patient level

Patient-level costing allocates costs directly to individual patient episodes using service volumes such as actual tests or minutes in theatre. This achieves a more accurate cost allocation at an individual patient level.

Cost modelling

Cost modeling allocates similar costs to all patient episodes using formulas and assumptions. Cost modelling is used when there is an absence of patient service volumes.

In Victoria, operational expenditure costs (direct and indirect) are allocated and must reconcile with the general ledger (capital and depreciation costs are excluded).

Victorian Cost Data Collection

The Department of Health & Human Services collects cost data from all metropolitan, major rural and some small rural public hospitals via the Victorian Cost Data Collection (VCDC).

The VCDC forms the basis for the cost data submitted to the National Hospital Cost Data Collection, which is managed by the IHPA.

The IHPA uses cost data for classification purposes and to determine the national efficient price (NEP).

Costing data is also used to:

  • inform Victorian cost weights
  • inform development of funding models and budget proposals
  • analyse the cost of healthcare
  • benchmark costs for comparable activity across hospitals
  • inform best practice and quality improvement initiatives
  • inform planning of clinical services within a hospital setting
  • inform resource utilisation and effect clinical practice improvement in a hospital setting.

Costing systems

All metropolitan and major rural health services are required to maintain patient costing systems that monitor service provision to patients and allow for accurate determination of patient-level costs.

The costing methodology is guided by the Australian Hospital Patient Costing Standards (version 2.0 or the most recent version available).

The submission must comply with the VCDC file specifications and follow its reporting requirements for the relevant financial year.

Victorian Clinical Costing User Group

The Victorian Clinical Costing User Group provides advice to the department and the health sector on best-practice standards for the implementation of the national Australian Hospital Patient Costing Standards in Victorian health services, and other costing initiatives to improve the quality and use of cost data.