Australia is implementing an Activity Based Funding (ABF) model to address the issue of inequitable funding of hospitals, which promotes poor service delivery. Records from the National Health and Hospitals Reform Commission (NHHRC) concerning health expenditure projected an increase in health costs for hospitals. In this regard, NHHRC recommended the adoption of Activity Based Funding. An analysis of the expected ABF demonstrates that health sector would considerably benefit from minimized health costs. ABF presents a framework upon which Australian hospitals would generate revenue rather than depend on restrictive budgetary allocations. In addition, this approach allows sharing of the health care costs among various stakeholders.

Product costing describes process of monitoring and evaluating various aspects relating to the expenses incurred through production and sale of a product. This process entails aspects that constitute crucial stages of a product or project. Product costing is a vital process concerning effective definition and implementation of the organization’s business strategies. This is because the actual cost of a product depends on the interplay between such aspects as sales, manufacturing and logistics. Product costing enhances accuracy concerning the monitoring of expenses, matching expectations, decision-making and evaluation of development projects within the organization due to its in-depth cost analysis approach.

Cost Based Funding refers to the form of reimbursement in which the costs incurred by patients influence payments. This approach employs a framework in which fund allocations to hospitals are subject to records of previous years. Adjustments for allocations consider such aspects as inflation and consumer price index. The awarding of funds commences after formal agreement between the state health authority and the health service.

Needs Based Funding refers to an approach of allocating resources according to the needs. This approach incorporates both the need and non-need related aspects to project the level of needs among different groups and distribute financial support accordingly.

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Population Based Funding defines a reimbursement approach that focuses on ensuring fair distribution of funds between District Health Boards (DHBs) in accordance to the needs of the population. This approach has minimal effects on the government’s budgetary process and creates equal opportunities for enhancement of healthcare.

Activity Based Funding (ABF) possesses several benefits in both social and economic aspects. First, ABF promotes unbiased funding by creating a framework upon which hospitals of the same level receive equal allocations. Secondly, ABF introduces various forms of incentives for hospitals and thus enhances effective functioning and service delivery. In addition, it promotes cost-efficiency through adoption of non-mixed labor. Another benefit of ABF is mitigation of cream skimming due to the regulations on funding that allow easier evaluation of a patient’s health complexity. In this regard, ABF promotes equal access to healthcare among patients, irrespective of any perceptions of risks associated with their condition. Policies relating to ABF create a framework that promotes transparency of fund allocation and government spending. Thus, taxpayers can hold policy makers and other stakeholders accountable for misuse of funds. This approach also promotes effective cost accounting and standardization of service delivery.

The Australian National Sub-Acute and Non-Acute Patient Classification (AN-SNAP) is the classification system designed to address non-acute and sub-acute areas of care. The scope of this system entails aspects relating to the management of funds and healthcare in the field of concern. Creation and implementation of AN-SNAP largely resulted from the need to define appropriate approaches concerning health care needs for varying types of patients within the healthcare system. AR-DRG defines a scope that largely focuses on acute patients and disregards other crucial areas within health care that could provide comprehensive information on appropriate approaches to manage health care expenses. The adoption of AN-SNAP provided a framework that could facilitate comprehensive patient data collection. 

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