Health care funding in New South Wales: from health care needs to hospital outputs.

This paper summarises the structure of the State's health care system, and then focuses on the main processes of resource allocation: needs-based funding of 17 Area Health Services, and output-based funding of specific service providers. The general model is widely accepted by informed observers to be fundamentally sound. In particular, the resource distribution formula whereby needs-based allocations are made is a largely valid model that has been progressively refined over fifteen years and is probably as good as any in the world. I conclude that the recent decision to require Area Health Services to use a common framework for out-put-based funding was long overdue, and that many of its features represent best practice. However, I argue that more should be done to refine some of the details and that NSW Health might need to give more consideration to ideas that have been tested and evaluated in other health care systems.