An investigation of the underlying drivers of recent cost growth in Australian public hospital services. The report identifies several key cost growth factors and provides nine recommendations for consideration by the Board of Treasurers to inform ongoing negotiations on the next five-year National Health Reform Agreement expected to commence in July 2026. 

The analysis is intended to support state and territory Treasurers pursue a more balanced, transparent and sustainable funding partnership with the Commonwealth, while preserving the benefits of activity-based funding. The report seeks to provide a clearer evidence base to support reforms to funding arrangements, including the National Efficient Price (NEP).

The analysis highlights four key factors which appear to be the main drivers of increases in costs:

1. the high-inflation environment in the general economy
2. the growing cohorts of stranded patients in public hospitals
3. national and global clinical workforce shortages across all major professional groups
4. a longer-term trend of increasing complexity and frailty of the public hospital patient cohort.

The recommendations propose a coordinated national reform agenda is needed across the following domains: 

• improving the interface between public hospitals and other parts of the health and social care system
• coordinated response to workforce shortages
• recognise and respond to patient complexity and social disadvantage
• modernise the Public Hospital Pricing Framework and funding cap
• capital and infrastructure
• diversionary care
• monitoring of emerging issues.