ABF Capacity Building - Review of the Clinical Costing Process

Activity Based Funding (ABF) Capacity Building - Review of the Clinical Costing Process

South Eastern Sydney Local Health District

Duration: August 2014 – June 2015


With the introduction of activity based funding (ABF) across NSW in 2011/12, the ability for health services to accurately measure costs became critical. The SESLHD understood that it required costing information that supported the optimal operation under ABF and provided high quality business intelligence for the LHD management team.

The review focused on the clinical costing methods and financial practices that produce the costing results. The overall aim was to ensure that SESLHD adopted a standard approach to clinical costing that was ‘sound’ in its representation of costs and that was aligned, where possible, with the NSW costing standards.

What we did

The review included an examination of costing data files and discussions with key staff responsible for the financial management and costing activities in each of the LHD hospitals. The project was undertaken in three phases with the first two phases addressing the larger hospitals in the northern and southern parts of the LHD. The third phase then wrapped-up with the smaller and 3rd Schedule predominately sub-acute facilities.

The review of costing data files included;

  • Costing input files – These are the files prepared for costing that include the hospital expenses and the rules for allocating overhead costs across patient care areas and moving ‘buckets’ of expenses to better align with patient care activities.
  • Costing outputs – Comparative data analysis using the results of the costing process to identify anomalies and inconsistencies. This also included a review of costing results against external (NSW) cost benchmarks.


Stakeholder consultations involved a review of costing decisions while also exploring issues of communication, co-ordination, consistency and innovation in costing practices across the District.

A summary of findings and recommendations that would improve the quality of costing information within SESLHD were delivered for consideration and implementation. The recommendations involved changes at both District and hospital levels.

Improved co-ordination of the costing process and the sharing of ideas and new initiatives in costing will significantly improve the accuracy and the value of costing data within SESLHD.

Last reviewed: 26 February, 2016

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