The New South Wales Resource Allocation Formula: a method for equitable health funding

The Resource Allocation Formula has been developed to guide the allocation of health resources in NSW. The aim of the formula is to achieve a more geographically equitable distribution of resources compared to the concentration of facilities which resulted from the historical method of allocating on the basis of past expenditure. A key innovation in the formula is the separation of funding for tertiary referral services using Diagnosis Related Groups. Tertiary services are funded separately and assessed on the present and projected statewide activity levels. By contrast, primary and secondary health services are to be funded on the basis of adjusted population relativities. The formula, which has been approved for use in NSW sets notional target shares for each Area and Region ten years hence. Implementation of these shares is to be achieved through a progressive redistribution of funds.