Funding review cover page
2 August 2017

A new approach to the funding of NSW public mental health services offers important opportunities to promote person-centred support and recovery if it is accompanied by robust service planning, a major report by the NSW Mental Health Commission has found.

The report, Review of transparency and accountability of mental health funding to health services, describes in detail for the first time how the continuing transition towards activity-based funding (ABF), which follows the 2011 National Health Reform Agreement between the Commonwealth Government and the states and territories, is being applied to mental health services. Under ABF, Local Health Districts (LHDs) are no longer allocated a budget based on their previous year’s spending. Instead they receive a uniform “efficient price” for each episode of each particular type of service they provide.

The NSW Mental Health Commissioner, John Feneley, said, “ABF improves transparency by showing clearly how mental health funds are spent. That is very positive but only part of the story. To fulfil the potential of ABF, the NSW Government needs to give clear guidance to the LHDs about the types of service they should be planning, and how they should work in partnership with the Primary Health Networks funded by the Commonwealth to deliver services together at a regional level.”

Among 17 recommendations, the Commission calls in the report for the Government to adopt the National Mental Health Services Planning Framework, to guide service planning around proven models of care.

Other recommendations relate to:

  • New performance indicators focused on outcomes for people who use services
  • Regular public reporting of mental health spending by LHD and SHN
  • Clear accounting of the proportion of LHD mental health spending allocated to overheads such as payroll, building maintenance and clinical governance
  • Defining the respective roles of the LHDs and Primary Health Networks (PHNs)

The report is based on detailed interviews and reviews of documentation at four representative LHDs, conducted in late 2016 and early 2017, and consultation with representative bodies including the NSW Branch of the Royal Australian and New Zealand College of Psychiatrists.

It follows the concerns expressed by some clinicians, raised by the Commission in Living Well: A Strategic Plan for Mental Health in NSW 2014-2024 and again in One Year On, that money earmarked for mental health might not be getting through to front-line services.

The Commission’s report would help answer those concerns and clarify the new funding regime, which is intended to create incentives for health services to operate efficiently, Mr Feneley said.

“These changes are quite radical, and they mean the mental health budget is effectively no longer a quarantined pool of money,” he said. “I want to see ABF, with a renewed planning and performance framework, become a lever to drive the growth of community-based services that are essential to people’s recovery and central to the Government’s Living Well mental health reform commitments.” 

Mr Feneley said it would be important to continue to monitor the situation as ABF was applied to more types of treatment and support. “In NSW we still direct more than half our total mental health spending to in-patient treatment – more than any other state, and much more than the evidence says is appropriate,” he said. “ABF is based on episodes of service, and in-patient stays are easier to count. It would be a disaster if the new system subtly favoured hospitalisation because of this.”

Download a copy of the report.

See also the Commission's submission to the Public Accounts Committee on this topic.

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Last updated: 7 August 2017