Department of Health

Funding policy in context

The policy package around a clinical program is rarely developed sequentially.

There is a flow of logic from program objectives, decisions on the design of the service system, governance arrangements, accountability arrangements, funding approach and lastly the controls associated with receiving payment.

Decision making framework diagram

Program policy goals

Program objectives typically ‘speak’ of the desired outcomes to be achieved for patient groups and/or the system.

Funding policy is the approach used to fund a particular program.

System design

System design decisions aim to have all components of the health system work together to achieve the program objectives. Funding policy approaches are adjusted so the different parts of the system work together.

Governance and accountability

Governance arrangements ensure there are appropriate guidelines, standards and oversight.

Accountability is to monitor the results.

Funding policy is aligned with governance and accountability measures to collectively encourage change.

Payment approaches and funding policy

The controls that accompany payments assist the funding to deliver its maximum value. The funding policy approach often leads to the type of controls.

Payment controls are generally developed after identifying the funding approach.

Funding policy options

Different funding policy approaches have strengths and weaknesses in their ability to influence actions to deliver greater equity, effectiveness or efficiency.

In making funding policy decisions the department weighs up, and matches, the clinical or system objectives and the funding approach.

Funding policy trade-offs

Developing an appropriate funding policy approach can sometimes require trade-offs between equity, effectiveness and efficiency.

Decision making framework for policy and funding

Decision making weighs up and sets a priority for the funding policy to achieve.

The default goal is improving technical efficiency combined with neutral incentives for equity and effectiveness. This is in order to meet the expanding demand for health care within the allocated funding.

When there are risks to equity and/or outcomes, decisions are taken to trade-off technical efficiency. Commonly this trade-off occurs in order to align the direction of incentives across multiple policy levers – such as accountability, governance and system design.

Victoria’s mixed methods to funding policy

The funding policy is mixed and fit for purpose across different settings.

The core funding policy for the Victorian health system is activity based funding (ABF).

This is not the only approach.

Core funding policy approach

Reviewed 28 September 2022


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