In 1994 the New South Wales Casemix Area Network initiated a study to develop a classification and funding model for sub-acute and non-acute care. Thirty-five rehabilitation, geriatric, psychogeriatric and palliative care services were recruited into the study throughout eight area health services. The aim of the first phase, summarised here, was to capture and analyse a sufficiently large quantity of data to select those variables most likely to predict resource utilisation, for subsequent use in a detailed costing study. It is known that acute care diagnosis related groups are not predictive of costs in sub-acute care. This phase of the project confirmed that, in New South Wales, the most predictive variables were case type, functional status measures, impairment type for rehabilitation, phase for palliative care and severity of symptoms for palliative care. The resultant Phase 1 casemix classification, which has built on recent United States experience and studies in other Australian States, has been termed the New South Wales Sub-Acute and Non-Acute Patient (SNAP) Version 1 classification.