Health Economics, Policy and Law


Hospital cost differences and payment by results


a1 University of Oxford, Oxford, UK

Street and Maynard (2007) argue the case for refining the system of payment by results currently being introduced for English hospitals. On the basis of international experience, they recommend, among other things, moving away from setting prices equal to average cost towards setting them equal to best practice costs, adjusting them for quality and using them to signal what activities are desirable. They also discuss how to control total expenditure for primary care trusts (PCTs) under payment by results and question the merits of extending payment by results to mental health services, ambulances, community services, and long-term conditions, ‘where it is difficult to describe patient care requirements and cost variations may be high’ (p. 9).


c1 Correspondence to: Professor James M. Malcomson, Department of Economics, University of Oxford, Manor Road Building, Manor Road, Oxford OX1 3UQ, UK. Email:


I would like to thank Martin Karlsson and Barry McCormick for very helpful comments.