How much should be paid for specialised treatment?

Abstract: If specialisation is supposed to reduce costs why is reimbursement often more generous for specialist than non-specialist hospitals? Specialist hospitals claim that gains from specialism are offset because they attract patients with more complex care requirements. We assess the foundation for this claim. We match Hospital Episode Statistics to Reference Cost data and to the Specialised Services National Definition Sets which identifies whether patients received specialised care. We estimate multiple regression models to explain why costs vary among patients, focussing on markers of specialised care as explanatory factors. We find that costs are higher than for other patients allocated to the same Healthcare Resource Group (HRG) if a patient has cancer, spinal, neurosciences, cystic fibrosis, children’s, rheumatology, colorectal or orthopaedic specialised services. Patients with these markers might be paid a top-up over and above the tariff associated with the HRG to which they are allocated.