Costing hospital activity: the experience with healthcare resource groups in England

Development of an English measure of hospital casemix can be traced back to the early 1980s and has resulted in the creation of healthcare resource groups (HRGs). Despite the availability of this casemix classification system, less use has been made of HRG costs than might be expected, primarily because hospitals are not funded on the basis of their casemix adjusted activity. Instead, the main use of casemix information has been in benchmarking exercises, such as the recent example of the government's use of HRG costs to set hospital efficiency targets. This paper outlines the historical context in which HRGs were developed, the data used for classification purposes and the calculation of HRG costs. The responses of hospitals to efficiency targets based on HRG costs are considered, including the options of improving data quality, reducing costs, and ignoring the targets. It is argued that the latter strategy is most evident in England.