The National Reference Cost Exercise (NRCE) imposes a requirement on all NHS Trusts to report their costs for a comprehensive range of healthcare activities. The resulting Index (NRCI) ranks Trusts on their relative cost efficiency. In 1998 Trusts’ results ranged from 33% below average to 62% above average. By 2002 this range had increased to 39% below average up to 99% above average, suggesting that variability remains a key feature of this cost data. The NHS Executive has stated that they will use the Index to guide resource allocation and to establish differential targets for efficiency improvements. In addition, national average reference costs are now to form the basis for setting standard price tariffs for health care purchasing (see: DoH, 2002b; p14). However, before NRCE information can be used for these purposes, the causes of cost variability should be clearly understood to ensure that inappropriate decisions are not made. (PDF 240KB)