Monitor could use the cost of individual patients to set national prices for NHS acute care as early as 2016-17.

The proposals, developed by management consultancy PricewaterhouseCoopers for the regulator, would see Monitor drop the use of average costs data currently collected from all NHS acute hospitals and used to set the NHS payment-by-results tariff.

In its place, price setting would be based on information from a representative sample of providers – possibly private as well as public – that accurately tracks the costs of treating individual patients.

Under the current system, the national tariff is set according to reference costs – the average costs of services reported by all NHS providers. According to PwC, £28bn of NHS care was funded through tariff payments in 2011.

However, an Audit Commission review last year found that one in eight trusts was calculating its overall reference costs incorrectly. A quarter of all trusts submitted inaccurate costs for at least one “healthcare resource group” – the name given to groups of treatments judged to be clinically similar and to consume similar resources.

In a report commissioned by the regulator, PwC recommends Monitor moves to collecting patient-level costs from a representative sample of providers that are able to meet prescribed data quality standards. Monitor strategy director Adrian Masters said: “There has already been a significant increase in the number of providers recording cost data at the patient level, and this has the potential to be a rich source of data for price setting in the future.

“However, for this data to be useful there would need to be increased consistency between providers in how costs are recorded at the patient level.”

He added: “PwC’s analysis suggests that collecting costs from a sample of providers would be a valuable approach, but they recognise that it may take time to establish a reliable data set, and that there should therefore be a period of parallel running where the current reference costs continue to inform price setting.”

The consultancy proposes that Monitor begins collecting patient-level costing data from its sample group in 2013-14, to compare its results with national reference costs and ensure the group is representative.

From 2014-15, it continues, the regulator could “consider dropping [the] use of reference costs for setting the national tariff”.

Due to the delay between collection of costing data and use in price setting, the report states: “At the earliest, 2013-14 [patient-level] data could be used to inform the 2016-17 tariff.”

In the meantime, the consultancy recommends that a more detailed collection of reference costs from all providers should continue until at least 2015-16.

Unlike the current collection, providers would be required to break their reference data into different “cost pools”, such as drugs, imaging and operating theatres.

The report suggests the accuracy of these submissions should be assured by independent audits at some trusts, possibly targeting poor performers to “incentivise accurate reference cost submissions”.