The “disproportionate” financial implications of changes to the way the NHS classifies patients have led it to maintain “inaccurate recording and inaccurate payments”, the Audit Commission has reported.

Health service resistance to fixing inconsistencies in its classification of short-stay hospital patients is causing wasteful disputes between commissioners and providers, the commission found.

It warned that the resulting poor quality of NHS datasets would undermine clinical research, the planning and monitoring of healthcare, and the patient-choice principles underpinning government health reforms.

The commission’s report stated problems with data definitions had delayed the signing of numerous contracts in the contracting round for 2011-12, with many going to arbitration and significant sums in dispute. For one trust, activity worth £7.4m was called into question.

The central issue was how to classify patients treated in hospital for less than 24 hours – work which accounts for £6.8bn of the £29bn a year paid out under Payment by Results. The commission gave the example of an 18-year-old having a lesion removed from his ear, under local anaesthetic and recovering in a lounge. In one trust he could be classified as an admitted day-case, earning the trust £729; in a neighbouring trust he could be recorded as an outpatient, earning just £116.

The auditors found wide variation in how trusts categorised admissions. In obstetrics, for example, this led to income variations of £6m above or below expected levels for individual trusts.

The NHS has attributed these inconsistencies to poor national guidance from the Department of Health and NHS Connecting for Health, the report stated.

But it found that while the guidance needed improvement, it was “the disproportionate financial impact that can result from changing how activity is counted that has stopped local organisations implementing the guidance adequately”.

The manipulation of data definitions was not usually exploited for financial gain, the report continued. But trusts preferred to “maintain their current financial position, irrespective of whether their approach to recording admissions is correct”.

Audit Commission managing director for health Andy McKeon said this meant NHS managers were “spending valuable time debating how patient treatment is recorded or described – time that would be much better spent focussing on the treatment itself”.

The report warned these problems would become “more acute” when clinical commissioning groups took on responsibility for buying NHS care. The theory behind the government’s NHS reforms was that increased competition would be based “on quality, not price”, with payment determined by the fixed NHS tariff, it said.

“However,” it continued, “it is clear from our work that hospitals do not charge the same price for the same service, because of the way activity is recorded”.

This would “rapidly become apparent to GPs, who will have direct responsibility for making referrals and paying for them”.