Up to £1bn of the bills hospital trusts sent primary care trusts last year could be wrong, tests by the Audit Commission have suggested.

Faulty coding by trusts led to 9 per cent of bills sent to PCTs in 2007-08 being for the wrong type of procedure on the NHS tariff, according to the commission's first full-year audit of payment by results bills.

The commission found "no evidence" of gaming or fraud by hospital trusts. Hospitals undercharged as much as they overcharged, so the overall financial impact was "close to zero".

The gross value of the errors came to 5 per cent of the total value of the sample of bills the commission targeted in its audits.

Payment by results

More than£22bn of hospital activity is funded through the payment by results tariff. Audit Commission managing director for health Andy McKeon said the implications of the errors went far beyond the bills trusts sent PCTs. The data underpinned planning, public health and funding decisions, he said: "The PCT will use the same basic data to look at whether it's worth transferring a service out of hospital and into the community.

"We'd like to think people were making that judgement on the basis of sound information."

Payment by results bills are generated by hospitals recording and coding each separate clinical activity they undertake for a patient. The bill for one patient can be made up of tens of different codes that determine the overall tariff code and price. The commission was alarmed to find that the error rate for these underlying codes was 17 per cent.

Data quality

The main cause of errors was the quality of the documents coders used. In a report published today the commission says case notes are often "illegible" or not available.

The commission says trusts with better coder training tended to make fewer mistakes. Performance ranged from just 0.3 per cent of incorrect coding at Lancashire Teaching Hospitals foundation trust to 52 per cent at Royal National Hospital for Rheumatic Diseases foundation trust.

Royal National deputy chief executive Rod Barnes said the errors - which caused it to overcharge PCTs by 48 per cent - related to a common mix-up between a rheumatology and chemotherapy tariff. It has improved training and is working with its commissioners to address the problem, he added.

The chief executive of the trust resigned earlier this month after it had to restate its accounts and Monitor intervened.

See also Clinical code-breaking jeopardises safety

PBR CODING: TRUSTS THAT GOT IT MOST WRONG

Hospital trust

% codes wrong

% under or overcharge

1 Royal National Hospital for Rheumatic Diseases FT

52

+48

2 United Lincolnshire Hospitals

44

-27

3 Worthing And Southlands Hospitals

39

+16

4 Moorfields Eye Hospital foundation

37

+7

5 Taunton And Somerset foundation

27

+5

6 Chelsea and Westminster Hospital foundation

28

+1

7 Mid Yorkshire Hospitals

25

-4

8 Robert Jones and Agnes Hunt Orthopaedic and District

20

+8

9 Whipps Cross University Hospital

25

+0.7

=10 Bromley Hospitals

21

-3

=10 University College London Hospitals foundation

16

-8

Note: trusts with the highest combined percentages of coding and financial errors

Source: Audit Commission PBR data assurance framework results, 2007-08