AbstractA previous paper in this Journal compared various regression models designed to relate hospital recurrent expenditure to corresponding measures of hospital activity and services provided. The paper concluded by discussing briefly an alternative approach designed to avoid some of the criticisms raised and to reconcile the differing viewpoints inherent in the existing models. The objective of the present paper is to describe this alternative approach in more detail.The model introduced is concerned with the separate modelling of a number of broad components of hospital inpatient expenditure, rather than with the total expenditure in isolation. A system of simultaneous regression models is proposed, each related to a particular area of expenditure, the structure of each being determined by means of empirical analyses based upon data from some 1505 English hospitals.It is shown that when the total costs generated by aggregating the cost components are considered, the models provide a better representation of the cost structure of English hospitals than the models based upon total costs published in the recent literature. Various applications of the models in the management and planning of hospital services involving the use of micro- or other computers are discussed.