The quality of data used by the NHS' Payment by Results (PbR) system has improved, the Audit Commission has noted.
The report Right data, right payment - Annual report on the Payment by Results data assurance programme 2011/12 has noted a "gradual improvement" in clinical coding overall since PbR began.
PbR is the tariff that aims for fair hospital funding and relies on accurate data.
Across all NHS trusts, the commission found performance on clinical coding has improved since the PbR assurance framework started five years ago, with average error rates dropping each year and a narrower range of error.
"PbR can only ever be as good as the data that underpins it," said Andy McKeon, the Audit Commission's MD of Health.
"We have found the overall picture to be one of gradually improving quality and accuracy."
However, McKeon said he was "disappointed" only half of trusts had made good progress in implementing previous audit recommendations and urged health service providers to do more to improve data quality.
Clinical commissioning groups (CCGs) have been asked to be "more robust" in seeking assurances on the quality of data than PCTs.