The NHS review has implications for the funding of teaching hospitals and the relationship between them and the medical schools. The ring‐fencing of the Service Increment for Teaching and Research (SIFTR) and the need to develop contractual relationships for the provision of service facilities for teaching and research means that more information is needed on the nature and distribution of the service costs of these activities. The article describes research which informed the process of allocating SIFTR in a large teaching district. A methodology for developing rational SIFTR contracts is described and the implications for the future of medical education and research discussed. The local distribution of SIFTR must be well managed if teaching and research are not to suffer as a result of the financial pressures generated by the NHS review.
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