The hospital is a specialist unit treating people from around the UK

Robert Jones and Agnes Hunt Orthopaedic Hospital (RJAH) in Shropshire had charged Powys Local Health Board (LHB) �1.1m for the last financial year.

But an arbitration board has ruled that the LHB should pay just �301,451 - less than half what it originally offered.

The RJAH said it respected the outcome, which was "final and binding."

The LHB is yet to sign a contract with the hospital for the 2006-2007.

Conservative Mid and West Wales AM Glyn Davies said arbitration had "no bearing" on this financial year and said patients potentially still faced problems.

The hospital is based at Gobowen, near Oswestry, only a few miles over the border in Shropshire.

About 40% of its patients - thought to run into the thousands - are from Powys and north Wales.

In July, it said it had treated more patients from Powys than it had been paid for.

'Vindicated'

But the LHB's chief executive Andy Williams said the board had been "vindicated" by the arbitration process.

"Had we acceded to Robert Jones and Agnes Hunt's demands we would effectively have been overcharged by �800,000, this money having to be taken out of other aspects of the care of people in Powys," he said.

Mr Williams added that RJAH had refused a settlement of �644,000 over two years prior to arbitration.

Jackie Daniel, chief executive of RJAH, said the hospital's trust acknowledged the decision was "final and binding".

"The decision, although not what we anticipated, does allow us to move on and focus on this year's contract which must be agreed by 22 September," she said.

The arbitration board was formed from West Midlands Strategic Health Authority and the Mid and West Wales Regional Office.

Montgomeryshire's Liberal Democrat AM Mick Bates said he would be meeting the health board on Friday to discuss how to move on.