OBJECTIVES: It has been argued that medical specialization has positive benefits for health outcomes. The objective of this study is to assess whether or not specialized, single-service hospital organizations outperform generalist ones METHODS: We collected data from all 169 hospital organizations in England that admit adult inpatients. These were observed over two financial years (April 2005-March 2007), producing a total of 338 observation points. Mean patient satisfaction scores were used to measure clinical quality, while financial performance was measured by Return on Assets (ROA). Random effects panel regression analysis with control variables was employed. RESULTS: It is observed that a positive correlation exists in hospitals between service specialization and the level of clinical quality; furthermore, one also exists between clinical quality and financial performance. Finally, service specialization has a positive effect on financial performance, which is fully mediated by clinical quality. CONCLUSIONS: Based on a complete set of national data, this study demonstrates that hospital specialization has positive effects. Specialist hospital organizations provide superior quality of care and enhanced financial performance. Consequently, more specialization may prove to be a beneficial policy for the NHS.