The NHS is facing a worsening of its financial crisis caused by a growing number of patients complaining about ill treatment, the National Audit Office said yesterday.

The spiralling cost of clinical negligence cases could amount to a total of £3.4bn during the past financial year if all incidents that occurred are reported. The cost for cases already dealt with increased by £600m to £2.4bn but another £1bn has been allocated.

David Davis, chairman of the Public Accounts Committee, said: "Funding successful claims for clinical negligence means that there is less cash available to treat patients. The likely costs shown in the accounts increased by £600m to £2.4bn in 1998-99 and this excludes those cases where the incident has occurred but has not yet been reported and which could increase the bill by as much as a further £1bn."

The growing cost, partly due to patients' increased tendency to sue over ill-treatment, will help to push the overall deficit of the NHS from £18m to £200m next year. Mr Davis added: "The report shows that there are real and serious financial pressures facing the NHS in England. Signs of improved financial performance last year were short-lived."

A spokesman for the National Audit Office made clear the growing financial difficulties of the NHS were mainly caused by the record numbers of patients receiving treatment. However, he added that under present conditions the deficit was "likely to grow if anything".

The report welcomed recent government initiatives to counter fraud in the NHS. "These seem to bear fruit in some areas - for example, prescription charge seems to have fallen from £137m to £92m in the year," Mr Davis said. The National Audit Office reported that, overall, health authorities and trusts were experiencing growing difficulty. And it warned that the position would have been worse if health managers had not deviated from accepted accounting practice several times.

Sir John Bourn, the comptroller and auditor general, said: "I am concerned with the number of areas where the NHS has departed from generally accepted accounting practice."