A rescue package to save failing hospital and primary care trusts from closure must be put in place to protect patients, a report today says.
The NHS is facing a financial crisis with more than a quarter of trusts having overspent their budgets in order to cut waiting times - which have fallen below 800,000 for the first time - and meet other government targets.
Operations are being delayed and outpatient appointments deferred or cancelled to save money. Health Secretary Patricia Hewitt admitted last week that overspent trusts are heading for a combined deficit of £948m this year, despite record NHS funding. But 37 trusts - 7 per cent of the total - have lost financial control and are in serious trouble, accounting for two thirds of the deficit, amounting to more than £630m.
The report by the King's Fund, the health policy think-tank, warns that the Government's health reforms, introducing patient choice and payment by results, will increase the pressure on trusts, creating "a real risk that many of them will fail". It says the NHS must put in place a "failure regime" to help trusts facing large deficits, and ultimately take over those in imminent danger to prevent their closure.
Reports last week showed that trusts in Surrey and Stoke-on-Trent were postponing patient admissions for up to four months in order to move them into the next financial year, saving on this year's budget.
In Harrow, the primary care trust instructed staff that the maximum six-month wait for in-patient admission set by the Department of Health should become a minimum and that outpatient referrals should be delayed for 10 weeks.
The King's Fund's chief executive, Niall Dixon, said: "The Government has yet to work out how we deal with hospitals that fail. Market incentives will inevitably create further instability. It is important that there is both effective economic regulation of the market and systems to anticipate failure to guard against this."
The warning came as the Healthcare Commission, the NHS watchdog, said trusts would face tougher penalties in annual ratings if they fail to manage their finances properly. Regulators fear that unless NHS trusts get themselves into surplus over the next couple of years, the funding crisis will deepen beyond 2008 when the growth in NHS spending is expected to be halved.
Until the general election last May, NHS managers were under instructions from ministers to hit their targets for cutting waiting times at all costs. As one put it: "There are no brownie points for balancing your budget."
After the election, as the size of the NHS deficit became clear, the message changed. Ms Hewitt told health managers last June that balancing the NHS's books was the "highest priority". Last week Sir Nigel Crisp, the NHS's chief executive, acknowledged that achieving the necessary savings was proving tougher than anticipated, and said plans had been agreed to carry forward £200m of this year's deficit to next year.
Yesterday, Ms Hewitt released figures showing the NHS had achieved efficiency savings of £1.7bn since March 2004.