Children's hospitals warn ministers of £22m funding crisis

Four children's hospitals have warned health ministers they will have to cut specialist services because of miscalculations in the new payments-by-results system championed by Tony Blair as part of his NHS reforms.

The threat to specialist services for children was revealed by the Liberal Democrats, who released papers showing children's trusts have told ministers they will have to cut services because they claim they are facing a £22m shortfall in the new financial year.

The letter was sent by the chairs and chief executives of Great Ormond Street, Alder Hey, Birmingham and Sheffield hospitals. Together the four hospitals form the National Children's Health Alliance, and they claim the proposed funding will damage the provision of cardiac surgery, neurosurgery and spinal surgery.

The news raises the risk of more criticism for Mr Blair's reforms, already reeling under countrywide job losses and budget deficits approaching £800m, but the prime minister will today attempt to shore up public support for his plans.

Mr Blair will seek to locate the crisis stories in a wider narrative of an improving NHS. He will point out: "It is only within the last two to three years that incremental change has given way to what amounts to a revolution in the way the NHS works."

But in the letter to ministers, the trusts say: "We are extremely concerned that vital specialist paediatric capacity, particularly in surgical specialities, will be lost at regional and national level this year, which will lead to public concern.

"The new opportunities presented by choice and through payment-by-results should be benefiting young people and children, but quite the reverse seems to be the case. Our trusts are increasingly the only place of choice for parents whose children need specialist paediatric care.

The trusts blame an "inaccurate and highly insensitive tariff", something they claim they have sought to renegotiate with the Department of Health for 18 months without success.

Steve Webb, the Lib Dem health spokesman, claimed the letter showed the government was pushing its reform programme too fast on too many fronts, and the system could not cope.

The letter will add to fears that as many as 20,000 jobs will have to be cut from the NHS to cover the cost of the deficits.

But Mr Blair argues that the "old monolithic NHS" will be replaced by a one that is "devolved and decentralised with far greater power in the hands of the patient.

The idea was and is to make reform self-sustaining, so that instead of relying on the necessarily crude and blunt instruments of centralised performance management and targets, there is fundamental structural change with incentives for the system and those that work within it, to respond to changing patient demand".

It is this transition from one phase to the next that has created the "crunch point". The reform contains four elements: practice-based commissioning, giving GPs an incentive to prevent unnecessary hospital referrals; payment by results for hospitals designed to allow GPs to know what they will be paying for operations and hospitals to know what they will receive; the patient's right to choose a provider; and new independent providers of treatment and diagnostics within the NHS.

Andrew Lansley, the shadow health spokesman, claimed Mr Blair's speech, only a week after a summit on trusts' financial deficits, was another sign of panic in Downing Street.

He said the department was responding to deficits by centralising control and reducing choice.