NHS chiefs were today issued with a stark warning over dramatic falls in the value for money of hospital care.
A National Audit Office study says hospital bosses need to show more leadership, better management and involve doctors more in delivering efficiencies.
It warns hospital productivity has fallen by 1.4 per cent each year since 2000 when Labour ordered a massive increase in NHS spending.
Staff have delivered significant improvements in patient care including better outcomes and reduced waiting times – but have failed to use the cash as effectively as they should.
The NHS needs to find up to 20bn in savings by 2014 in the face of reduced Government funding.
Hospitals are expected to find 40 per cent of the efficiencies but will need to make productivity improvements of six per cent a year to be successful. The National Audit Office (NAO) estimates savings of 1.6bn could be achieved if each hospital performed as well as the best 25 per cent.
Overall it finds NHS productivity fell by 0.2 per cent each year from 2000.
The chairman of the Committee of Public Accounts, Margaret Hodge, said the NHS had seen significant improvements.
"However, it will be of concern to every citizen that the substantial increases in NHS funding over the decade have not been used as efficiently as they could," she said.
"With the rate of increase in NHS resources set to slow markedly, the Department of Health now needs to ensure that hospitals focus as much on delivering value for money as they have on meeting targets and improving outcomes."
NHS spending rose from 60bn in 2000 to 102bn this year but the report finds much of the extra cash went into improved pay for staff and had not been used by hospitals to drive productivity improvements. The report says reducing the time patients spent in hospital and more day case surgery have led to savings but there are still "substantial variations" between hospitals even in providing the same treatment.
It claims some initiatives to save money are not being effectively used.
And it warns that the delivery of savings could also be jeopardised by sweeping reforms of the NHS planned by Ministers.
Health Minister Simon Burns said: "This report sends a stark message about declining productivity in the NHS in recent years, particularly in hospitals.
"The report clearly shows that there is significant scope for improving productivity and our plans will help the NHS to find 15-20bn in efficiency savings to reinvest into front-line care.
"We are making sure that more patients can be cared for in the community – this is not only more efficient, but it is better for patients and allows them to be closer to home.
"We are already improving the NHS payment system so that it drives both quality and outcomes, as well as promoting innovation and efficiency. This includes rewarding day cases and to stop paying for avoidable readmissions."