THE NHS faces a deficit of nearly £7billion by 2010 unless a "productivity miracle" was achieved, a study claimed today.
Think-tank Reform warned that cost pressures such as extra staffing, large building programmes and more expensive drugs would produce a funding gap.
Researchers said that an extra £18.2 billion of funding would be needed, but only £11.4 billion was available - a shortfall of £6.8 billion.
Report author Professor Nick Bosanquet, of Imperial College London, concluded: "The NHS has two options; either radical reform to improve productivity or local rationing, rising waiting lists and failing staff morale."
Among the reforms recommended were greater private sector involvement in health care and better financial management.
The report said the costs of existing programmes had increased and new programmes have been launched despite Chancellor Gordon Brown's announcement that NHS spending increases will slow after 2008. The predicted £6.8 billion funding gap was a "minimum estimate", the researchers added.