Health secretary Alan Milburn's promise to offer patients a choice of hospital may raise expectations beyond what the service can deliver and will increase financial uncertainty, finance and policy, experts have warned.

The announcement, one of the first moves to create a competitive market in health service providers, came when Mr Milburn addressed a Fabian Society meeting last week. He said giving patients the right to choose which hospital provided treatment would be 'another incentive for hospitals to improve their performance'.

Though welcoming the principle of the changes, NHS Confederation policy director Nigel Edwards said there were major practical problem: 'We keep failing to remember a very important lesson - you do not promise what you can't deliver. We are not yet in the position where we can offer people what they want.'

Mr Edwards said the system was also likely to lead to numerous transactions having to be processed, unless some sort of block payment system was developed.

Healthcare Financial Management Association chair Mark Millar said the current payments system could be altered so billings were made quarterly. However, he said there would be greater uncertainty in financial planning among commissioners, in terms of how many patients were being treated elsewhere.

He said: 'The big problem is it puts all of the financial risk on the commissioner.' Mr Milburn told the meeting:

'The truth is, at present it is difficult for patients to choose to opt for a shorter waiting time.

The way hospital funding rules work, they do deter rather than enhance patient choice.

'Many patients cannot exercise choice because they cannot travel far afield. And there is limited information available for patients, let alone for their GPs, on waiting times in different specialties in different hospitals. I can tell you that we are examining how these blocks to patient choice can be removed and I will be bringing forward proposals in the near future.'

The Department of Health is working on changing the out-of-area transfer system (OATS), which pays for patients treated at hospitals other than their local one.

OATS was introduced by the government to reduce transaction costs associated with the internal market, and involves a two-year delay in payments.

Mr Milburn told HSJ that he did not intend to re-introduce an internal market in healthcare, but to give greater choice to patients and to provide another mechanism to encourage poorly performing trusts to improve. However, he said the system could only work if its capacity was increased.

NHS Alliance chair Dr Michael Dixon said: 'It is all very well to talk about extending choice outside the area.

The priority must be to make services as good as possible locally.'