Two key government proposals to shake up the financial regime of the NHS have been greeted with scepticism by managers' leaders who say they cannot see how the new approach will reduce bureaucracy.

Health minister Alan Milburn announced 'an end to bureaucratic extra- contractual referrals' in a consultation document setting out a 'new, simpler and more efficient' system to be known as 'out of area treatments'.

He also issued details of the National Schedule of Reference Costs and National Reference Cost Index promised last year to replace the discredited Purchaser Efficiency Index.

NHS Confederation chief executive Stephen Thornton welcomed the end of the efficiency index, but 'could not see' how out of area treatments would reduce bureaucracy.

'This seems to be ECRs under another name, with some retrospective shifts of resource allocations between health authorities,' he said. 'It is not going to cut a lot of overhead costs.'

Healthcare Financial Manage-ment Association chair Jaki Meekings also criticised the initiative as 'part of a piecemeal release of bits of the new structure for finance'. She questioned how health authorities and primary care groups would control spending on procedures they did not wish to fund.

The consultation document says services provided as ECRs should be dealt with by new arrangements for commissioning specialist services or built into service level agreements between trusts and 'main commissioners'.

OATs - treatments not captured in this way - will be retrospectively funded by 'non-recurrent adjustments to HA allocations as part of initial cash limits'.

Barry Elliott, finance director at London's Royal Hospitals trust, said he hoped a 'substantial' amount of its pounds20m ECR income would be covered by arrangements for specialist services.

Mr Elliott welcomed the decision to create a 'main commissioner' to replace a host of HAs, but was concerned that OATs might not deal with major in- year shifts. The requirement for information is not going to be less,' he added. 'The difference is that we will not be generating invoices and chasing them up and getting cash and accounting for it.'

The first NSRC, covering all surgical and some medical treatments, will be drawn up in August.

It will show the range of trust costs in different treatment categories, with adjustments to take account of 'unavoidable cost differences' such as 'the demands of teaching and the different locations of NHS trusts'.

The NRCI will 'supplement' the schedule by indicating the 'aggregate efficiency' of trusts, calculated by comparing a trust's total costs with the national average.

Benchmarks for each type of treatment will be set, although Mr Milburn insisted last week that 'hospitals in the future will be comparing, not competing.'

Former HFMA chair Bob Dredge welcomed the NSRC, saying 'a truly national system of accounting is the way to go'. But he was 'extremely worried' about the NRCI. 'It could be used very badly, with people saying: 'X is cheap, why aren't you as cheap?',' he said.

'That says nothing about whether X's patients survive their operations, or whether X is even carrying out the right operations. It could distort the whole debate.'

Karen Caines, director of the Institute of Health Services Management, also warned: 'Standards on quality should ensure trusts are not forced to lower their costs at the price of patient care.'

The New NHS: guidance on out of area treatment. Free from NHS Responseline 0541 555 455. Consultation closes July 17. Reference Costs - a consultation document. From NHS Responseline. Consultation closes July 8.

See Comment, page 17.