The NHS is facing a £200m in-year overspend for the financial year just ended, the National Audit Office forecast this week.
The NHS (England) Summarised Accounts 1998-99 report an£18m surplus for health authorities and a£36m year-in deficit for trusts.
But the report flags up forecasts projecting 1999-2000 in-year debts of£80m for HAs and£117m for trusts.
David Davis MP, chair of the Commons public accounts committee, said signs of improved financial performance in 1998-99 were 'shortlived'.
The report found that one in five HAs and one in eight trusts were 'in serious financial difficulty'.
Records of the seven health economies with the highest in-year deficits show London continuing to have particular problems. Five of seven areas reporting in-year deficits of over£10m are in the capital.
The figures exclude non- recurrent income given to some trusts in 1998-99 and strip out the effects of one-off items of income and expenditure.
Half of HAs are in deficit - the same figure as in 1997-1998 - while the total number of trusts in debt dropped from 149 to 98.
The report also highlights the impact of a Treasury decision to allow trusts to depart from financial reporting standards due to be implemented this year.
Adhering to new standards on asset impairment and revaluation would have created a 'technical' deficit of over£1bn.
But Mr Davis warned: 'Of much more concern is the spiralling cost of clinical negligence.'
The likely costs increased by£600m to£2.4bn in 1998-99, and this excludes those cases in which the incident has occurred but has not yet been reported - which could increase the bill by as much as a further£1bn.
The report also note cuts in prescription fraud - with losses down from£137m in November 1998 to£92m by July 1999.