Commissioners will not have to pay for any type of hospital treatment they have not authorised, or for activity which exceeds agreed limits, under the new model contract.

The final contract, published on Friday, makes no concessions to foundation trusts' fears that it threatens their survival. Primary care leaders have welcomed it as a 'necessary rebalancing' between commissioners and providers.

The contract says that from April, acute trusts should foot the bill for activity that breaches locally agreed demand management schemes or where activity has exceeded forecasts, as long as it is determined that the rise was caused by the provider. Measurements might include consultant-to-consultant referral rates and follow-up outpatient attendances.

The same document sets out how fines for failure to hit the 18-week referral to treatment target will work. Trusts could lose up to 5 per cent of their elective income if they are not seeing 85 per cent of patients who require admission, and 90 per cent of those who do not, by March 2008.

The combination of the two penalties leaves acute trusts steering a tight course. Speeding activity too much in pursuit of the 18-week target could leave them at risk of exceeding activity levels and being forced to pay up.

A draft of the model contract went out for consultation just before Christmas. The Foundation Trust Network's response, seen by HSJ, warned: 'Many feel it exposes providers to an unacceptable level of risk and therefore leaves them in an untenable position.'

This week, the network said the updated version was fundamentally unchanged. Chair Sir Jonathan Michael, chief executive of Guy's and St Thomas' foundation trust, said foundations had 'real concerns about the way the new contract loads risks on to providers'.

Allowing primary care trusts 'not to pay for legitimately undertaken activity shifts foundation trusts into a position of huge uncertainty', he said. The imposition of penalties for failure on 18 weeks 'increases the potential for disputes,' while the requirement to monitor activity more closely would bring 'significant extra costs'.

Organisations have until the end of this month to agree their contracts or enter dispute proceedings. The contract is mandatory for acute trusts, new foundation trusts and those ending three-year contracts.

One foundation trust chief executive said that he did not expect any trust with a choice to opt in: 'This is a totally biased contract in favour of the commissioners. That and the penalties for failure against 18 weeks leaves us operating within impossible margins.'

A chief executive of a non-foundation trust described the model as 'very heavy-handed'. She added: 'This doesn't allow for things like a cancer presenting in the wrong specialty; or an accident and emergency consultant referring to a neurologist; or for a lot of practice that is clinically the right thing to do.'

But Worcestershire Acute Hospitals trust chief executive John Rostill welcomed the contract. 'Although it puts a lot of pressure on acutes, in a way it also puts a lot of pressure on PCTs to prove they can cope' with diverted demand, he said.

Mr Rostill said that he would presume any referral which came to his hospital had been 'approved'. 'If the PCT is clear about what they want from us - if they don't want to do hysterectomies, grommets, whatever, then that's fine, we won't do them.'

PCT leaders described the updated contract as a 'necessary rebalancing to strengthen commissioning'. NHS Alliance chair Dr Michael Dixon put it simply: 'Foundation trusts are about making profit, and PCTs are about foundation trusts not making profit, and instead investing that money in primary care.'

National Association of Primary Care president Dr James Kingsland said: 'If it means fewer unnecessary tonsillectomies and fewer consultant-to-consultant referrals then that's to the good.'

British Association of Emergency Medicine president Martin Shalley expressed concern that pressure to reduce consultant-to-consultant referrals carried clinical risks.

'If a patient presents in A&E and has been having fits, they need very urgent investigations and to see a neurologist.

'We see patients presenting with cancer, and all sorts of things that need urgent attention - and we would be very worried about putting another step in the loop.'

DoH director of commissioning Duncan Selbie said he did not 'recognise there has been a shift in risk from commissioners to providers' under the contract. He said the 'important thing was that both sides should have clear agreement' on their expectations at the start of
the year.