A new tier of healthcare for elderly people was due to be announced yesterday as part of health secretary Alan Milburn's modernisation crusade.

Plans for hundreds of after-care wards for elderly people recovering from treatment were due to be unveiled alongside key findings from the government's much-delayed national beds inquiry.

The inquiry - launched in September 1997 - is understood to propose a range of consultation options. The 'granny wards' initiative looks likely to increase total bed numbers - a move which may be countered by a cut in the number of acute beds.

Funding for the wards could come from the private finance initiative or, more controversially, from the National Lottery. In briefings ahead of his speech to the King's Fund, Mr Milburn indicated that he would like to 'build on' the money coming into the NHS for healthy living centres and cancer equipment.

He was also reported as saying that while some wards would involve new building, there could be 'a new role for cottage hospitals' and 'modern matrons' - nurse consultants - running services.

NHS Confederation policy director Nigel Edwards welcomed the 'imaginative approach' as 'far better than a knee-jerk reaction of just looking at bed numbers'.

He said: 'It looks like the health secretary has recognised the problems of capacity in the system - and that the source of some of the capacity problems is older people in hospital.'

But Mr Edwards cautioned against over-reliance on cottage hospitals 'which have not had a good history', saying: 'These wards would need to be much more dynamic than that.'

He said the initiative could mirror the US system of stepdown care, in which patients are transferred to different locations for different levels of care, but he warned that there were extra transfer and long-stay costs in the system.

Mr Milburn was expected to highlight early findings from work on the national service framework for elderly people, expected to release interim findings in April.

He was due to flag up the fact that two-thirds of hospital beds are occupied by people aged over 65, while half of emergency admissions involve patients aged over 75.

But charities working for elderly people - and involved in the service framework's reference groups - said they had 'not had any input into work so far' on the 'granny wards' initiative.

Age Concern spokesman Andy Allsopp said the news had 'come totally out of the blue'.

He said Age Concern would be 'very concerned that this could mean the ghettoisation of elderly people, who might not get the care they deserve and could end up isolated from mainstream services'.

Mr Allsopp also said the charity would be 'extremely concerned' if services for elderly people 'were excluded from core NHS funding'.

Help the Aged head of policy Tessa Harding said it would be 'surprising' if the initiative came out ahead of the national service framework, but was 'confident' the two would not be 'inconsistent'.