An Office of Health Economics report has cast doubt on government claims that the current round of NHS reforms will lead to 'red tape' savings of £1bn.

It says the introduction of primary care groups and longer-term contracts is not likely to save money.

It argues that costs could actually rise because although the number of contracting parties is being reduced, internal divisions will persist and organisations will still need to negotiate with each other.

'We do not face a choice between, on the one hand, a plethora of contracts and invoices and, on the other, costless delivery of the same healthcare,' the report argues.

'Rather, the choice is between two systems, with different types of costs.'

The report concludes that measured costs could fall, but says this is likely to be achieved by redefining 'bureaucracy', rather than by reducing organisational costs.

But author Bronwyn Croxson, a research fellow at the Institute of Child Health, in London, says failure to reduce costs 'is not necessarily a bad thing'.

'Effective management is essential in delivering healthcare and it is costly,' she argues.

Barry Elliott, chair-elect of the Healthcare Financial Management Association, said: 'This supports the feelings of the HFMA at the time of the NHS white paper.

'We had great difficulty seeing how the proposed changes and move towards long-term service agreements were going to reduce bureaucracy and management costs.'

Transaction costs were implicit in any form of purchaser-provider system and longer-term agreements would not necessarily save money, he said.

NHS Confederation chief executive Stephen Thornton said: 'It is important that managers keep their eye on doing things that add value, rather than unnecessary paper-pushing, but management is a scarce resource in the NHS.

'The huge effort that is required to manage an organisation of the scale and complexity of the NHS is a legitimate overhead.'

Organisational Costs in the New NHS: an introduction to the transaction costs and internal costs of delivering health care.

Office of Health Economics, 12 Whitehall, London SW1A 2DY.£7.50.