The amount they are paid for treating patients is to be frozen until 2014 as part of the government's productivity drive in England.

Health Secretary Andy Burnham said hospitals would have to start working differently, but added it would not necessarily mean hospital closures.

Hospital bosses described the task facing them as a "pretty tall order".

The freeze in hospital income was included in a five-year plan set out by Mr Burnham following the pre-Budget report on Wednesday.

He said the NHS was facing an "unprecedented productivity challenge" in the coming years.

Many predict between £15bn and £20bn needs to be saved from 2011 to 2014.

The budget will rise by more than 5% next year, but after that rises look likely to be much smaller as the government seeks to curb its spending to pay off debts.

The health service has been told it will get above inflation rises after 2011, but that could still feel like a cut for the NHS as it struggles to cope with demands from an ageing population and higher than inflation rises in the cost of equipment and drugs.

But while the NHS will be getting more as a whole, hospitals are facing a freeze in a major part of their income.

About 70% of hospital funding comes through a system known as payment by results.

It means hospitals are paid per patient treated rather than under the old method whereby they would get a lump sum based on traditional levels of activity.

The government introduced the system to make the NHS more competitive and it now applies to everything from hip operations to doctor consultations - only the most unpredictable parts of treatment, such as intensive care, are excluded.

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