The NHS will be plunged further into financial crisis if the government does not change its approach, a study says.
The NHS in England could be heading for a £620m deficit
Think-tank Reform said the NHS should become more market driven in a bid for efficiency if a £6.8bn deficit was not to be accrued over the next five years.
But the centre right group called for an end to major hospital building schemes with the NHS already facing a £620m debt this year.
The government said the warnings did not reflect reality.
But a leaked memo at the weekend revealed the Department of Health had imposed a freeze on new investment.
The move only affects the central budget - not individual hospital pots - and is thought likely to hit public health programmes.
Reform researchers looked at the cost pressures on the NHS over the next five years, including the consequences of extra staff, improved contracts, more expensive drugs and large building projects.
They concluded an extra £18.2bn of funding would be needed, but only £11.4bn was in the pipeline - a shortfall of £6.8bn.
One in four NHS trusts failed to balance the books last year, leaving the NHS £250m in deficit with it predicted to get worse this year.
Some hospitals have started to close wards, cut jobs and delay operations in a bid to resolve the situation.
The report said the NHS had two options - radical reform or cutting more jobs or delaying treatment - if the debts were not to get worse.
Among the reforms recommended were a greater push towards providing health care outside of hospitals.
And it called for the government to go further in introducing the market into the NHS.
The report said private firms should be given more of a role and hospitals given greater autonomy so patients have more choice.
The Reform report comes as a poll by MORI and drugs firm Pfizer found 59% wanted more choice over their healthcare, with many of the 1,500 quizzed saying there was insufficient choice outside of hospitals.
But the think-tank also warned wasteful policies had to be curbed.
It said projects to build hospitals for the NHS with private money should stop if they were in the early stages - with more care being provided in the community there would be less need for big hospitals.
And there should be a review of medical training plans after the recent reports of professionals, including junior doctors, struggling to get jobs once they had graduated.
Report co-author Henry de Zoete said: "What we are saying is that if the financial situation is not going to get worse, change is needed.
"We are already seeing the signs with deficits being built up and recruitment freezes being introduced. There is a real risk it will get worse."
However, a separate study in the Journal of the Royal Society of Medicine on the UK, Australia, Canada, the US and New Zealand said constant restructuring of health systems often achieved negative outcomes.
Lead researcher Jeffrey Braithwaite said: "It's a puzzle why ministers and senior departmental staff keep restructuring. Perhaps it's just an exercise of power more than anything else."
Health Secretary Patricia Hewitt rejected some of the figures in the report, saying the authors had ignored "significant" savings being made.
"But the central point I would make is that, along with the investment we are making - that we will build up until we get to the European average in 2008 - we have got to press on with the reforms we are also making in order to get the results that all of us want from that investment.
"Whether it's central government funding or whether it's the NHS, I am absolutely determined to make sure we get not just the best possible patient care but also the best possible value for money which we have asked taxpayers to contribute towards so that we can redress the under-funding of the NHS."