By Nick Triggle
BBC News health reporter
Many NHS trusts have struggled to balance their books, leaving the NHS in deficit.
One in four trusts finished last year in deficit
The situation is getting worse and has prompted health bosses to cut jobs, close wards and delay operations.
But the NHS is receiving record amounts of money - the budget has doubled since Labour came to power. So why is this happening?
MISMANAGEMENT BY MANAGERS
Health Secretary Patricia Hewitt has been a persistent critic of bad management within the health service.
She recently announced that 18 of the worst-hit trusts would have hit-squads parachuted in to sort out finances.
She said: "Most trusts have managed their finances well and are running service within budget, but there are a handful who are not."
She added it was likely the cause of the deficits was down to bad management, either financially or because of the way services are being delivered.
"It may be that some hospitals do not have enough day cases or they are keeping patients in too long. We will have to deal with it."
Paul Miller, chairman of the British Medical Association's consultants committee, agreed.
"It is not happening in every trust, so you have to look at managers. There will be other causes for sure, but the problem is that managers do not consult with doctors enough."
But the criticisms have been met with defiance by health service managers.
The NHS Confederation said it was "all too easy" to blame managers.
"The causes of the current problems are deep-rooted and long-term," said chief executive Dr Gill Morgan. "Many of them relate to changes in accounting rules. It is wrong of the government to simply blame NHS managers. If this was easy it would have already been done."
As well as increasing the numbers of doctors and nurses, the government has also negotiated new pay deals in recent years.
It means the NHS GPs and hospital consultants are among the best paid in Europe.
GP pay has hit the £100,000 barrier, while hospital consultants are not far behind - and that is before their freelance work for the private sector is taken into account.
Nurses and non-clinical staff have also benefited. But while the extra pay has undoubtedly attracted new staff to the profession, the deals have come at a cost.
Managers say tough decisions need to be taken
The King's Fund health think-tank has estimated that 40% of the £4.5bn extra earmarked for the NHS in 2006-7 will go on pay rises.
Chief economist Professor John Appleby said: "As in previous years, next year a significant proportion of extra cash will go on higher pay.
"This is not a bad thing, helping to retain and attract staff for example.
"However, with consultant and nurse pay rates already near the top of the international league table, it raises questions about value for money."
Shadow Health Secretary Andrew Lansley takes this one step further, accusing the government of underestimating the burden they were placing on NHS trusts with the pay deals.
He said the GP deal cost £1.5bn more than expected and the consultants contract by £400m.
"It maybe the case that there has been some mismanagement by trusts, but you have to look at the role the Department of Health has played."
But the government said the extra pay had led to increases in staff numbers.
Ever since Labour came to power, ministers have subjected hospitals to a whole series of targets.
Bosses have been told to cut waiting lists, reduce waiting times and ensure people are seen in A&E within four hours.
To date, most of the targets have been met, although the most challenging - the 18-week waiting time target by 2008 - is still to be achieved.
While the government claims the targets have improved the service for patients, evidence has emerged it has distorted clinical priorities and sucked up too much money.
A joint report by the National Audit Office and Audit Commission last year showed how such targets were impacting on finances.
It said the Mid Yorkshire Hospitals NHS Trust, which had run up a £18.6m debt the previous year, had suffered because it had ploughed resources into meeting the waiting targets.
Unison also agreed targets could sometimes have unintended consequences. A spokeswoman for the public sector union said: "It is not just meeting the target that costs money, but the bureaucracy burdens that come with it too."
By no means the major cause, but nonetheless the increasing drugs bill has made money even tighter in the NHS than it used to be.
As people live longer and medical advances continue apace, a greater number and more expensive range of medications come on the market.
In the last five years, the NHS drugs bill has risen by 46% to £8bn, which pays for nearly 700m items a year.
Campaigners and ministers argue the spending is having results, pointing out one of the largest increase has been seen on the spending on statins, drugs which reduce cholesterol, which it is claimed save 9,000 lives a year.
Health Secretary Patricia Hewitt said: "Many of the so-called costs are actually going towards treating more people with drugs, paying for better drugs and modernising our hospitals.
"The extra money that we've put in to the NHS is delivering real improvements in services for patients."
But Henry de Zoete, a researcher at the centre-right think-tank Reform, said it was time for tough decisions to be taken.
"The demand for new drugs is insatiable, you only need to look at the Herceptin case at the moment to see that, but it is not sustainable."
As well as subjecting the health service to targets and investing unprecedented sums of money, Labour's approach to the NHS has also been characterised by a major reform programme to make it more market driven.
From the beginning of 2006, patients have been given a choice of at least four hospitals for non-emergency operations. In May, this was extended to include foundation trusts and within a few years patients will be able to choose from any hospital in the country.
To help underpin the changes, a new system of funding is being rolled out so that hospitals are paid per patient treated rather than being given lump sums based on past activity.
Ministers have also been encouraging more private sector provision of services with the aim of having one in 10 elective operations being carried out privately with NHS money by 2008.
The government believe introducing such measures will help drive up standards.
But the NHS Confederation said the measures have created "volatility".
Some PCTs have ordered hospitals not to carry out any more elective operations as they do not have the money to pay for them under the payment by results system.
And the prospect of the system being rolled out in April to emergency care, A&E and outpatients has left many trusts rushing to balance the books and making more drastic cuts than they would have historically.
The BMA has also been particularly critical of some of the contracts that have been signed by independent sector treatment centres.
Doctors say the units, designed to carry out minor surgery, have been given guarantees over the numbers they will treat, which has left NHS facilities underused in some instances.
A Unison spokeswoman agreed contracting out treatment to the private sector had a "destabilising" effect as it deprived NHS hospitals of income.
But others see it differently. Mr de Zoete said the government was heading in the right direction and should consider going even further with private provision.
"In the short-term it maybe causing financial problems, but in the long-term the situation will bed down and service for patients will improve."