The NHS is facing its biggest financial challenge yet, with a £15 billion funding shortfall in the next decade, a report said today.
The NHS Confederation, which represents 95% of all NHS organisations, said the next two years were "tough but manageable" but said "the position beyond 2010/11 is very different and extremely challenging".
Its report - Dealing with the downturn: The greatest ever leadership challenge for the NHS? - said the service should expect a funding shortfall of £15 billion in real terms due to the impact of the recession and rising costs.
"With little or no cash increase, from 2011/12 the NHS will need to plan for real terms funding to fall by 2.5-3% per annum," the study said.
"This is equivalent to a cut of between £8-10 billion over the next Comprehensive Spending Review and up to £15 billion over five years."
The report called for immediate action if the service is to continue to keep to its founding principles of providing free care to everyone at the point of need.
It warned against "diluting" the quality of patient care and extending waiting lists like in the past, or making cuts to training budgets.
A solution to this crisis lies in NHS leaders embracing innovation, change and improving efficiency, it said.
NHS Confederation chief executive Steve Barnett said: "With little or no cash increase from 2011/12 the NHS has to prepare itself for real-terms reductions in what it can afford to do and needs to make the hard decisions about which programmes to fund, how to reward staff and how to reorganise services now.
"If it does not, then the mistakes of the past could be repeated and shortages in funding will translate to the kind of across-the-board cuts which could see waiting lists lengthen, standards fall and dissatisfaction with the service grow among patients and staff.
"The NHS needs to take the opportunity to find efficiencies and savings - I believe it has the people, the ideas and the capacity to meet this challenge but we should be under no illusions of the size of the task ahead."
Director of policy, Nigel Edwards, who wrote the report, added: "It is really important that the significant improvements that have been made in the NHS are not lost through short-term cuts and crude approaches to cost control.
"Quality improvements through greater efficiency and redesigning services can provide the budget savings necessary to navigate this crisis."
The NHS budget in 2009/10 stands at £102.7 billion - a 7.5% real terms increase on the previous year, according to the Department of Health.
Next year, the budget will be £105.8 billion, which it said was a 1.6% increase in real terms.
Dr Hamish Meldrum, chairman of the BMA, said: "The imminent funding crisis could be very dangerous for the NHS, and has the potential to seriously threaten patient services.
"We agree with the NHS Confederation that difficult choices will have to be made.
"But we also believe that one of the most effective ways to reduce the adverse impact on NHS funding would be to reverse the policy of encouraging a market in healthcare in the English NHS.
"Too much money that could have been spent on frontline patient care has been wasted on poor value deals with commercial providers and the bureaucratic costs of administering the market in the NHS."