Doctors and managers of NHS Trusts have welcomed a move to bring an end to the double-penalty system for health trusts that fail to balance the books.
Till now, when a health trust falls into deficit, not only is it penalized by having to pay back its debts but in addition, some money is cut off from its allocated funds from the ensuing year's budget.
All this has meant that some health trusts find it virtually impossible to balance accounts and have to resort to compromise in patient healthcare, to keep afloat.
This system has been around for the last seven year as part of the Treasury's Resource Accounting and Budgeting rules.
Now the government believes the NHS will get a chance to pull itself out of the mire as it has announced a contingency fund of 450 million pounds, gathered through cuts in training and public health budgets.
David Nicholson, the NHS chief executive, admits the system was "unsustainable and inconsistent". But he says the Department of Health could not afford to deal with the problem at that stage.
Nicholson was quoted : " The majority of NHS trusts have improved their financial performance over the last year, meaning we are now in a position to complete modernization of the NHS financial regime.
"We are moving NHS trusts out of the resource accounting and budgeting regime as this was inconsistent and unfair. At the same time, we are replacing the opaque system of cash brokerage with a formal system of loans to further aid transparency and financial discipline.
"We have now introduced a system that ensures fairness, transparency and responsibility, a system that is fit for the future. Organizations can now understand clearly their financial performance and the consequences and benefits of the management decisions they make.
"This gives us a very firm platform going forward to deliver on our planned improvements in services in the NHS in the coming year. We are now in a strong position to further transform the care we give our patients, reducing waiting times as we move toward a maximum 18 weeks from referral to treatment and delivering more care closer to home.
"This is not an easy option. NHS Trusts will have to manage their spending, recover any deficits, repay loans but for the first time their financial position and the actions which need to be taken will be clear and more transparent than ever before."
During an investigation in December, data provided under the Freedom of Information Act showed 103 hospital trusts across England were forecasting an accumulated deficit of 1.6 billion pounds by the end of the financial year, caused by overspending since 2001. At least a dozen hospitals had reached the point where financial recovery was impossible.