NHS directors are drawing up contingency plans to save services at an Oxford hospital if it is declared financially unviable.

Although managers at the Nuffield Orthopaedic Centre announced in the spring that the future was secure, business experts have now indicated that the specialist trust's long-term prospects are far from protected.

Accountancy firm KPMG has warned NOC chief executive Jan Fowler to develop a shortlist of alternative strategic options in case it becomes clear the hospital cannot cope as a stand-alone organisation.

KPMG was brought in last year to review the trust's future, after the now-defunct Thames Valley Strategic Health Authority claimed it was "fundamentally financially flawed" because of the NHS's Payment by Results scheme (PbR).

PbR is a national tariff which ensures hospitals are paid the same for the procedures they do. But it does not offer extra funding to centres doing high-cost specialist work, like the NOC.

An interim report by KPMG last March suggested the NOC's future would be safe if the Government made changes to PbR, but Mrs Fowler admitted it would not be clear what reforms would be made until at least the end of the current financial year.

And that could impinge on the hospital's long-term plan to become a foundation trust.

She said: "We're working with the DoH and its PbR team to look at changes to the system, but a contingency has to be in place.

"The key would be to continue providing the services we already provide, and this could be in partnership with other organisations. There aren't any specific organisations identified, but we're looking at what makes clinical sense.

"That could mean the Oxford Radcliffe Hospitals, but it could also be another trust we work with across the UK - another orthopaedic trust, or a trust that provides other similar specialist services.

"We have some knowledge about the changes they'll make to PbR next year, and we can make some assumptions about what they'll do the following year. But until we know we won't be absolutely certain about our future."

The NOC has been relying on £8m stop-gap payments from the DoH every year to compensate for the PbR shortfall.

But this year the extra funding fell by £2.2m, and is due to stop completely next year.

Mrs Fowler and her team have already started to make £5.4m cuts to offset the budget reduction.

She said: "What we're trying to do is find £5.4m of cost efficiencies, and our new buildings have given us more opportunity to do things differently and better.

"For example, we need to be as lean as possible and can't afford to have all the layers of management that maybe other organisations have. We're on track to do that and are slightly ahead and will already have reduced costs by £3.4m by the end of this year.

"I'm very confident services will be provided at the NOC and our buildings in Oxford in years to come. It's not an issue about the NOC closing. Our primary concern is about making sure the services are provided in a financially viable way."