The report, More For Less, says there was 'no shift from hospitals to care closer to home in the community; either in terms of investment or activity'.
Hospitals' inpatient cases rose by 4 per cent in 2008/9 and outpatient cases by 8 per cent, the report said - swallowing almost all of the year's growth in PCT spending on healthcare.
Audit Commission managing director of health Andy McKeon said: 'Productivity and quality are the twin foundations on which the NHS will face and weather pressures on public spending in the next few years.
'Hospitals are starting to become more efficient. But to reduce pressures and ease finances, the drive from PCTs towards providing equally good, if not better, care in the community needs to increase significantly,' he said.