Failing NHS hospitals are to be saved from bankruptcy under plans set out by the government yesterday to protect patients from the consequences of financial meltdown.

A "failure regime" for the NHS in England was published for consultation by the Department of Health after years of wrangling in Whitehall about the implications for independent foundation hospitals, which were supposed to be free to sink or swim in a competitive NHS market.

Ben Bradshaw, the health minister, said in June that failing hospitals might be put under private-sector management in a last-ditch attempt to improve services to patients.

But the department acknowledged yesterday that some trusts may not be capable of rescue. It said: "An additional process will be required, very occasionally, where an organisation is no longer failing, but where it has become impossible to turn around and it has actually failed." This might occur if healthcare regulators withdrew a hospital's licence to treat patients on safety grounds, or if a trust reached the verge of bankruptcy because it could not compete in an area of surplus healthcare capacity.

Under the proposals, David Nicholson, the NHS chief executive, would gain authority to declare an NHS hospital to be "unsustainable". He would appoint a "special administrator" to take over the trust and work out how to maintain essential services. The administrator would have a duty to put the interests of patients before the claims of creditors.

Foundation hospitals, which have independence from Whitehall control and ownership of the assets they inherited from the NHS, were concerned that the failure regime might give Nicholson power to renationalise their assets.

Ministers have ruled that William Moyes, chairman of Monitor, the foundations' regulator, should have the authority to decide when a trust is in such dire straits that it should be stripped of its independent status. Only then could Nicholson send in a special administrator.

Ministers want the failure regime to be introduced in April. They intend to publish a list of hospitals falling below minimum standards in the autumn.

Nicholson said: "The majority of hospitals and trusts are performing well, providing high quality services to patients and managing resources effectively. However, in the rare cases where a challenged trust fails to turn itself around, it is important that there are clear processes set out to ensure that services for patients continue to be provided."

Andrew Lansley, the shadow health secretary, said: "Assets required for the maintenance of NHS services should continue to be available under any insolvency regime ... But that doesn't mean the government should take all the risk. Under these proposals the Treasury would begin to exert a new level of control over foundation trusts."


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