More than 30 NHS trusts could be forced to merge, devolve services into the community and make job cuts as part of a radical restructuring of hospital care across England.
Yesterday, the Department of Health said it considered 21 hospitals to be "clinically and financially unsustainable" and in need of reform.
However, the list did not include another five foundation hospitals – run independently – which are also considered to be failing financially. A further five foundation hospitals also have severe financial problems.
On Monday, Andrew Lansley, the Health Secretary, announced plans to put three London hospitals into financial administration after they ran up debts of £150m in three years.
South London Healthcare NHS Trust, which is losing £1m a week, is now likely to be run by a special administrator with the task of putting it on a viable footing.
Department of Health sources suggested it was possible other hospitals could also be put into administration. Those at greatest risk are understood to be Barking, Havering and Redbridge University Hospitals NHS Trust and Surrey and Sussex Healthcare NHS Trust.
Four trusts, including South London, require bailouts because their Private Finance Initiative (PFI) deals are unsustainable, while others may have to reconfigure their services, which could lead to job cuts. It is also possible some hospitals could be taken over by new management.
However, ministers accept they will face resistance to the changes from patients. Many of the problems faced by the affected hospitals are historical. Some have been burdened with big PFI debts, which they are struggling to service.
PFI was brought in by John Major's government and championed by Gordon Brown when he was Chancellor. It was designed as a way to build new hospitals – without the capital costs ending up on the Government's books. Under the scheme private companies financed and built new hospitals and leased them back to the NHS.
"It is difficult for the public to accept when they see things like their local A&E or maternity unit closing," said one source. "But we must move to a position where what is important is the quality of treatment you get rather than where you are treated."