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 radical restructuring.
However, the list did not include another five foundation hospitals – run independently of the Department of Health – 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 a form of financial administration after they ran up debts of £150m over the past three years.
South London Healthcare NHS Trust, which is losing £1m a week, is likely now to be run by a special administrator tasked with putting it on a viable footing.
The trust, which runs Queen Mary's Hospital in Sidcup, the Queen Elizabeth Hospital in Woolwich and the Princess Royal University Hospital in Bromley is likely to face cuts to services and jobs in an attempt to reduce costs.
Department of Health sources suggested it was possible that 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 PFI deals are unsustainable, while others may have to reconfigure their services, which could lead to job cuts. It is also possible that some hospitals could be taken over by new management.
Earlier this year the private healthcare group Circle took over Hinchingbrooke Hospital in Cambridgeshire, which had debts of £40m. Circle says it is confident that it can turn the trust around. The Department of Health said the changes were not about cutting services but providing better healthcare. They pointed out Circle had increased investment in Hinchingbrooke.
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 prohibitively expensive PFI debts which they are struggling to service, while others are providing services which are now uneconomical.
Some hospitals are also trying to provide a full range of hospital services to relatively small but isolated communities and finding there are not the economies of scale to stay within budget.
"We have got a 19th-century system of hospitals which are no longer fit for the needs of 21st-century healthcare," said one source who could not be named as they are involved in hospital regulation.
"It is difficult for the public to accept when they see things like their local A&E or maternity unit closing but we must move to a position where what is important is the quality of treatment you get rather than where you are treated."
This position was backed by Chris Ham, chief executive of the King's Fund think-tank. He said: "For some of these hospitals, the usual solutions, such as appointing a new management team or merging with another provider, will not solve their problems. Governments have ducked these issues for too long so this announcement is an important signal of intent."
Andy Burnham, Labour's shadow Health Secretary, said while some PFI deals had represented poor value for money that was not the full picture.
"Overall, PFI helped us rebuild the fabric of the NHS and that helped us improve standards of patient care. This hospital has been making real improvements in recent years on quality, safety and on waiting times. The Government has been talking down the National Health Service."
Sue Slipman, chief executive of the Foundation Trust Network, said she was pleased the Government was confronting some long-standing problems. "There is no doubt that there will have to be more changes in the health service in order to make the savings necessary to invest in new patterns of healthcare.
The NHS Confederation deputy chief executive David Stout said: "We welcome the Secretary of State's actions as a sign the Government is beginning to grasp the nettle on some difficult issues."