Watford General Hospital, which faces a deficit of pounds 3.2m, disclosed that from 1 May it will provide only a 'core' emergency service and urgent surgery for patients who are funded by South West Hertfordshire Health Authority.
Consultants have been warned that operating sessions will be cut by a third and told to cancel operations scheduled for later in the year. But patients paid for by directly-managed fundholding GPs and not through the health authority are unlikely to be affected.
The problem is that the hospital has been unable to agree a contract with any health authority to run the service.
The hospital said: 'It has been impossible to reach agreement with our health authority purchasers - mainly South West Hertfordshire Health Authority - for us to deliver a full, elective service at a price they can afford.'
Non-fundholding general practitioners say they will be forced to tell patients that they cannot be treated at the local hospital and may have to travel long distances.
Dr Rob Buckman, a Watford GP and member of the BMA's family doctors' committee, said: 'If the hospital carries out this threat it will be very serious for the health service in Hertfordshire. The hospital appears to be saying that the doors will be shut to its own local people. This is going to be the pattern right across the country. If you are going to have a market in health care there are bound to be winners and losers. In this case, the people of Watford are the losers.'
Ian Campbell, general manager of Watford General Hospital, said the hospital had to cut services, but there would be no inequity between patients from different kinds of GP. The hospital will expand its day care provision. South West Hertfordshire Health Authority has promised to fund patients who would otherwise wait more than 18 months for an operation.
The hospital was the first to be accused of running a two-tier service two years ago. Patients from fundholding GPs were promised surgery within 13 weeks, although the average wait for general surgery was 20 weeks. Non-fundholding GPs complained that patients in self-managed practices were being given preference.
The decision to close beds and operating theatres is surprising because it has come at the start of the financial year instead of near the end, when money is usually short.
A district health authority spokesman said the financial problems arose because health service reforms were still in their early stages. North West Thames Regional Authority is considering using part of a pounds 20m contingency fund to help the hospital tide over the difficulties.
Dawn Primarolo, a Labour health spokeswoman, said: 'Clearly the financial crisis in the health service is now something that happens all year round instead of just in the last three months of the year.'