Health Secretary Andrew Lansley has drafted in a crisis team to deal with the dire financial situation at the South London Healthcare NHS Trust.
The government is shortly expected to appoint an administrator or turnaround expert as part of a radical restructuring programme for the trust, which is reportedly losing more than £1m a week.
Lansley wrote to the board of the trust warning them he intends to trigger an "unsustainable providers regime" led by a special administrator with wide-ranging powers to cut costs.
The administrator will look at a range of options to take the return the trust to a commercially viable situation, including splitting its services and merging elements with other trusts.
Lansley said: "A central objective for all providers is to ensure they deliver high quality services to patients that are clinically and financially sustainable for the long term.
"I appreciate that any decision to use these powers will be unsettling for staff, but I want to stress that the powers are being considered now so that patients in South-east London have hospital services that have a sustainable future."
Richard Fleming, UK head of restructuring at KPMG, said: “In the private sector, an administration is an important mechanism for making tough decisions to address a severely financially distressed company’s problems. We expect this to be true of health special administrations as well, where the regime seeks to safeguard patient care as a priority but also allows the special administrator to address the most difficult financial challenges.
It has been widely reported that debts at the South London trust rocketed due to two large PFI deals (Private Finance Initiative) that cost £61m in interest payments a year.
However Nick Prior, head of infrastructure and capital projects at Deloitte, told AccountingWEB that you can't blame the structure of PFI for this NHS Trust being overstretched financially.
“I expect there are a number of issues at play here but as ever it is the now soft target of PFI contracts that take the blame. There were clearly strategic errors that were made when the building of these hospitals were committed to a number of years ago," he said.
“All of these PFIs would have been signed off not just by the NHS Trusts but also the Department of Health and quite probably the Treasury itself, so in terms of understanding where fault lies, if fault is appropriate, with respect to the build programme that was undertaken, there were a number of bodies that were involved.”