There is real concern that NHS organisations will go bankrupt under the new arrangements being brought in by the Government's health reforms but ministers have failed to make clear what they will do if it happens, a parliamentary report has warned.
The House of Commons Public Accounts Committee said it appeared the Department of Health was "inventing rules and processes on the hoof" to deal with hospital trusts which get into financial difficulties, rather than establishing a robust protocol for action.
Ministers were unable to provide the committee with reassurance that financial problems will not damage the quality of care or access experienced by patients of troubled trusts, at a time when the service is already struggling to find £20 billion-worth of cuts and implement the reform programme, said PAC chair Margaret Hodge.
Although NHS bodies reported an overall surplus of £2.1 billion in 2011-12, the apparently healthy financial picture masked a "significant minority" of bodies which are in difficulties, said the report.
Ten NHS trusts, 21 foundation trusts and three primary care trusts reported a combined deficit of £356 million, £115 million of which was accounted for by two London trusts, one of which was put into special administration in July.
And a further 31 struggling NHS trusts and 11 foundation trusts may not have broken even if they had not been bailed out with cash injections worth £1.1 billion from the department, as well as support from PCTs and strategic health authorities, said the report.
In a number of cases, trusts' chances of breaking even were being undermined by "unaffordable" contracts with private-sector companies under the Private Finance Initiative, the report warned.
The department is liable for supporting all PFI payments and already expects to have to find £1.5 billion to bail out seven trusts experiencing problems.
During the committee's inquiry into the future financial sustainability of the NHS, the department was unable to explain clearly how the "failure regime" would work under the new arrangements, or what circumstances would trigger it being applied to a struggling hospital.
The committee said it was "particularly surprised" that the department could not explain how the process will work for the South London Healthcare NHS Trust which was put into special administration earlier this year.
And it raised concerns about plans for "risk pools" which might levy money from all NHS bodies after April next year to provide support for failing trusts. These pools threaten to "destabilise otherwise healthy organisations" and the department needs to clarify how they will work, said the committee.
"Ensuring a viable financial future for healthcare providers is vital if the public are to have confidence in the delivery of their local services," said the report. "Yet we still do not have critical details of how the new system introduced by the NHS reforms will work so that services remain available to patients in their locality."
Ms Hodge said: "The Department of Health could not explain to us how it will deal with an NHS trust that goes bankrupt. Nor could it provide reassurance that financial problems would not damage the quality of care or equality of access to all citizens, wherever they live.
"Up to now financial problems have often been hidden, with struggling trusts being bailed out through additional financial support from the NHS and the department.
"The department could not explain to us what would trigger a trust being placed into the failure regime or exactly how the process would work.
"We do not know whether a bankrupt trust would be allowed to fail or how and when ministers would intervene. And it is not clear how the department would ensure that essential services are protected if a trust fails."
Shadow health minister Andrew Gwynne said: "We repeatedly warned David Cameron it was dangerous to reorganise the NHS when its first focus should have been on facing the financial challenge.
"This distraction is now throwing the NHS off course.
"With hospital trusts facing a financial challenge, David Cameron's Government should be focusing on sorting the situation out."
He added: "Ministers must get a grip on the turmoil and put staff and patients first."
Health minister Lord Howe said: "This NHS is in robust financial health. We have invested an additional £12.5 billion in the NHS and £1.6 billion of surplus has been carried forward into 2012/13 to help deliver high quality, sustainable health services for patients.
"The NHS is performing well and is on track to meet its efficiency challenge. Latest figures show it has already reported £7 billion of savings over the last 15 months."
He added: "But to be clear - we are not 'making these rules' up. In fact, we are working closely with Monitor, the NHS Trust Development Authority (NTDA) and health professionals to set out proposals on how foundation trusts and other healthcare providers can remain financially stable and will report back on this later in the year."