Taxpayers could end up bailing out NHS hospitals identified by watchdog the National Audit Office as having "financial issues".
A report released on Thursday reveals 20 hospital trusts have financial issues so severe that they are not "financially or clinically viable in their current form” and out of 113 trusts vying to become foundation hospitals, 80 per cent are facing "severe" financial issues.
Hospitals need an estimated £376m in loans to avoid financial catastrophe.
The news raises questions over whether the government will meet its target for all NHS trusts to become foundation hospitals by 2014.
Foundation trusts have independent status and are free from government control, but remain part of the NHS and have to abide by NHS standards.
Hospitals wishing to gain foundation status may have to apply for loans - and it is understood health secretary Andrew Lansley will outline support available to these trusts later this year.
The report also highlighted serious issues with PFI schemes. As many as six trusts may require bailouts by the government or local authorities as a result of PFI debts.
Andrew Lansley said tough solutions will be required: "This report exposes the dismal legacy of challenged hospitals we inherited from the Labour Government. Labour burdened some of our hospitals with PFI deals they cannot afford, allowed years of bailouts to snowball into huge debts, and turned a blind eye to poor performance and quality.
"We will not sweep these problems under the carpet any longer. We will take these problems on once and for all. We welcome the NAO’s findings that we are helping these hospitals in an open and transparent way.
"For some hospital trusts, the challenges they face may be too great for them to take on alone. Tough solutions may be needed, but we are determined to help these hospitals overcome their problems."
Margaret Hodge, chairman of the Commons Public Accounts Committee, said the need to make £20bn in cuts within the NHS by 2014 would also hinder trusts from gaining foundation status.
"The NAO report acknowledges that the drive to make savings will make it more difficult for trusts to achieve foundation status."
"The report found that over 30% of trusts seeking foundation status are likely to need additional financial support, which could require access to around £375 million in loans...
"The financial obstacles faced by trusts should not distract from issues of poor service and performance. Too many trusts who have not achieved foundation status are failing on cancer waiting times, and referrals to treatment and underperforming on patient
experience."