By Nicholas Timmins,Public Policy Editor

Published: April 21 2007 03:00 | Last updated: April 21 2007 03:00

Nuffield Hospitals, the not-for-profit private hospital operator, has pulled out of negotiations to provide operations for NHS patients using mobile operating theatres in the West Midlands.

The move is a setback for the Department of Health’s drive to get up to an extra 250,000 patients a year treated in private sector facilities through a second round of independent sector treatment centres (ISTCs).

Some 13 schemes have reached preferred bidder stage but it is now nearly two years since they were first announced, with none having yet reached financial close. Nuffield cited costs and delays in concluding the deal as the reason behind its decision.

A series of factors, including negotiations between the department and the Treasury, have slowed the deals, with some in the private sector uncertain whether Gordon Brown will promote the programme with the same vigour as Tony Blair, assuming the chancellor succeeds him as prime minister.

David Mobbs, Nuffield’s chief executive, said the scheme was originally due to go live this month. But “delays have seen our costs and risks rise” to the point where already slim margins on the contract were being rapidly eroded. With no firm contract in sight, he said, the company had decided to draw a line under the deal.

He insisted that the decision did not imply a loss of interest in doing work for the NHS. “We are still extremely excited about the NHS market and about the increasing right of patients to choose a private hospital [where the hospital agrees to treat patients at NHS prices].”

In addition, primary care trusts in the Midlands were still showing “a high degree of interest” in the project, he said, and Nuffield still hoped to use the mobile theatres for NHS patients under locally agreed arrangements.

The Department of Health now has the choice of dropping the deal or attempting to persuade its reserve bidder, thought to be Netcare, to take it on.

The move comes as most of the companies bidding for the second wave of ISTCs now say privately that they do not believe the programme will reach the government’s original - and repeatedly confirmed - target of spending £550m a year to treat 250,000 patients annually. Most now expect it to add up to only £350m.

But the private sector’s faith in a continuing market for NHS care was demonstrated by the completion yesterday of Care UK’s deal to buy Mercury, which also runs treatment centres and a range of other services for the NHS, from the Tribal Group.

The deal has cost Care UK £77m once debt repayments and debt assumed are included. Mike Parish, Care UK’s chief executive, said: “You don’t get that sort of money back from the residual period of Mercury’s existing contracts. This represents a substantial investment [in our belief] that there will be life [in work for the NHS] after the existing contracts.”