Inspectors from the Care Quality Commission (CQC) raised concerns about the safety of children and other vulnerable patients at Hinchingbrooke Hospital in Cambridgeshire, rating its services as “inadequate”.
Circle Holdings - the first private operator to run a NHS hospital - said it was backing out of a contract which began in 2012.
The announcement compounded a sense of crisis facing the NHS as new figures revealed another worsening in A&E performance, with only 86.7 per cent of patients treated within four hours in England in the seven days to last Sunday, down from 94.3 per cent last year and well below the 95 per cent target.
Only 64.2 per cent of patients were treated within four hours in Hull - the third worst performance in the country. There are also warnings cases of flu are increasing, with levels at their highest since 2011.
Prof Sir Mike Richards, chief inspector of hospitals, said there were a “number of serious concerns” over staffing and risks to patient safety at Hinchingbrooke.
He added: “There were substantial and frequent staff shortages in the A&E department.
“There were a number of other areas of concern, some of which related to the way in which the trust is led and run. This is the first time that CQC has rated a trust inadequate for ‘caring’.”
Labour said Ministers “must take responsibility for the mess”.
Shadow health secretary Andy Burnham said: “The Government were explicitly warned two years ago about the risky business model Circle were operating, but failed to take any action.”
But Health Secretary Jeremy Hunt said: “This Government makes no apology for seeking solutions for failing hospitals. We won’t be deterred from tackling poor care and driving up standards.”
Circle had already warned over “uncertainty” over the hospital’s profitability and yesterday said it was seeking an “orderly withdrawal” from the contract.
It described the CQC report as “unbalanced” and disagreed with “many of its conclusions”.
Chief executive Steve Melton said: “Like most hospitals, over the past year Hinchingbrooke saw unprecedented A&E attendances and not enough care places for healthy patients awaiting discharge. At the same time, our funding has been cut.”
Len McCluskey, of union Unite, said: “Hinchingbrooke has gone full circle, from flagship to complete failure. This is the proof that the privatisation of the NHS is a disastrous experiment at the expense of our healthcare.”
Dave Prentis, of Unison, said: “The NHS is currently struggling with its biggest crisis in a decade and, despite this, staff are working day in and day out caring for the most vulnerable. Meanwhile, at the first sign of trouble, Circle is off, leaving local NHS patients and staff facing huge uncertainties about the future.”
British Medical Association chairman Mark Porter said: “What has happened in Hinchingbrooke shows that the responsibility of running a critical public service can never be handed over and so the insistence on private providers as a potential solution to problems facing Hinchingbrooke was always misguided.”