The first private healthcare operator to run an NHS hospital trust is to pull out of the deal, claiming it is “no longer sustainable” due to funding cuts and pressure on its casualty department.

Circle said the level of cash it had pumped in to prop up Hinchingbrooke healthcare trust in Cambridgeshire was about to reach £5million, meaning it would have the right to terminate the franchise.

It pointed to “significant changes in the operational landscape for NHS hospitals” since the contract was first procured in 2009.

Circle said there had been unprecedented increases in accident and emergency attendances, a lack of care places for patients awaiting discharge and that funding had been cut by 10.1 per cent this financial year.

The company said these conditions had “significantly worsened in recent weeks”. It has already pumped £4.84m into the trust and would be “highly likely” to have to make further support payments that would breach the £5 million cap, it said.

It also said it was facing an imminent report from the Care Quality Commission (CQC) which it expected to be “unbalanced”.

Circle began operating Hinchingbrooke in February 2012, the first time the management of an NHS trust had been delegated to a private company.

It warned in August that changes to funding mechanisms had left “uncertainty over Hinchingbrooke’s profitability over the next year” though it said its “patient-centred and innovative approach should ensure the long-term sustainability of the contract”.

But it spelled the end of the venture in a statement today.

A spokesman said: “Circle today announces that it has determined that its franchise to operate Hinchingbrooke Health Care NHS Trust is no longer sustainable under current terms and that it has entered into discussions with the NHS Trust Development Authority (TDA) with the view to ensuring an orderly withdrawal from the current contract.”

Circle defended its running of the hospital, saying that it had been transformed since the 2012 takeover when it was described as a “basket case” facing closure.

It said it had invested in the quality of care, in staff and facilities and won a number of awards, while meeting key measures including low mortality rates, “excellent” patient feedback and waiting time targets.

In the first two years of the franchise, it had made financial savings well above the NHS average. It said it had saved the taxpayer £23m.

Circle said Hinchingbrooke was one of the first hospitals to be inspected under a new process by the CQC.

“We understand the CQC report will be published soon, and expect it to be both unbalanced and to disagree with many of its conclusions.

“We are not the only hospital to find their process problematic, and believe that inconsistent and conflicting regulatory regimes compound the challenge for acute hospitals in the current environment.”

Circle said that under the terms of its contract it could be required to make a final support payment of £160,000 to Hinchingbrooke, bringing the total to the capped £5m level.

It said it was also obliged to cover the costs of up to £2m of terminating the franchise and procuring a new operator.

Further details on discussions with the TDA would be made “in due course” and Circle said it expected to provide an update at its trading statement next month.

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. We also believe that inconsistent and conflicting regulatory regimes compound the challenge for acute hospitals in this environment.

“This combination of factors means we have now reluctantly concluded that, in its existing form, Circle’s involvement in Hinchingbrooke is unsustainable.”

Chairman Michael Kirkwood said: “Circle remains a committed partner of the NHS at our elective treatment centres and independent hospitals.

“Our clinician-led and employee co-owned model has a proven track record of efficiency and quality improvement, and we will continue to play a substantial role in the NHS.”