NHS London has halted the takeover of a district general hospital by a foundation trust in a neighbouring strategic health authority.

The capital’s SHA today announced it was halting the acquisition of Epsom Hospital by Ashford and St Peter’s Hospitals Foundation Trust.

Epsom is part of Epsom and St Helier University Hospitals, which is one of five trusts predicting a deficit at the end of 2012-13.

The former hospital reports to NHS London despite sitting in NHS South of England’s area. An earlier bid for St Helier from St George’s Healthcare Trust was dropped in January.

In a statement NHS London said “urgent discussions” were taking place about Epsom and St Helier’s future form.

The news comes after the Better Services Better Value review, which is looking at proposals to downgrade St Helier, last week saw its consultation start-date delayed indefinitely.

NHS London chief executive Dame Ruth Carnall said: “I am disappointed that this decision has had to be taken and want to acknowledge the great effort that has been undertaken to get to this stage. This has been a very complex process and a lot of work has gone into planning for the potential integration of these organisations.

“Working with our NHS partners we will now examine alternative options for the future of the hospitals. This must ensure they are sustainable – both financially and clinically – for the long term.”

Epsom and St Helier chief executive Matthew Hopkins said the decision was “not based on the ability of our staff, nor the quality of the services we provide”.

Ashford and St Peter’s chief executive Andrew Liles said his trust was “committed to taking part in the discussions to see if a way forward can be agreed where we play a part in the future of Epsom Hospital”.

He added: “We have put a lot of time and effort into developing these plans and are very disappointed that our collective hard work has not led to us being able to bring the three hospitals together to create a new foundation trust in Surrey.”

One source told HSJ the decision to drop the merger might have been prompted by Ashford and St Peter’s and that Epsom and St Helier might now be being considered for the failure regime.

The interim report from the trust special administrator into South London Healthcare Trust, the first to be put into the failure regime, is due on Monday.

Epsom Hospital is home to the elective orthopaedic centre, which made a £2.4m profit on a £30m turnover in 2011-12.

Its earnings are divided between Epsom and St Helier (40.1 per cent), Kingston Hospital Trust (21.4 per cent), Croydon Health Services Trust (17.2 per cent) and St George’s Healthcare Trust (21.3 per cent).