The proposed centre would have taken up to£15m of work a year from West Hertfordshire Hospitals trust.
Chief executive David Law told the Health Select Committee last year the development 'created substantial risks for the organisation'.
The trust has a historic deficit but is aiming to end 2007-08 in surplus.
Clinicenta - a joint venture between Carillion and Lodestone Patient Care - was appointed preferred bidder for the ITSC 18 months ago and a planning application put forward. The scheme was expected to be in operation by October this year.
The news is included in a consultation document on changes to acute services managed by the trust.
It says 'recent discussions' with Clinicenta established that 'physical constraints' on the site meant a 'more complex and costly design' and 'costly planning requirements'.
This meant the proposed development 'would be more expensive than expected and that planned care services in West Hertfordshire - delivered directly by the NHS - would offer better value for money'.
The consultation will now determine whether elective surgery is based at the site or nearby St Albans City Hospital, the trust's preferred choice. A further ITC could be based at Lister Hospital, Stevenage.
Clinicenta managing director David Highton said the Hemel Hempstead scheme had been on hold since late last year, when NHS East of England said acute services needed to be reviewed. Discussions about the Lister scheme would now restart, he said.
He said: 'We still feel pretty positive about the overall ITC procurement. Sometimes you have to take the rough with the smooth.'
Other key proposals included in the consultation are:
- the development of either the Lister or the Queen Elizabeth II Hospital in Welwyn Garden City as the main acute hospital for the east and north of the county. The Lister is the preferred NHS option. Whichever hospital is not chosen would become a local general hospital;
- the end of plans for a super hospital and cancer centre at Hatfield, judged too expensive at ?424m;
- a network of seven urgent care centres at hospitals across the county, which would see two-thirds of those who would otherwise go to accident and emergency;
- a concentration of children's services in West Hertfordshire at Watford, with Hemel Hempstead developed as a local general hospital with children's outpatient facilities.
The consultation will run until 1 October.
A judicial review into the trust's decision to concentrate acute services at Watford General Hospital and not Hemel Hempstead was expected to go ahead at the High Court in London today. The decision is not revisited by the new consultation.