Top NHS hospitals will face strict caps on private patients if they opt out of government control, it has been announced.

They will also have to operate under strict rules preventing them from destabilising the NHS in their area, Health Secretary Alan Milburn said on Wednesday.

He said they would be prevented from poaching staff from other hospitals or undercutting them on treatment costs.

Mr Milburn was detailing how England's best NHS hospitals could become "foundation hospitals".

Foundation trusts will be part of the NHS providing NHS services to NHS patients Health Secretary Alan Milburn

"Three star" hospitals will become independent not-for-profit organisations, accountable to their local community rather than the government, under the scheme.

Up to 12 hospitals could seek the new status in the coming months. The first foundation hospitals could be in up and running by spring 2004

The government says foundation status will allow the best-run NHS trusts to set their own clinical and financial priorities.

'Capped'

Mr Milburn said: "Foundation trusts will be part of the NHS, providing NHS services to NHS patients according to NHS principles, and be subject to NHS standards and inspection."

They will operate under a statutory "duty of partnership which would mean they could use their freedoms "only in a way which did not undermine other NHS organisations, for example by poaching their staff."

Alan Milburn denies he will create a two-tier NHS

Hospitals giving up private work will be favoured for the scheme, Mr Milburn said.

He added: "The proportion of private patient work undertaken by any NHS foundation trust will be strictly capped to its existing level."

He said he would be particularly interested to see applications for foundation hospital status which proposed converting facilities from private to wholly NHS use.

They will be allowed them to raise money how they want - including, possibly, joint ventures with the private sector.

He also announced that the 300 primary care trusts, bodies whose responsibilities include overseeing GP care, are to receive, on average �42m, over the next three years.

The money, has been calculated using a new formula which redistributes funding to the poorest areas.

PCTs will have control of 75% of the NHS budget.

'Controversial and difficult'

Nigel Edwards, policy director at the NHS Confederation welcomed foundation hospitals.

He said they were "a step in the right direction towards a more decentralised NHS.

"The principle behind the concept is the right one."

But critics of the plans say they will create a "two-tier" NHS in which the elite hospitals are given more money and freedom, while the rest are left to struggle.

The plans have already split the Cabinet, with opposition led by Chancellor Gordon Brown.

A rebel Commons motion signed by 70 Labour backbenchers is expected later in the week.

Mr Milburn is thought to have agreed to the caps on private patients in an effort to make the idea of foundation hospitals more palatable.

Land sales

It has been suggested that two-star hospitals could also be given some additional freedoms.

Health minister Hazel Blears denied the Government was creating a "two tier" NHS.

She told the BBC: "Obviously when you are pioneering any change you are going to start with the people who are the most successful, who are most able to pioneer their way through. But this is not about creating a two tier system."

Centres of excellence

Shadow Health Secretary Dr Liam Fox said the Tories "entirely welcomed" foundation hospitals which were "market-orientated" and would break up the NHS monopoly of supply.

But he said questioned how much freedom the hospitals would really have, and said the safeguards aimed at preventing them poaching of staff were "utterly unworkable" and a legal lock on retaining assets in the NHS "absolutely meaningless".

Liberal Democrat health spokesman, Dr Evan Harris, added: "Giving the few hospitals that are doing well the ability to poach staff from nearby hospitals, and indeed Third World countries, is a recipe for ghettoisation in the NHS."

Karen Jennings, head of health for the union Unison, added: "We have serious concerns that what we get is a two-tier system.

"There will be centres of excellence which will be very appealing to staff and the patients that use them, but in neighbouring hospitals, there are going to be demoralised staff and patients wondering why they're in that hospital and not the foundation hospital."