A Midland hospital facing debts of £40 million is spend-ing an extra £4.5 million a year on staff pay because of Government reforms, MPs have been told.
Antony Sumara, chief executive of University Hospital of North Staffordshire NHS Trust, said the figure included the cost of pay rises for consultants.
He was giving evidence to the House of Commons Health Committee, which is looking into the problems which caused the NHS to overspend by £512 million last year.
The trust, which runs three hospitals in Stoke, is to lose 1,022 posts in an attempt to bring its finances under control.
Health Secretary Patricia Hewitt has sent in a hit squad of consultants from KPMG to help the hospital balance its books.
Mr Sumara said the trust was running at an annual deficit of £15 million but had a total deficit of £43 million which it is supposed to pay back.
He warned that costs had increased because of contract changes including a new national pay scale, which is known in the Health Service as Agenda for Change.
He said: "We had a £4.5 million excess caused by the consultant contracts and the Agenda for Change issue."
The hospital was trying to avoid losing consultants but it was saving money by losing other staff, he said.
But plans to encourage private sector health companies to provide NHS care would cost more money, he warned.
An Independent Sector Treatment Centre in Burton, Staffordshire could cost the hospital another £1.5 million because it would take work away from the trust, Mr Sumara said.
Although drastic cost savings were needed, patients would not suffer as a result, he pledged.
For example, patients treated by University Hospital of North Staffordshire stayed in hospital far longer than the national average, he said.
"If we can get our rates down to the average in the country we can get rid of about 187 beds."
This involved making the hospital more efficient rather than reducing patient care, he said.
Mr Sumara was put on the spot by MPs who pointed out health trusts in places like Stoke, which have high levels of deprivation, were well funded.
He was asked by MP Mike Penning (Con Hemel Hempstead): "Does that mean you have bad management? You have all this money and are still in deficit."
Mr Sumara admitted the hospital had suffered from a f ailure of corporate governance.
"Part of the reason the hospital is in significant deficit is we previously did a lot of overtrading, in the sense of doing activity to meet targets," he said.
"There was no sense of a grip on what does it cost things like that."