Public-public partnerships could be the way forward for smaller, rural health economies, according to a Midland district council which is believed to be the first in Britain to build its own hospital.

Wychavon District Council, in Worcestershire, first came up with the idea to buy land for a new hospital in 1999, as fears grew over the future of Pershore Cottage Hospital, which serves a population of 9,000.

The 19-bed facility, which opened in 1893, is being replaced with a #6.7 million, 26-bed hospital and medical centre, due to be completed in September.

The district council will lease the new hospital to South Worcestershire Primary Care Trust at #300,000 a year and an interest rate of seven per cent.

It has done so without consulting the Department of Health or seeking financial assistance from the private sector.

Before this plan was finalised, health bosses had suggested moving the hospital into a new nursing home scheme.

Last night Coun Michael Meikle (Con Fladbury), health scrutiny committee chairman, said: "There had been some talk of closing Pershore Hospital and the PCT's alternative was to replace that with one floor at Heathlands, a new old people's residential scheme, but that wasn't really the way we, or the community, wanted to go.

"We had saved money raised from the sale of old housing stock in the 1990s that was subsequently invested in bonds, and we'd got to the point where we felt it should be invested into bricks and mortar."

He added: "I think this is the way forward, but others may not agree, they may not think local authorities should get involved in health governance."

The premises will also house a GP surgery with 13 doctors and it will give the council a higher rate of return than on its surplus which had been earning 6.25 per cent in bonds.

Any profits will be used to build a leisure centre and improve other services.

Paul Bates, chief executive of South Worcestershire PCT, said: "I think the idea of local authorities and PCTs joining forces in this way will depend on particular circumstances. I don't think we will see lots of district councils offering the same deal to their local trusts."