The head of an NHS watchdog fears the future "looks bleak" for Oxford's Nuffield Orthopaedic Centre.

In a meeting with Oxfordshire Health Overview and Scrutiny Committee (HOSC) today, Oxfordshire Primary Care Trust chief executive Andrea Young said it was unlikely the specialist hospital would win extra funding to balance its books.

As a result, the NOC could still face a merger with another organisation, possibly a private company, to make it financially viable.

HOSC chairman Dr Peter Skolarcorr said: "It is a fairly bleak picture we are drawing for the NOC as an individual trust."

He explained if the hospital did merge with another organisation, the move would be subject to a public consultation.

Warnings that the NOC, based in Windmill Road, Headington, could be at risk were revealed in 2006.

NHS managers said its work was unsustainable because it was only allowed to charge the same regulated national tariff prices as other hospitals - despite doing high-cost specialist treatment.

At yesterday's meeting, Miss Young said: "It is fair to say that it is not looking encouraging at the moment that there will be any movement in the specialist services tariff. It is also fair to say that the expectation of the Department of Health is that this problem will be tackled locally, not by resolving the tariff but by moving the specialist services at the NOC on to a broader base."

Miss Young is working with NOC chief executive Jan Fowler to find a way to solve the situation without impacting on patient care.

Mrs Fowler said managers were tackling some of the financial issues by successfully making £5.4m savings over two years.

She said: "Clearly the tariff issue has to be resolved in some way to ensure services are not at risk in the long term, but managing the trust with another organisation doesn't address the problem directly.

"Thames Valley Strategic Health Authority asked us to consider what the alternative options are, including some form of partnership, either with another NHS trust or a private health organisation.

"No specific organisations have been identified."