Private companies should be allowed to bid to run up to 30 NHS hospitals – and begin by taking over those the Department of Health acknowledges are "clinically and financially unsustainable", a former health adviser to Tony Blair has said.

Paul Corrigan, an academic who was in Downing Street from 2005, argues in a paper for the pro-competition thinktank Reform that the government's "favoured policy" of merging failing hospitals has not worked – and that private companies and the best NHS hospitals should take over troubled hospitals "because that is the surest way to turn them around".

Under the coalition's policy, all hospitals must become foundation trusts – a process that requires meeting tough financial targets and reducing debts while maintaining levels of patient care. More than 110 organisations will need to achieve this status by April 2014.

Corrigan said that "about half of these, about 60 are not going to become foundation trusts on their own. Some of them can be taken over by other hospitals but why not include the private sector? The only reason not to include the private sector is ideological".

He said that the big political parties must "admit that there are a significant number of failing hospitals.

Politicians routinely make political capital by campaigning to save hospitals. Instead they should spend their time criticising the same hospitals for not providing much better services".

Corrigan said South London Healthcare NHS Trust, which runs three hospitals in the capital, was losing £1m a week before it was put into administration by the former Tory health secretary Andrew Lansley this summer. Thirty-nine organisations have now expressed interest in taking over all or part of the trust – including Serco and Virgin Care.

In his paper, Takeover: Tackling Failing NHS Hospitals, Corrigan writes that it would better to let private companies keep any savings they make as profits to incentivise the private sector.

He writes: "Over the last three years, the NHS has subsidised this failing trust to an amount of about £150m. If three years ago a sum of money of this order had been offered to a takeover partner then it is probable that a takeover organisation would have materialised. This may seem a great deal of money to take over a hospital, but in fact this money has been spent by the NHS over three years to subsidise failure. Why not use it to subsidise success?"

Leading figures in the NHS questioned the approach of turning to the private sector for help. Mike Farrar, NHS Confederation chief executive, said: "The reality is that many of these trusts face significant financial problems because of the way local services are designed, not simply because of poor management. To really tackle the problem we need a fundamental redesign of the way services are provided."

The intervention from Corrigan, who also advised the Blairite health secretaries Alan Milburn and John Reid, comes on the eve of the Labour party conference. It is unhelpful timing, as the shadow health secretary, Andy Burnham, has been a fierce critic of increasing private-sector involvement in opposition.

Corrigan pointed out that it was Labour that put out the tender out for Hinchingbrooke hospital – the first trust to be privatised. It was taken over by Circle Healthcare.

"In government, Andy ended up overseeing bids to run Hinchingbrooke hospital from six private firms and six public bodies. I think that when Labour come to power they will be faced with a very large problem [of hospitals failing] and no extra resources to deal with it. They will recognise they need all the help they can get," Corrigan said.

Labour said: "Suggesting that mass private-sector takeovers are the answer is wrong-headed – the government needs to get a grip NHS finances. The government's NHS budget cuts and costly re-organisation have plunged hospitals into financial chaos.

"Patient care should not suffer as the government inflicts this chaos on the health service and ministers should work with struggling trusts, not against them."

The Department of Health signalled it may be more receptive to a pro-market approach, saying "private-sector expertise" could be called upon to aid hospitals.

Lord Howe, a junior health minister, said: "We need to focus on the most important issue of all: patients getting the sustainable, high-quality services they need. There isn't a one-size-fits-all answer to this problem.

"Each NHS trust will need a tailored solution and different levels of support. In some cases that could involve private-sector expertise, but in others the NHS itself will be the best solution."