Orchard Foods, the cook- chill food production unit set up by the Anglia and Oxford Regional Health Authority (RHA), is to close at the end of June.
The plant, currently losing £30,000 a month, has been up for sale since May 1994, but the failure to find a buyer means closure and the loss of 60 jobs.
Paul Kemp, director of finance for the Anglia and Oxford RHA, said the health authority was unable to spend money that could be spent on patients to support a loss- making enterprise.
He added: "Reluctantly, very reluctantly after all the effort that has been put into the business, we have to close it."
The unit was built at a cost of £4m and opened at The Slade, Oxfordshire, in 1993. Annual turnover is £2m from around 2.2 million meals supplied mainly to hospitals in Oxfordshire, Berkshire and Buckinghamshire.
The development of the cook-chill unit goes back to the mid-1980s when the RHA, faced with many hospital kitchens which needed large sums of money spending on them, commissioned a study on cook-chill and as a result decided to encourage its use across the region.
But since that decision to develop cook-chill, there have been major changes in the market. Many of the large, long-stay hospitals which would have been cook-chill users have closed.
In addition, the length of time patients stay in hospital has shortened dramatically. And the National Health Service Trusts have used their new freedoms to buy in catering services from a variety of suppliers.
Orchard Foods said all its customers had been told of the planned closure and the RHA was offering support to maintain services to patients and achieve a smooth transfer to new suppliers.