Atos Origin has suffered a blow to its new Healthcare division – set up to boost business by bringing IT and clinical services together – with the cancellation of two major contracts by the Department of Health.

The DoH has axed Atos Healthcare’s five-year contracts to provide diagnostic services to patients in the South West and North West of England.

Atos Healthcare was launched last month, despite analyst warnings that that the IT services firm might have overstretched itself with its ventures into healthcare service provision.

The warnings were sparked by the suspension of the £257m diagnostic scanning services contract in the North West region in April, after 900 patients had to be recalled because of problems with scans in a preliminary “early service” deal.

Ovum analyst Samad Masood said there had been “many raised eyebrows” among analysts, vendors and client organisations when Atos began targeting outsourced healthcare services a couple of years ago.

“For us, the main concern was that by providing healthcare services, which are more focused on provision of healthcare resources than IT, Atos Origin is risking stretching itself too far out of its core IT services business,” Masood said.

The DoH has now decided that neither the North West contract nor a similar deal in the South West will proceed.

“The decision was taken after it became clear that Atos Healthcare was not in a position to meet the contractual conditions and establish services to the timescales agreed,” the DoH said.

Atos Origin said it was in discussions with the DoH “to agree the final termination details of the contract”.

Loss of the two deals comes a fortnight after Atos announced that a new partner, Sunil Patel, would join its healthcare team from IT services rival Accenture to develop its business opportunities with the DoH, the NHS and other healthcare organisations.

Atos remains a key NHS IT contractor, providing the Choose and Book outpatient appointment system that is part of the £12.4bn National Programme for IT (NPfIT) run by NHS Connecting for Health.

It is seeking to boost its UK business after €378m (£255m) impairment charges on its UK and Italian operations contributed to full-year losses of €264m (£178m) in February.

In May, Atos Origin’s board rejected moves to buy the company.