The trust that ran the scandal-hit Stafford Hospital should be dissolved, administrators have recommended.
The Mid Staffordshire NHS Trust went into administration on 16 April after a report concluded it was not "clinically or financially sustainable".
Critical care, maternity and paediatric services should also be cut, the proposals unveiled by Trust Special Administrators (TSA) say.
The trust's two hospitals would come under two other trusts.
Stafford Hospital will be part of the University Hospital of North Staffordshire in Stoke-on-Trent while Cannock Hospital will become part of the Royal Wolverhampton Trust.
The proposals include:
- Stafford Hospital losing its maternity unit but keeping its accident and emergency department, which will continue to open from 08:00 to 22:00, as it has since December 2011
- Downgrading Stafford's critical care unit and losing some emergency surgery
- No longer admitting seriously ill children to Stafford. They will instead go to Stoke-on-Trent
- Both Cannock and Stafford hospitals will gain some minor operations and more patients will be sent to those hospitals to recover from complicated surgery
- Introducing a "Frail Elderly Assessment service", which would mean different sources providing information on older people's needs when they are referred to hospital
The proposals will now go to a public consultation, which will end on 1 October.
They will then go to health regulator Monitor before being forwarded to the Health Secretary to make the final decision by the end of the year.
If approved, the proposals will be implemented by 2018.
The Mid Staffordshire NHS Trust provided healthcare for people in Stafford, Cannock, Rugeley and the surrounding areas, covering a total population of about 276,500 people.
In April up to 50,000 people took part in a march from Stafford's town centre to the hospital, protesting at plans to downgrade Stafford's services.
A similar number of people signed a petition, which was sent to ministers, calling for the hospital not to lose any of its services.
Support Stafford Hospital campaigners have also tied hundreds of blue ribbons to lamp-posts, bollards and trees in the town to highlight their campaign.
BBC health correspondent Dominic Hughes said there were cheers from the dozens of campaigners who had gathered outside the press conference when it was announced Stafford Hospital would be keeping its accident and emergency services.
Rowan Draper, from the Support Stafford Hospital campaign, said there had been some "obvious proposals" such as dissolving the trust, but it was "very disappointing" the maternity and paediatric units would be going.
He said: "After the Francis Inquiry and other reports I have read, at no stage were they to do with the issues.
"But now expectant mothers and babies are paying the price for bad management."
Stafford Hospital was the focus of a major public inquiry after it was found poor care may have led to a higher-than-expected number of deaths as a result of maltreatment and neglect.
The Francis Inquiry highlighted "appalling and unnecessary suffering of hundreds of people" under the trust's care, with some patients left lying in their own faeces for days, forced to drink water from vases and given the wrong medication.
Julie Bailey, who set up campaign group Cure The NHS after her mother Bella died at Stafford Hospital, said working closer with the University Hospitals of North Staffordshire would be a "good thing for Stafford Hospital and everyone who relies on it".
She added: "Evidence shows that specialist centres, such as the University Hospital of North Staffordshire, have the safest outcomes for patients."
The administrators said they did not believe other local hospitals would be able to cope with the extra pressure if Stafford's accident and emergency department was completely shut.
All existing services provided at Cannock Chase Hospital will continue with the aim of extending them where possible, the TSA said.
Administrator Alan Bloom said: "We are doing this because services will become unsafe if no changes are made.
"I think people's worst fears might have been three to six months ago that we wouldn't even have a hospital here today, let alone the level of acute services and A&E services we are going to have.
"It may be a little bit further to travel, it may be a little inconvenient but we are genuinely recommending this on clinical as well as financial grounds."
He said he accepted it had taken a long time to publish the proposals but he did not accept it had taken too long.
The administrators' report said the trust "cost far too much to run compared to the income it receives".
It said an overspend of £20m was predicted for 2013-14 and if "capital costs, for example, equipment is included, the funding needed will rise to £36m".
Stafford MP Jeremy Lefroy said it was "very good news" for Stafford residents that the hospital would retain its accident and emergency department.
But, he added: "Where we still have much work to do is over maternity and children's services.
"Stafford's maternity department is very good and needs to be retained. I will continue to fight for its retention."
Campaigners had also been fighting to stop Cannock Hospital from closing after the health trust went into administration.
Lynn Worthington, 57, a nursery nurse from Cheadle, Stoke-on-Trent said she was "stunned" by the decisions.
"To think there will not be any children born in Stafford is shocking.
"This will destroy a whole town."
Peter Baker, 66, a bank worker from Creswell, said: "It's the thin end of the wedge, it's not what the people want."
Cannock MP Aidan Burley said it was "good news" the hospital in his constituency had been saved.
The Conservative MP added: "It represents a victory for all of us who campaigned to keep it open and for it to be properly managed and more fully utilised."
Shadow health minister Lord Hunt said he believed more could have been done to save the trust.
He said: "I feel really sorry for the people of Stafford because they are going to lose some of their essential services like maternity and critical care.
"It does seem that some of the reasons are financial and I think the great pity is the government has spent £3bn in the last year on an unnecessary reorganisation."
A spokesman for the Department of Health said they encouraged patients, staff, residents and the general public to give their views about the proposals.
He added: "We will, of course, carefully consider the recommendations when we receive them."