Health bosses have withheld more than £300,000 in payments in 18 months because Leicester Royal Infirmary is not treating accident and emergency patients quickly enough.
The hospital has been penalised for failing to treat 95 per cent of patients within the Government's four-hour target.
It comes as latest figures show the hospital is seeing an increase in patients at A&E.
Figures from NHS England show that, in the week ending November 16, nearly 4,200 patients were seen there and in the urgent care centre.
But figures for the past week show this has gone up to 4,257.
There has also been a steep increase in the number of emergency admissions.
Nearly 1,400 more patients were admitted in two-and-a-half months from September than at the same time last year.
Just over 90 per cent of patients attending both A&E and the urgent care centre were seen within four hours during October – missing the Government's target of 95 per cent.
This is down from nearly 92 per cent recorded for the same month last year.
Leicester's City Clinical Commissioning Group, which has responsibility for health services in the city, withheld payments of £167,536 from the hospital since the start of this financial year.
In 2013/14, it withheld £143,961.
In a report to directors Richard Mitchell, chief operating officer for Leicester's hospitals, said: "Current performance is the result of a perfect storm.
"More medical emergency patients have been admitted in the past three months compared to the same time last year."
The number has increased from 192 a day to 212 a day.
Mr Mitchell said: "Over the same period, community bed capacity has reduced from 568 down to 500 beds and the number of delayed transfers of care (patients ready to leave hospital but without a suitable place to go) have increased.
"This has 'squeezed Leicester's hospitals."
A new ward with 16 beds housed in a portable building is now in operation and work is being done to improve efficiency.
Mr Mitchell said: "It is apparent that despite many efforts and much money being spent outside Leicester's hospitals, emergency admissions are not reducing and there are many patients staying longer than necessary."
He said work is being done at Leicester's hospitals to speed up discharges.
However, he added: "These actions have been too small to counteract external factors, in particular the increase in admissions.
"We need to ensure internal processes are as good as they can be.
"Progress has been made but greater improvement is required.
"However, the ability to deliver the required level of change while working in such challenged situations is limited.
"To deliver internal sustainable change we need a reduction in emergency admissions and an improvement in the discharge rate."
