The Western-backed PA, which exercises limited self-rule in parts of the West Bank, has built up debts of $18 million to the specialized healthcare centers this year.
Economic anxiety is rising following US sanctions and a shortfall of aid from rich Gulf states last year. The World Bank forecasts a $1.5 billion deficit in the 2012 PA budget.
Washington withheld $192 million after Palestinian President Mahmoud Abbas said he would press on with a drive for observer status at the United Nations, defying U.S. policy which insists only a peace treaty with Israel can lead to a Palestinian state.
In September, public sector salary delays and fuel price hikes provoked violent street demonstrations in the West Bank.
"The moment the PA faces any financial difficulty, it stops paying. But the hospital must still take in patients," Tawfiq Nasser, head of the Augusta Victoria Hospital, told Reuters.
"We can no longer offer the same services and that is putting patients at risk, endangering their lives."
The east Jerusalem hospitals signed agreements with the PA in 1997 to admit patients from the West Bank and Gaza according to specialist referral. Costs were to be paid every month.
Ten months ago, the money stopped but patients kept coming.
Can't pay for medication
The World Health Organization says about 22,000 patients from the West Bank and Gaza were referred to east Jerusalem hospitals in 2011 - more than half of their total intake.
The hospitals say they have gone on supplying chemotherapy, neurosurgery and dialysis, amassing large debts of their own to drug suppliers, and are struggling to pay staff salaries.
Nasser says the PA owes his hospital alone over $11 million, as it offers costly treatments not easily available in government-run hospitals in the West Bank and Gaza Strip.
The ministry of health says it is struggling to secure at least some of the money owed to the hospitals.
"Referrals to east Jerusalem are increasing and we rely almost exclusively on these facilities for the rare specializations they offer," Health Minister Hani Abdeen told Reuters from his office in the West Bank city of Ramallah.
Palestinians want their own state in the West Bank and Gaza, with east Jerusalem as its capital.
Israel prohibits Palestinians from the West Bank and Gaza from freely entering Jerusalem. It issues permits to people with hospital referrals needing medical treatment, some of whom are treated in Israeli hospitals.
The roughly 300,000 Palestinians living in east Jerusalem are mostly covered by the Israeli healthcare system and do not receive treatment in any of the six cash-strapped hospitals.
The Augusta Victoria Hospital says about 84% of its income comes from the PA. It owes $5 million to private suppliers and will soon be unable to pay salaries.
"We can't blame drug suppliers if next month they say: Sorry, we can no longer supply drugs without payment," Nasser said.