Yankees manager Joe Girardi said that right-hander Bartolo Colon will take Hughes' rotation slot, but they have not yet determined when Colon's first start will come.
New York has also called up right-hander Lance Pendleton from Triple-A Scranton/Wilkes-Barre to take Hughes' place on the roster.
After Hughes allowed five runs in 4 1/3 innings to the Orioles on Thursday, the Yankees discussed demoting him to Triple-A, but Hughes told Girardi and general manager Brian Cashman that he felt continuing to start every fifth day wouldn't help his progress.
"We decided it was in his best interest to get him on a long-toss program and see if we can get rid of that fatigue and the dead arm and get him back to where he belongs," Girardi said.
Hughes, 24, has been mystified by the lack of velocity that he has shown so far. He said that he does not feel any pain and sees no need for an MRI exam, but Hughes also knows the ball is not coming out of his hand like it should.
Hughes' fastball averaged 89 mph against the Orioles on Thursday, a few clicks below the 92-94 mph he was showing last year as he won a career-high 18 games for New York.
The Yankees have suggested some tweaks for Hughes, including using his lower half more to generate power. While he touched 92 mph in the first inning against Baltimore, he wasn't able to sustain that velocity.
New York's No. 3 starter opening the season, Hughes has allowed 19 hits and 16 earned runs, surrendering at least five runs in all three of his starts. He has yet to complete the fifth inning in any outing.
"I want to go out there and compete, but when I'm going out there with subpar stuff, it's frustrating," Hughes said. "It'll be good to get this handled, taken care of and go back out there and help the team like I know I'm capable of doing. It's just tough right now, going out there without the ability and the stuff I know I have."
As the Yankees search for explanations, one suggestion is that Hughes' heavier workload last year may have some carry-over effect. He threw 176 1/3 innings last season, jumping from 105 combined Major League and Minor League innings in 2009.
"Could it have something to do with the amount of innings he threw last year? Absolutely," Girardi said. "And maybe that's what we're dealing with. I don't think any of us have the exact answer."
In 2008, -- another season in which he battled a velocity drop -- Hughes hurled only 69 2/3 innings. The Yankees believe he may have overcompensated by trying to throw harder, which could have led to the cracked rib he suffered.
"I don't have the answer, and that's disappointing," Hughes said. "I came here [this spring], I did the same program. I can't really point to one thing. I wish I knew. I just have to concentrate on getting it better and not necessarily worry about what it was that's causing it."