The Office of Fair Trading (OFT) has referred the market for privately-funded healthcare services to the Competition Commission for investigation.

The move follows an earlier investigation by the OFT and a public consultation which revealed a number of features of the private healthcare market that, "individually or in combination, prevent, restrict or distort competition," says the Office.

The UK market for acute private healthcare was worth around £5 billion in 2010. Private hospitals and clinics accounted for the largest part of this figure, generating some £2.89 billion in revenue during that year. About 78% of acute private healthcare purchases are made through patients' private medical insurance policies and, on average, 15.8% of people in the UK are covered by such policies, says the Office.

It also expects the private healthcare market to become an area of growing importance to the UK economy, given particularly that demand for healthcare services is forecast to grow in line with an expanding and ageing population. The sector may also become increasingly important to the delivery of NHS services, following the passage of the Health and Social Care Act, enabling providers of private healthcare to play a larger role in delivering NHS treatment, it notes.

While the private healthcare market "clearly provides a valuable service which benefits patients," the OFT says it has concerns about the following features of the sector:

- information asymmetries: the shortage of accessible, standardised and comparable information appears to weaken the ability of patients and GPs to drive efficiencies and stimulate enhanced competition between rival private healthcare facilities and between consultants, and may give rise to a dampening of competition in the market overall;

- concentration: the private healthcare provider market appears to be concentrated at the national level, while at local level there seem to be areas of high concentration. Private medical insurance providers appear to be dependent on providers which own "solus" private healthcare facilities in order to provide local access for their policyholders, and, while the size of the larger insurers seems to result in a degree of buyer power, their ability to exercise this may be limited;

Also, 44% of anaesthetists are part of an Anaesthetist Group, and the prevalence of such groups may reduce price competition in local markets; and

- barriers to entry: the OFT considers that a number of features of the private healthcare market combine to create significant barriers to entry. For example, some larger providers can impose price rises or set other conditions should an insurance provider recognise a new entrant on its network. There also appear to be direct and indirect incentives given by private healthcare providers to consultants, which could raise those barriers further, it says.

"We consider that these features of the [private healthcare] market impair the ability of patients, GPs and private medical insurance providers to choose between competing service providers, including new entrants, on the basis of superior quality of services to patients and better value for money," says the OFT. Therefore, the threshold test for making a market investigation reference to the Competition Commission has been met.