The Government is to introduce rules to prevent the private sector overcharging for the growing number of operations it does for the National Health Service.

Alan Milburn, the Health Secretary, is worried that the commercial health firms are a "virtual monopoly" and that their charges are too high because they are mainly covered by insurance premiums. He has told his officials to draw up a detailed list of what different operations cost on the NHS and in the private sector.

The "national framework for hospital pricing" will be sent to NHS managers and doctors, who will be told that patients should be treated privately only if it provides good value for money. The aim is to ensure the NHS can negotiate with the private sector "on a level playing field" instead of being offered a "take-it-or-leave it" price for treating NHS patients.

Mr Milburn will also keep the pressure on the commercial firms by comparing charges in Britain with the cost of sending NHS patients abroad for treatment, another part of the Government's initiative. He hopes this will inject more competition into the private sector and force firms to keep down the fees they charge in Britain. A government source said: "If it is cheaper to have a hip operation done in France than at a private hospital in Britain, we will want to know why."

Mr Milburn said: "There is no blank cheque. We want to get high standards of treatment for patients and value for money for the taxpayer. If the private sector does not compete, it will not get business from the NHS."

His tougher approach to the private sector may be seen as a concession to critics of the Government's controversial scheme to use spare capacity in independent hospitals to relieve pressure on the NHS.

The GMB general union, which has led the campaign against the Government's drive, claims that Bupa's standard prices are at least 50 per cent higher than the average "reference costs" for NHS treatment.

Mr Milburn accepts that the existing system of "reference costs" is too vague and that much better data is needed.

Some health experts have accused the Government of rushing ahead with its public-private partnership plan without guaranteeing value for money. They say it might have been cheaper to boost NHS capacity, for example, by bringing back into use mothballed wards and operating theatres.

Another sign of Mr Milburn's desire to see the private sector improve its performance came when he denied Bupa a place on the NHS Modernisation Board, which oversees the Government's health reforms.

Instead, the independent sector is represented by Stephen Thornton, chief executive of PPP and former head of the NHS Confederation.

This week, Mr Milburn is expected to extend his "patients' choice" scheme to allow people to be treated at an NHS hospital outside their area, at a fee-paying hospital or abroad if they have been waiting for NHS treatment for six months. This will apply to patients waiting for heart surgery from July.