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Business Comment

Jim Armitage: It's high time a scalpel was taken to the private healthcare market

Outlook Well, we didn't expect that diagnosis. Back in January, in its last pronouncement on the condition of the private healthcare market, the Competition Commission declared that there were too few rival hospital operators. The public was getting royally ripped off. It prescribed BMI, one of the oligopolists, to flog off some to increase rivalry and keep down prices. And it told American-run HCA to do the same in London.

Both companies squealed, as you'd expect, claiming there was no evidence they were overly dominant. The commission is anaesthetised to such howling, of course. Its job is to upset unruly big business.

But here's the funny thing: in yesterday's final judgement, the watchdog, now called the Competition and Markets Authority (CMA) changed its mind.

Not where HCA was concerned – it now has to either sell its prestigious Wellington hospital, with its views over Lord's cricket ground, or both its London Bridge and Princess Grace centres.

But on BMI, which had previously been told to ditch seven hospitals, at some stage between the preliminary recommendations in January and yesterday's final report two out of the five adjudicators changed their minds. They could "no longer be confident" that the concentration of hospitals outside the capital was leading to higher prices for care. Re-sheath this scalpel, nurse. Only a clear 4-5 majority can carry out such a radical action.

As far as major competition inquiries go, a split vote like this is extremely rare. For a decision to change so dramatically in the last three months of a two-year inquiry is unheard of.

Furthermore, one of the judges who changed his mind was Roger Witcomb, the chairman of the commission.

Now you could argue, as HCA probably will, that the U-turn shows that the commission, from the top down, hadn't got a clue how to analyse the data outside the capital. Surely this means, HCA will say in its appeal, that its judgement on London should be ignored too?

We should not be swayed by HCA's lobbying. The competition situation in the few square miles of central London is far clearer than across the UK as a whole. HCA owns more than half the available overnight beds and charges significantly more for them to insured customers than its closest rivals, the commission found. That is an abusive position that costs many people too much – either on their insurance premiums or their direct bills. And, just because they're in central London, doesn't mean they're solely, to quote Tom Lehrer, specialists in diseases of the rich. Millions of ordinary workers in the capital on work healthcare schemes use them too.

Outside London, the picture is far more complicated – markets are wider, more fragmented. There are local areas with little or no competition, but proving a direct correlation with charges – which is what the commission had to do – was statistically difficult. Mr Witcomb and friends were drawing conclusions from 1.5 million hospital invoices for more than 1,500 types of treatment across the country.

Clearly, the Commission should have figured out that the evidence was too flaky a long time ago. It looks foolish to change its mind so spectacularly. There will be some who say Mr Witcomb's regime at the old organisation ended in embarrassment.

But Mr Witcomb and Co are economists – statisticians, not politicians. They should not live in constant terror of being accused of mental or moral weakness for changing their minds. Surely the commission should be applauded for its meaningful recent review of the evidence.

When such grave remedies as corporate amputations were in the offing, it was right to heed its doubts, however late in the day.