Watchdog in a move to bring down the costs of private health insurance

Competition Commission orders the sale of nine private hospitals, including London Bridge and the West End’s Princess Grace

Private healthcare insurance, like gas and electricity, only ever seems to go up in price in huge increments. And, like the big energy companies, those who charge the final bill – the likes of Bupa – make great play of blaming their suppliers when the customers complain.

So it was that the medical insurance industry called in the Competition Commission to investigate why it was that the relatively small number of major private hospital operators were charging increasingly high fees for treatment.

They claimed monopolistic behaviour was to blame and was driving up claims costs and, ultimately, premiums for policyholders. The Competition Commission yesterday agreed, estimating the lack of competition was leading to overcharging and excess profits of £173m to £193m a year by the three biggest players in 2009 to 2011.

It ordered two of the big three to sell a total of nine clinics where no nearby competitors were operating. HCA has to sell two in central London, and BMI seven in the capital's outskirts, the Home Counties and the North-West of England. Spire, which had initially been told to expect to make some disposals as well, got the all-clear.

Commission chairman Roger Witcomb said: "Requiring operators to sell hospitals is a big step and we have focused on those areas where a sale will be effective in increasing competition – where a single operator owns a cluster of hospitals which face little rivalry."

So far, so simple. But the insurers pointed out a few more subtle practices they said were driving up prices: notably the way consultants and surgeons – those celebrity stars of the healthcare business – were induced to send their patients certain hospitals' way.

The techniques were subtle, but effective: hospitals might offer discounts for using their consulting rooms, the services of medical secretaries could be offered at knockdown prices. In some cases, most notably at the Circle group, they were offered shares in the hospital business, in others, cash incentives.

In some cases, there were even exclusivity agreements in place, leaving a smaller pool of specialists available for rival clinics, driving prices up even further.

The commission has not banned such inducements entirely, but will cap their monetary value at £500 a year and insist on full disclosure. The equity ownership idea survives, although exclusivity agreements have been banned.

Predictably, HCA and BMI were not best pleased. BMI chief executive Stephen Collier said the commission had failed to understand the market, describing its recommendations as "bizarre". He said the forced disposals would not lower costs as there was already adequate competition.

At HCA International, Mike Neeb, the chief executive and president, said: "The provisional recommendations are plainly wrong. The CC's own report acknowledges there are nearly 50 competitors in Greater London. Our ownership of these hospitals encourages competition and drives a higher standard of care among hospitals in the UK."

But, privately, other hospital operators accept the changes will lead to lower prices within a few years, or at least, slower inflation. Hospital groups have until 6 February to respond to the recommendations.

How the cookie crumbles for the Big Three

BMI

Turnover £821.5m

Debt £434m

£44m financing costs

Losses £69.6m

Boss's pay £434,000

HCA

Turnover £296m

Debt £196m (owed to parent company In US)

£13m finance charges

Pre-tax profit £60.4m

Boss's pay £1.9m

Spire

£739m turnover

£2.1bn debt

£190m finance charges (£81m to owner Cinven and management)

£188m loss before tax

Source: Annual UK accounts filed at companies house

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