Private hospitals face being sold and perks for doctors banned under plans to tackle weak competition which is pushing up prices for patients, a watchdog has ruled.
The Competition Commission uncovered 101 private hospitals across the country which face little competition, driving up insurance premiums for patients in the £5.5 billion private healthcare market.
The watchdog ruled almost 20 hospitals may have to be sold, and also signalled an end to doctors earning incentives for directing patients to particular private hospitals.
The three biggest private hospital groups, Spire, BMI and HCA, came under fire for reaping high profits in recent years. The Commission said their market dominance caused "consumer detriment" of £173 million to £193 million a year between 2009 and 2011.
Smaller private hospital groups and insurers such as Bupa and Axa welcomed the measures. Bupa Health Funding called it "good news for patients and private healthcare".
Circle, which has two private hospitals in Bath and Reading, said the ruling vindicated its concerns over the "monopolistic behaviour" of big private hospital providers, and called for heavy fines.
But larger hospital groups were defiant, insisting concerns over profits ignore massive investment in technology and patient care.
About 80% of private hospital patients are funded by insurance premiums, typically paid for by employers.
The regulator found new players rarely enter the private hospitals market due to high costs, the response from existing operators and flat demand.
That means a lack of competition in many local areas - forcing insurers to use the incumbent private hospital and driving up insurance premiums for all patients. Patients who fund their own care are also hit with higher charges in areas with little competition, it said.
Commission chairman Roger Witcomb said: "The lack of competition in the healthcare market at a local level means that most private patients are paying more than they should either for private medical insurance or for self-funded treatment.
"The lack of available and comparable information, often less than is available to NHS patients, also makes informed choices - which could help drive competition - for these patients difficult."
The Commission found HCA charges significantly higher prices to insurers than other operators, with BMI the next most expensive for insurers.
It also found private hospitals offer access to resources and perks such as cash to consultants to encourage them to use their facilities and refer patients. The watchdog said this could tempt doctors to run excessive tests or consultations.
Its shake-up will ban h ospital groups from offering these incentives to consultants.
Operators will also be prevented from using their dominance in a local area as leverage in negotiations with insurers.
Private hospitals could be barred from further tie-ups with NHS hospitals in areas where there is little competition, it said.
They will also have to give more information on quality, fees and services.
The watchdog did not pinpoint where hospitals will have to be sold, except in London where dominant player HCA - which has eight hospitals in the capital - faces weak competition.
The Commission released its provisional findings after starting its probe in April last year, when the Office of Fair Trading referred the sector for investigation.
Damien Marmion, managing director of Bupa Health Funding, said the measures " could be the treatment required to drive better value, better quality and greater transparency for customers".
He said: "By tackling the lack of competition that has damaged the sector for too long, the Commission has understood the need for strong action and has put patients first."
Private hospital group and charity Nuffield, which has 31 hospitals, said it should be a "wake-up call" for the sector.
Its chief executive David Mobbs said: "The over-riding need for some providers to make huge profits at the expense of UK patients is clearly evident throughout the report."
But Stephen Collier, chief executive of BMI Healthcare, insisted its profits are reinvested back into its hospitals.
"We reject absolutely any assertion that BMI Healthcare and its hospitals exercise market power or that we make excess profits at the expense of patients," he said.
"The vast majority of BMI's 69 facilities, in a UK market with over 500 rival facilities, face very significant local competition from other private hospitals and, increasingly, from the NHS."
HCA said it is "disappointed that quality of clinical care and investment in innovation seems to have been ignored by the Competition Commission".
Two larger insurers, Bupa and Axa PPP, achieve significantly lower prices than smaller insurers and have some buyer power, the Commission found, but added this is not enough to offset the market power of BMI, Spire and HCA.
It added that insurers, particularly Bupa, need to communicate better with patients about what their premiums entitle them to.
Rob Roger, chief executive of Spire Healthcare, said he "strongly disagreed" with the Commission on key findings about Spire's excessive profits, lack of competition and disproportionate bargaining power.
He said: "We believe these findings, and the remedies proposed, are based on an unrealistic assessment of the markets in which we operate and the level of investment necessary to operate a high-quality hospital."
He added Spire, which has 38 hospitals and 11 clinics, invested more than £55 million in new facilities, equipment and services last year.