The government has blocked Bupa’s proposed takeover of Community Hospitals Group (CHG).
The Secretary of State for Trade and Industry Stephen Byers has accepted the conclusion of the Competition Commission which said that the proposed merger would be against the public interest.
It said the deal would reduce competition and increase prices in both the private medical services (PMS) and private medical insurance (PMI) markets.
The Competition Commission said that if the merger went ahead, Bupa, which is the largest provider of PMI with a 40 per cent UK market share, would also become the largest provider of PMS.
The company currently operates 36 hospitals and its acquisition of CHG would have increased this to 58.
The Secretary of State has also prohibited a merger between Bupa, CHG and the investment company Salomon International and ordered the disposal of a 27 per cent stake in CHG bought by Salomon International on behalf of Bupa.
It claimed the shareholding would interfere with CHG’s ability to compete with Bupa.
Bupa chief executive Val Gooding condemned the Competition Commission’s decision to prevent the CHG deal.
She said: “This acquisition should not have been blocked. It would have been in the interest of the consumer who would have gained from our commitment to clinical quality and value.
“Our hospital and insurance businesses are run entirely separately and both are committed to holding down prices in the consumer interest.
“There is no evidence that the merger would have had the effect of raising prices.”
The government’s decision provoked a mixed reaction from rival PMI insurers.
Norwich Union Healthcare spokeswoman Louise Zucchi said: “We are very pleased with the outcome. It is good news for consumers that there will remain a level of competition.
“The PMI marketplace is quite difficult at the moment and it needs the competition to keep it alive for consumers and help to keep premiums down.”
But Standard Life Healthcare spokeswoman Mandy Blanks said: “We had no cause for concern and did not believe that an increase in size of Bupa Hospitals would have represented any threat to the consumer. We also feel that there is no evidence from our dealings with Bupa that they intend to integrate Bupa Hospitals and Bupa Insurance.”