The incentives used by private healthcare providers to attract consultants to their hospitals may be driving up prices without increasing quality, the Office for Fair Trading has warned.

The watchdog is also worried that the sweeteners – ranging from free secretarial support to direct payments for loyalty – may be distorting “referral patterns” in private healthcare, and incentivising consultants to “direct a significant portion of their patients to one facility”.

And it has expressed concerns that some private providers may be using local monopolies to distort or restrict competition for private healthcare markets.

In a statement outlining the progress to date of its study of the private healthcare market, the OFT said there was an apparent dearth of easily comparable information about the price and quality of different providers and consultants.

This may mean neither providers nor consultants are competing effectively on price or quality, and instead competition between providers is mainly based on using financial incentives to attract consultants to their facilities, it warned.

It went on to suggest that “in the absence of transparent and comparable price and quality information on consultants to inform consumer choices, consultants’ incentives may increase the cost of private healthcare without driving improvements in quality”.

It added: “The OFT has concerns that the provision of certain incentives may foreclose competing providers from entering or expanding into the private healthcare market since these arrangements may distort the referral patterns, and in some cases incentivise consultants to direct a significant proportion of their patients to one facility.”

The evidence the OFT has seen to date suggests providers use a “spectrum of incentives” to attract consultants to their hospitals, ranging from “non-financial Incentives”, such as free secretarial or billing support, to direct payments for loyalty, or revenue and equity shares.

It has also seen evidence to suggest that economies of scale and scope have created local monopolies for providers in areas which can only sustain one private hospital.

It is concerned “that providers can use areas where they have local market power to distort or restrict competition in the provision of private healthcare”.

The regulator said it was still analysing whether these issues “raise concerns” and, if so, what action it might take. It plans to publish its market study report before the end of 2011.

Possible outcomes to a market study range from OFT enforcement action, referral to the Competition Commission, or recommendations for legal change, to a clean bill of health for the industry.

Foundation Trust Network director Sue Slipman said: “This report demonstrates what the FTN has been saying for a long time: competition has an important role to play. A genuine market in healthcare can drive up the quality of care and improve patient experience. However it needs to be effectively regulated to ensure that the playing field is as level as possible for all providers, and in particular to ensure that local monopolies cannot be allowed.”