The NHS reforms would have “blown up in people’s faces” without last week’s decision to refer the private healthcare market to the Competition Commission, the boss of Circle has told HSJ.

The Office of Fair Trading announced its provisional decision to make a referral last Thursday, after finding “a number of features” in the market that could distort or restrict competition.

The OFT will consult until 30 January 2012 on whether to make the referral.

The consumer watchdog reported a lack of easily comparable information for patients, GPs and insurance providers on the quality and costs of different private providers.

It was concerned about the limited number of players in the market, and the existence of some geographical areas where there was only one private provider.

The OFT also warned that “a number of features” of the market created “significant barriers to new competitors entering” it. This included the ability of larger providers to “impose price rises or set other conditions if an insurer proposes to recognise a new entrant on its network”.

The OFT’s decision was welcomed by Ali Parsa, chief executive of Circle, a relatively new entrant which is keen to increase both its private and NHS business.

Mr Parsa, whose firm made a formal complaint to the OFT in 2010 about the private healthcare market, said the development should make government plans to open up the NHS to increased competition a much “smoother process”.

“This would have blown up in people’s faces a year or two from now,” he said. “NHS hospitals would have started losing a lot of NHS patients [to private providers], and they would have said ‘let’s set up a private patient unit to capture some of the private patients’, and insurers would have said ‘sorry, we can’t organise [do business with] you’. This should avoid that now.”

While the private market for elective surgery was just £5bn, compared with £20bn in the NHS, profits on the private work were higher, at £1.6bn compared with £1bn for NHS funded work, he added.

Ed Smith, an OFT director who worked on the market study, told HSJ that the “underlying issue” it had found was the shortage of standardised comparable measures of performance for private hospitals.

The study found GPs usually referred private patients to a named consultant, rather than a private facility, prompting some facilities to offer consultants financial incentives for loyalty. The OFT felt in some cases this could present further barriers to new market entrants.

Mr Smith said if GPs and patients were able to make more informed choices, based on the performance of facilities and consultants, many of these “incentive schemes” would “fall away”.

Responding to the OFT study, health economist Alan Maynard asked why clinical commissioning groups could be expected to extract value for money from private providers if insurers had failed to do so.

If CCGs traded with private providers they should insist on performance information “joined to the same data in [the] NHS, so that overall performance of consultants in private and public sectors can be performance managed,” he added.

The OFT will consult on whether to make the referral until 30 January 2012.