A foundation trust did not breach competition principles in selecting a public/private partnership for its pathology services, the NHS market regulator has found.

The Cooperation and Competition Panel last week cleared King’s College Hospital Foundation Trust of accusations that its procurement process was unfair.

According to the panel, the procurement process had not discriminated against firm TDL Pathology in favour of GSTS Pathology Services, a joint venture between Serco and Guy’s and St Thomas’ Foundation Trust.

TDL had complained that the £300m deal had altered “materially” from the one first advertised after increasing in value and changing from a transfer of undertakings (protection of employment) model to a “retention of employment” deal.

After selecting GSTS as preferred bidder in October 2009, King’s wrote to the Department of Health saying a TUPE transfer would cost an extra £5m a year, as it would force GSTS to pay for the equivalent of an NHS pension.

On 7 April 2010 King’s College Hospital Foundation Trust was informed that health secretary Andrew Lansley had approved the retention of employment model for the joint venture – against the then DH policy.

TDL chief executive David Byrne said: “We are disappointed with the panel’s decision and we are now considering appropriate next steps”.

The company would not confirm whether it had ruled out legal action.

A senior figure in the sector said a retention of employment model in a joint venture could see the taxpayer subsidising the pension costs of an independent sector organisation. He added that such ventures could also amount to “state aid” and be considered anti-competitive towards non-NHS institutions.

Lord Carter’s 2008 review of NHS pathology services was the trigger for consolidation of providers.

It concluded that £250m-£500m could be saved annually in England.

The pathology market is an emerging one with a varied picture across the regions.

In the East Midlands, Nottingham University Hospitals Trust and University Hospitals of Leicester Trust are working towards a shared pathology service with a turnover of £60m.

Similar ventures are under way in the West Midlands, with Royal Wolverhampton Hospitals Trust signing off a business plan to centralise pathology services with Shrewsbury and Telford Hospital Trust.

In the South East Coast region, Royal Surrey, Frimley Park and Ashford and St Peter’s trusts are considering an NHS-only option.

Yeovil District Hospital, Taunton, and Somerset trusts are looking at developing an integrated pathology service with the private sector.