The Cooperation and Competition Panel has ruled outright against a merger between two trusts for the first time.

Norfolk and Waveney Mental Health Foundation Trust had wanted to merge with Suffolk Mental Health Partnership Trust.

The move would also have allowed Suffolk to achieve foundation status as part of the merged organisation.

But the panel said the merger would result in the removal of “close competition” for contracts from three primary care trusts, due to the lack of other credible competitors within the area.

Any benefits accruing from the merger were too small to outweigh the adverse effect from the reduced competition, the panel said.

The Cooperation and Competition panel had suggested Norfolk and Waveney might divest its contract with NHS Great Yarmouth and Waveney as a way round its concerns.

But the foundation trust was “unwilling to contemplate this”, viewing the contract as an “integral part of the business”.

Norfolk and Waveney Mental Health Foundation Trust chief executive Aidan Thomas said: “We believe the merger remains the best way of delivering [quality of care and value for money for patients] and will be discussing this in detail with Monitor as they consider the case.”

NHS East of England director of provider development Stephen Dunn said: “We were surprised and disappointed by the decision. We believe the merger is the best way forward to ensure safe services continue to be provided in Suffolk.”

The panel has also announced it will investigate a case brought by a private hospital group against two primary care trusts for discriminatory contracting.

The panel said there were “reasonable grounds for suspecting the conduct” of NHS Wiltshire’s commissioning on behalf of itself and NHS Bath and North East Somerset.

The complaint was brought by Circle, the preferred bidder to run Hinchingbrooke Health Care Trust in Cambridgeshire.

Circle complained the commissioners insisted on an “all or none” activity plan for four services, capped the annual contract value and required providers to offer services at less than tariff.

The deadline for completing the investigation is 30 June.

HSJ has seen a list of eight PCTs believed by private sector firms to be in breach of competition principles in other regions including London, Yorkshire and the Humber and the West Midlands.

Issues include refusing to contract with independent sector providers and seeking to cap volumes.

The ulimate decision on whether the two cases can move forward will be decided by Monitor.