The £5 billion private healthcare sector is set for a full competition inquiry amid fears new companies are struggling to enter the market, it has been confirmed.
The Office of Fair Trading (OFT) referred the industry for an "in-depth investigation" by the Competition Commission after it found the sector "could work better for patients".
It said some parts of the country have only one private hospital and there are "significant barriers" to new companies entering the market, which is currently dominated by five players.
The move follows a provisional decision to refer the industry in December and was welcomed by Bupa's insurance arm which has long called for an inquiry as it said the cost of private healthcare was becoming "unsustainable".
The Commission has wide-ranging powers and could potentially order the industry's biggest players to sell some of their hospitals to encourage more competition.
OFT chief executive John Fingleton said: "Private patients and their GPs face difficulties selecting private healthcare providers on the basis of quality or value for money, and this may ultimately result in patients paying higher prices, or receiving lower quality care."
The OFT's report found that General Healthcare Group, Nuffield Health Hospitals, Ramsay Health Care UK, Spire Healthcare and HCA account for three-quarters of the market.
In some parts of the country, such as Edinburgh, Exeter and Hull, there is only one private hospital or healthcare facility, which poses a problem for patients, who often like to be treated locally. And where there is a choice available, it can be difficult to accurately compare prices and the quality of different private health providers, it added.
Dr Natalie-Jane Macdonald, managing director of Bupa Health and Wellbeing, said: "For too long, the cost of private healthcare has been rising to unsustainable levels, in large part because of a lack of competition and efficiency in the private hospital market and among consultants in private practice.
"The millions of people with health insurance in the UK rightly expect it to provide them with high quality healthcare for an affordable price."