Bupa's purchase of the Community Hospital Group could be scuppered under the Fair Trading Act after Stephen Byers, the Trade Secretary, referred the deal to the Competition Commission this week.
Both the British Medical Association and the Consumers Association protested about the deal, which they claim would give Bupa a dominant position in the private hospital market and health insurance market.
But Byer's intervention was expected by other health insurers after the Office of Fair Trading warned last year that further acquisitions by either Bupa, the UK's largest health insurer, or its nearest rival PPP would be examined closely.
Bupa, which currently owns 37 hospitals itself, made a £230m offer for the 21-strong Community Hospital Group in April.
Analysts say the CHG acquisition will give Bupa 26% of the private hospital market, which oversteps the 25% mark that triggers the 1973 Fair Trading Act.
But the deal will also effect the pmi market where Bupa has a 40% market share and PPP, owned by Axa, has 31%.
Byers said: "I have carefully considered the Director General of Fair Trading's advice and agree with him that the proposed acquisition of the CHG by Bupa raises competition concern, in respect of both private medical insurance and private medical services markets in the UK."
The commission will report back by October 11 on whether it thinks Bupa should be allowed to go ahead with the deal.
