MPs have slammed a £12 million “backroom deal” with private company Dr Foster to set up a joint venture firm analysing NHS data and providing operational intelligence to healthcare organisations.

The joint venture – Dr Foster Intelligence – was set up by the Department of Health’s Information Centre and Dr Foster, a private firm that specialises in providing hospital league tables and other material based on NHS data.

The DoH had created the Information Centre from its own statistics unit and the NHS information Authority in April 2005, in a bid to improve the data collection, analysis and use across the NHS and social care services.

It felt the Information Centre lacked skills and expertise – a situation it sought to rectify through a partnership with Dr Foster LLP, the holding company behind the data mining firm.

But the Commons public accounts committee savaged the deal, which was made without any advertising or competitive tendering process.

The MPs also attacked the price paid by the DoH for a half share in the joint venture. Dr Foster’s operation had been valued at between £10m and £15m. But in February 2006, the Information Centre paid £12m for a 50% share of the joint venture company, Dr Foster Intelligence.

In a report on its inquiry into the joint venture, the committee said: “This was 33% to 53% higher than its financial advisers’ indicative valuation of a half share, and included an acknowledged strategic premium of between £2.5m and £4m.”

Committee chair Edward Leigh MP said: “By pursuing its back room deal with Dr Foster LLP, the Department of Health failed in its duty to be open to Parliament and the taxpayer. There was no fair and competitive tendering competition, as laid down in public sector procurement guidelines.”

Treasury guidance on joint ventures between public and private sectors was ignored – instead the deal was “handed to Dr Foster on a plate”, he said.

Of the £12m paid by the DoH, £7.6m “went straight into the pockets of Dr Foster’s shareholders”, Leigh added.

“The seeming degree of favouritism in the choice of company and the haste with which the deal was concluded show a disregard for the rules governing the use of public money.”

The committee’s report also reveals that the cost of professional advice on the joint venture increased from an initial estimate and contract for £284,000 to between £1.75m and £2.5m on the £12m investment.

It notes the National Audit Office’s finding that alternatives to the joint venture - including investing to develop skills and expertise in-house or entering into contracts with private sector firms – had not been considered in any detail and were quickly dismissed.

The report adds: “It is unclear what benefits the Information Centre will receive from the joint venture.” It points out that the Information Centre did not specify what services it should receive and no baseline valuation or key performance indicators were set out to measure the benefits of the deal.

The total cost of the joint venture to the Information Centre, including advisors’ fees, was between £13.7m and £16.3m, the report says.