A practice in Sunderland is to be swallowed up by its local foundation trust, after the Co-operation and Competition Panel (CCP) gave the go-ahead for a merger.
An integrated care organisation (ICO) pilot will see City Hospitals Sunderland acquire the Church View medical practice to create a 'vertically integrated' healthcare system.
Many analysts within primary care have warned that such a merger could allow the hospital to generate cash by referring to itself, and would place its GPs in an impossible position.
But the CCP has said that the proposed merger will not breach current competition rules.
In his statement, CCP director Andrew Taylor admitted there was a 'risk... that those GPs will have an incentive to refer patients to their employing hospital'.
But he said he had been reassured by the measures the trust had taken to prevent conflicts of interest, and by the large number of alternative practices nearby.
'The proposed merger will not impose any significant costs on patients or taxpayers by reducing the scope for patient choice or competition, and will allow the benefits that might be realised from an ICO to be explored,' he concluded.
Others are not convinced, however. GPC negotiator Dr Peter Holden compared the new body to US health management organisation Kaiser Permanente.
He dismissed the CCP's arguments that most of the practice's patients were already referred to City Hospitals, arguing that integration would reinforce existing referral patterns. 'Where does that leave patient choice?' he asked.
Any further mergers will also have to pass CCP scrutiny before they can go ahead.
But this ruling makes clear that the fact GPs are referring to their employer is not, in itself, seen as a reason to block a takeover.
GPC chairman Dr Laurence Buckman said it was a 'sad day, but one we've expected for some time'. Conflicts of interest were a 'huge concern', he said. 'The GPs will either be compromised, or they'll refuse to do it. It puts them in a very uncomfortable position.'
The NHS Alliance has long warned that there is a risk of foundation trusts achieving 'market capture'.
Mike Sobanja, the body's chief executive, also questioned whether merging the organisations would be enough to create integrated care, citing the difficulties experienced by integrated organisations in Northern Ireland.
Comment below and tell us what you think