Australia’s private hospitals allege major insurers use unfair contract practices that hurt patient care and threaten hospital viability; insurers deny wrongdoing. Government is considering regulatory action as tensions disrupt private healthcare sector.
Australia’s private hospital sector is embroiled in a deepening conflict with health insurers, with the Australian Private Hospitals Association accusing major insurers of “unfair and unconscionable” practices that compromise patient care and threaten the viability of private healthcare. Brett Heffernan, the association’s chief executive, has written to Prime Minister Anthony Albanese outlining allegations that insurance companies are abusing their market dominance for profit, forcing hospitals into unfavourable contracts, and negatively affecting both patient choice and care quality. Heffernan claims many private hospitals are near collapse, pointing to the shutdown of provider Healthscope and the closure of more than 70 smaller private hospital operations since 2020, all due to financial distress allegedly caused by insurer behavior.
The association’s grievances center on the insurers’ contracting practices, including delays in negotiating new hospital contracts which leave facilities operating on outdated, lower prices. According to Heffernan, insurers often present “take it or leave it” contract terms, erasing hospitals’ ability to negotiate and contributing to declining service standards for insured Australians, who now receive less choice, reduced access and compromised care despite maintaining their insurance. Rachel David, CEO of the peak body for private health insurers, has firmly denied these allegations, arguing that tough negotiations are essential to control rising premium costs, although she conceded that the contracting process needs review.
A particularly contentious issue is the system of bundled payments, which group payments for various care elements—including rehabilitation—into one sum. The hospital association contends this results in limits on rehab benefits for patients, with hospitals pressured to discharge patients before necessary rehabilitation is completed, contradicting doctors’ recommendations. Some clinicians, like orthopaedic surgeon Roger Brighton, say this undermines clinical judgment and patient outcomes. Heffernan warned that this approach resembles US-style “managed care,” where insurance companies predetermine the extent of treatment. David responded that bundled payments aim to ensure continuity of care and improved outcomes, but acknowledged unresolved challenges that the Private Health CEO Forum—a government-convened panel of industry experts—is attempting to address.
The toxic relationship between insurers and private hospitals creates uncertainty for patients, with both sides accusing one another of non-transparency and self-serving conduct. The federal government last year intervened by requesting hospitals to disclose their financials, a response to the sector’s growing instability. Experts like Peter Breadon from the Grattan Institute say the conflict has become dysfunctional, with deteriorating trust and ongoing disputes risking patients’ ability to access care. Breadon suggested that adopting an activity-based funding model, similar to public hospitals, could help address funding fairness. Heffernan advocates for a mandatory, enforceable Code of Conduct—backed by regulatory oversight and penalties—while David maintains that current regulations are already stringent, and additional rules are unnecessary. The federal government prefers the sector to find collaborative solutions, but signals willingness to regulate if required, as the future of Australia’s private hospital system hangs in the balance.
