Medibank accused of squeeze on hospitals

Australia's biggest health insurer, Medibank Private, has been accused of squeezing hospitals to shore up its balance sheet before an expected sharemarket listing under a Coalition government.

Health industry sources say the government-owned insurer, which has 3.7 million members and is estimated to account for a third of private hospital patients in Sydney and Melbourne, is "fattening up for a float".

Several private health insurers have almost simultaneously contacted health departments around the country demanding sharp decreases in the amount they pay public hospitals for treating patients with insurance.

Medibank, NIB, Bupa and AHM all demanded the cost of a private room be reduced from about $578 a day to $378 - far short of the $1000 a day the companies pay private hospitals.

Private hospitals have also privately complained of difficult negotiations with Medibank.

But Dan O'Brien, general manager corporate affairs at Medibank, said its talks with hospitals "had nothing to do with a float" and were no more aggressive than usual.

"We're looking closely at provider relationships and provider contracts. We recognise the value of having good relationships, but we always need to make sure we give value for members," he said.

Agreements between hospitals and insurers about how much a hospital is paid for procedures and accommodation can cover one year or several. When an agreement cannot be reached, members of that fund are forced to pay higher out-of-pocket fees - that is, pay the difference between the default and contracted price, which could reach hundreds or thousands of dollars.

Large private hospital operators such as Ramsay Health Care and Healthscope have national deals with insurers. Catholic hospitals have a buying group. Many hospitals negotiate on their own.

Private hospitals would normally expect to get about a 3 per cent annual increase from insurers, to account for salary increases, new technology and the cost of looking after the aged.

Private health insurers increased premiums by an average 5.6 per cent this year, Medibank by 6.2 per cent. The insurer recently said it was conducting a two-year cost-cutting program to cope with increased member churn and members downgrading or dropping their coverage in response to the government's moves to trim the cost of private health insurance subsidies.

Catholic Health Australia chief executive Martin Laverty said if insurers refused to pay the fair cost of treatment they would end up threatening their own business model. "Consumers will choose to take their business elsewhere," he said.