Medibank accused of squeezing 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 contacted health departments around the country demanding sharp reductions in the amount they pay public hospitals for treating patients with insurance.

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

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

Medibank corporate affairs manager Dan O’Brien said the company’s 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.

Negotiations between hospitals and insurers about how much a hospital is paid for procedures and accommodation cover one year or several.

When an agreement cannot be reached, fund members pay higher out-of-pocket fees - that is, they pay the difference between the default and contracted price, which could amount to 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 be given an annual increase of about 3 per cent by insurers to account for salary rises, new technology and the cost of looking after the aged.

Private health insurers increased their premiums by an average of 5.6 per cent this year; Medibank by 6.2 per cent.

Recently Medibank said it was undertaking a cost-cutting program to cope with higher membership turnover, and members downgrading or dropping their cover in response to the government’s moves to lower 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 and it was shifted to patients, they would end up threatening their own business model.

‘‘Consumers will choose to take their business elsewhere,’’ he said.

Every year there were ‘‘spot fires’’ between hospitals and insurers in negotiating prices, and private hospitals should be included in health insurance premium negotiations between insurers and the Commonwealth, he said.

‘‘Every year we have been saying that the missing leg of this stool is involving the hospital sector in that decision ... [as] it relates back to the cost of delivering hospital services,’’ he said.