Medibank accused of squeezing hospitals
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.
Frequently Asked Questions about this Article…
The article says Australia’s biggest health insurer, Medibank Private, has been accused of squeezing hospitals to improve its balance sheet ahead of a possible sharemarket float under a Coalition government. For investors, this matters because it could affect Medibank’s relationships with hospitals, regulatory or reputational risk, and potentially the company’s future earnings if negotiations lead to disputes or higher patient out-of-pocket costs.
According to the article, Medibank, NIB, Bupa and AHM have all demanded sharp reductions in what they pay public hospitals — for example asking that the cost of a private room fall from about $578 a day to $378 a day, well below the roughly $1,000 a day paid to private hospitals.
When insurers and hospitals can’t reach agreement on contracted prices, members can face higher out-of-pocket fees — paying the difference between the insurer’s default and the contracted hospital price, which can amount to thousands of dollars. For investors, this risk can influence insurer membership satisfaction, premium trends and potential political or regulatory scrutiny.
Large private operators such as Ramsay Health Care and Healthscope have national deals with insurers, while Catholic hospitals use a buying group and many hospitals negotiate individually. National deals can provide more predictable revenue and reduce the chance of local ‘spot fires’ in negotiations, which is relevant for investors assessing hospital operator stability and contract risk.
Medibank said it is cutting costs to cope with higher membership turnover and members downgrading or dropping cover in response to government moves to lower private health insurance subsidies. Cost-cutting may help short-term profitability, but aggressive negotiations with providers could strain relationships and carry operational or reputational risks that investors should monitor.
The article states private health insurers increased premiums by an average of 5.6% this year, with Medibank increasing premiums by 6.2%. For consumers, higher premiums can prompt downgrading or dropping cover, which in turn affects insurer membership numbers and revenue — a chain of events investors should watch.
Private hospitals typically expect an annual increase of about 3% from insurers to cover staff salary rises, new technology and the cost of caring for older patients. If insurers push for lower increases, hospitals say it can threaten their ability to deliver care and may lead to tougher negotiations.
Catholic Health Australia chief executive Martin Laverty warned that if insurers refuse to pay the fair cost of treatment and shift costs to patients, consumers will go elsewhere — a move that could threaten insurers’ business models. He also said private hospitals should be involved in health insurance premium negotiations with the Commonwealth to reflect the true cost of delivering hospital services.
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