Australia’s second-largest private hospital operator has announced it will terminate its contracts with two major private health insurers.

Healthscope said it had no choice but to end its contracts with Bupa and Australian Health Services Alliance (AHSA) after they refused to pay a proposed hospital facility fee.

Healthscope said the fee would help cover the gap between health insurance payouts and the rising cost of hospital care, but said Bupa and AHSA threatened legal action to stop the introduction of the fee.

The contract with Bupa is set to be terminated from February 20, 2025 and AHSA will be cancelled from March 4, 2025.

The cancellation will impact about 6.6 million people who have private health insurance with these companies.

Healthscope CEO Greg Horan said it meant Bupa and AHSA members could pay hundreds of dollars more to be treated in a Healthscope hospital.

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Healthscope said private hospital cost inflation was a sector-wide challenge and in the last five years 70 private hospitals had closed which showed the economics were “simply unsustainable”.

Earlier this year a new private hospital in Melbourne’s west closed just after 14 months of operation and there have been several closures of private maternity services across multiple states.

Healthscope is owned by North American private equity group Brookfield and runs 38 private hospitals across every state and territory. 

The peak body for health funds, Private Healthcare Australia, accused Healthscope of “throwing its toys out of the cot” and suggested patients speak to their doctor or health insurer if they were concerned about potential impacts.

CEO Rachel David said insurers couldn’t pay above-inflation increases to hospitals as the costs would be passed onto members ,who would most likely then downgrade or drop their health cover.

A number of funds fall under the AHSA umbrella including Defence Health, Australian Unity, HBF, Police Health, Teachers Health Fund, Westfund and Nurses and Midwives Health.

AHSA CEO Andrew Sando accused Healthscope of being focused on maximising returns for their investors.

“How and why the Australian government permits foreign private equity owners such as Brookfield to extract more profits from the already financially challenged private health care system is unclear,” he said.

Mr Sando said if the termination did come into effect, policyholders of the funds they represent would be able to seek care at any of the other 500 private hospitals AHSA has contracts with.

In a statement Bupa said it was “deeply disappointed” with today’s decision and concerned it would cause undue stress to patients.

“Despite their [Healthscope] recent actions we remain committed to working together to reach a mutually sustainable solution that places customers and patients first,” CEO Nick Stone said.

Mr Stone assured members there were no immediate changes to their cover and there were alternative private hospital options that would not result in greater out-of-pocket costs from February 2025.

The fee in question

Private health insurers enter into contracts with hospitals to ensure the prices charged match the amount the insurer is agreed to pay.

The proposed fee by Healthscope was a payment of $50 for same-day patients and $100 for an overnight admission.

The fee was only payable once per patient though, meaning if a patient had a 10-night stay the insurer would only be up for one payment of $100.

Fee exemptions were to apply if patients were undergoing certain treatment such as day chemotherapy, renal dialysis or palliative care as well as patients in day mental health and rehabilitation programs.

Healthscope says members of other funds including Medibank, nib and HCF would be unaffected by the fee as these funds had already reached agreements with Healthscope to increase their funding of patient care.

Private Healthcare Australia said the proposed fees per patient were unprecedented and Dr David said it was an “American way of doing business”.

The industry body for private hospitals however said it was a sign of things to come as private hospitals were being drastically underfunded by insurance companies.

“Over the last few years around 20 private hospitals have shut their doors entirely, while more than 70 services have closed in other hospitals. This has coincided with health insurance companies raking in billions in record profits,” Australian Private Hospitals Association CEO Brett Heffernan said.

He said data shows in 2015 the average payment a hospital received from an insurer for a hip replacement was $22,166. Despite inflation, the average payment received in 2023 was $20,548.