Funding showdown looms between Healthscope and Medibank, as hospital feud threatens to spread

Bupa and Ramsay’s battle is threatening to spread as Healthscope warns health funds against striking ‘fair terms’ with hospitals.

Medibank and Healthscope have been negotiating a new funding agreement for months. Picture: NCA NewsWire / Paul Jeffers

Healthscope has accused health insurers that fail to strike “fair terms with hospitals” of prioritising short-term profits over the sector’s long-term viability, as it negotiates a new funding deal with Australia’s biggest health fund, Medibank.

Healthscope, Australia’s second biggest private hospital operator, has been in talks with ASX-listed Medibank for months with the pair yet to clinch a new deal, in a sign that the bitter feud between Bupa and Ramsay threatens to spill across the broader healthcare sector.

Doctors are warning of spiralling healthcare costs after Ramsay sent Bupa - which represents four million Australians - a contract termination notice on Wednesday after failing to renew a new funding agreement.

Healthscope’s negotiations with Medibank brings the funding agreements of Australia’s biggest healthcare players potentially into dispute.

A Healthscope spokesman declined to comment on the talks but said “we share the concern of other private hospital operators”. Meanwhile, Medibank — which pays private hospitals about $2.5bn a year — called for calm, saying health funds and hospitals needed to work together to keep healthcare costs low as the cost of living soars.

Funding talks between hospitals and health funds are typically robust but they have become more strained after the entire health insurance sector booked a record $1.8bn profit last year against flat claims growth, while private hospitals have battled rising costs from Covid-19 and elective surgery bans.

The Healthscope spokesman private hospitals have “played a major role in supporting the country’s Covid response”, footing the bill for “significant” personal protection equipment while staff were “exhausted”.

“While we won’t discuss the status of our negotiations, we share the concern of other private hospital operators that many health funds have shown little to no appreciation of the challenges and financial pressures private hospitals continue to face,” Healthscope’s spokesman said.

“While we understand that private health insurance needs to remain affordable for Australians, insurers who do not strike fair terms with hospitals are putting their own short-term financial profits ahead of the long-term viability of the sector.

“They need to pay their fair share supporting frontline workers, equipment, PPE and other costs of providing the hospital service that insured patients receive – especially with inflation going the way it is.”

Medibank group executive customer portfolios Milosh Milisavljevic agreed “affordability remains an issue, which is why it’s important that we get our partnerships with hospitals right”.

He said Medibank had so far cut $100m in costs over five years and all private healthcare participants needed to do the same.

“Undoubtedly there is pressure in the health system and we understand that, but our customers are struggling with the cost of living,” Mr Milisavljevic said.

“We all have a role to play to ensure that the private health system is accessible and affordable. Unless we address the growing demands on both the public and private health system, the future of our world class health system is under threat.

“The asks of our health system continue to grow as the health needs of Australians increase. This is why it’s never been more important for health insurers, hospitals, providers and doctors to work together to keep health costs down and give customers more choice, more value and more control.”

Mr Milisavljevic said the pandemic had made it more difficult to keep costs low and Medibank had so far returned $463m – including financial hardship support to more than 65,000 policyholders — to members via premium deferrals and “give backs”.

“We’ve always said we all have a role to play in the sustainability of the system which is why we have delivered productivity savings of nearly $100 million over five years – so that we can keep premium increases as low as possible for our customers. We’ve done all we can to control our own costs to ensure the affordability of private health insurance.

“That’s another reason why we are adopting new care models, like at home care, because they are more sustainable and better suit the needs of some of our customers.”

Mr Milisavljevic said Medibank would “continue to approach any negotiations in good faith”.

“We negotiate a number of contracts with hospital groups every year, working to sustain quality health outcomes and improved efficiencies so we can further improve the affordability of private healthcare for our customers.

“(Hospital funding) agreements are an important part of getting our customers the best care, outcomes and value, especially when we pay private hospitals more than $2.5bn each year to provide care to our customers.”