The secret insurer rort forcing private hospitals to close

CANBERRA Private Hospital is just the latest in a string of more than 20 hospital closures around the country. Patients are paying a heavy toll, and healthcare professionals are counting the human and financial costs.

It has been more than two years since the federal government led its first of two talkfests to find solutions to the viability crises forcing private hospitals to close while others have cancelled more than 80 services, notably mental health and maternity units.

It has been 18 months since the government pledged a six-month timeline for "immediate solutions" to what it agrees are the mental health, maternity and regional hospital crises. That deadline lapsed a year ago.

It has been 15 months since Federal Health Minister Mark Butler publicly rebuked health insurers' record profits, high management fees and poor payouts, demanding they increase payment ratios to private hospitals or he would force them to do so.

Despite conceding insurers are still coming up short, the government is yet to act.

It's time the Albanese Government did what it said it would do. Rhetoric must give way to putting out the flames that are reducing Australia's once renowned public-private hospital system to ashes.

It starts with bringing the health insurance industry into line. The insurers are racking up record annual after-tax profits of over $2 billion and so-called 'management expenses' of $3.4 billion each year, all from the premiums Aussies pay.

The premise for higher premiums is meeting higher healthcare costs, right? Wrong.

There is no legislative or regulatory requirement for insurers to do so. In reality, they don't. Instead, they largely pocket the increases and short-change hospitals by over $1 billion a year for the treatments and care they provide.

The federal government can no longer shirk its responsibility. In awarding annual premium increases to insurers it has direct skin in the game.

This rort is made possible due to a secret, abuse-riddled contracting regime where private hospitals are price takers and health insurance companies the sole winners from the chaos caused by government indecisiveness and inertia.

There are some things governments are responsible for and a coherent healthcare system is one of them. Australia's once enviable health system is now lurching from one crisis to another.

Private hospital closures and services shut down; longer public hospital waiting lists, bed block and Emergency Department dysfunction; mental health, maternity and regional health in long-term collapse; GPs and psychiatrists overburdened while patients are stranded; all see Australian healthcare in freefall.

According to the Australian Prudential Regulation Authority, private hospital volumes have rebounded from COVID-19 to be higher than pre-pandemic but the payout ratio from insurers has not kept pace.

The latest quarterly data shows the payout ratio at a mere 83.4% in March 2026 and at 85.5% for the year-to-date. Insurers are a long way short of the government's 90% expectation.

Around 64% of Canberrans hold private hospital cover. Despite higher premiums they are getting less for it. The closure of private hospitals means less choice and less access.

The solutions aren't difficult, but they do require leadership.

The federal government needs to correct the clear market failure and make the insurers pay their way to the hospital network, as government vowed over a year ago. Restoring the benefits ratio to the pre-Covid level of 90% is long overdue.

A Mandatory Code of Conduct for contracting between insurers and hospitals, with an arbitration model and price transparency overseen by the ACCC, is essential in tandem with the 90% guarantee to ensure consistency and fair terms across the sector.

The lack of price transparency in contracting, along with bad faith tactics employed by insurers, are compromising choice, access and quality. It severely limits patient needs while insurance companies line their pockets.
We are hopeful positive reforms may be coming, but we've been asking for that for more than three years. It's clearly too late for many private hospitals, their patients and staff.

We are up for a transparent contracting system with the ACCC as the independent umpire. We have nothing to hide. If health insurers think their contracting tactics pass muster then, surely, they too should have nothing to hide?

Brett Heffernan is chief executive for the Australian Private Hospitals Association. Published in the Canberra Times (online edition) on 16 July 2026.

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