Doctors warn the private health system will continue to unravel if reforms are not made.
Unchecked market power held by private health insurers is distorting care, driving up out-of-pocket costs, and pushing the private health system towards a major crisis, Australia’s peak medical body has warned.
In a new position statement released today, the Australian Medical Association said Australia’s regulatory framework allowed private health insurers to impose “unfair and deceptive” contracts on individual doctors, undermining patient choice, clinical autonomy, and the long-term sustainability of private healthcare.
The AMA has called on the federal government to intervene before patients lose meaningful choice and access to quality care.
It said the regulation of private health insurers to limit the massive power differential between private health insurers and doctors had been put in the “too hard basket” by successive governments.
AMA president Dr Danielle McMullen said the peak body had become increasingly concerned about the lack of regulation of contracts between insurers and medical practitioners.
“This lack of regulation impacts patient choice and quality of care, the clinical autonomy of doctors in private practice, private hospital case mix, and other professionals involved in the patient’s care,” she said.
“The reality is that there is nothing in the Private Health Insurance Act 2007 or the Competition and Consumer Act 2010 to prevent the top five health insurers, which collectively control more than 80% of the Australian private health insurance market, from abusing their market power in contracting with individual medical practitioners.”
Dr McMullen said the problem stemmed from the absence of any regulator with a clear mandate to oversee how insurers contract with medical practitioners, despite the fact that nearly all private hospital procedures (about 97%) were delivered under insurer-controlled “no-gap” or “known-gap” arrangements.
Under no-gap arrangements, doctors agree to charge only the benefit the insurer is willing to pay, while known-gap agreements allow doctors to charge a patient-set gap capped at an amount unilaterally determined by the insurer.
“If a doctor does not sign because the insurer’s remuneration is too low or charges just $1 more than the insurer is willing to pay, the insurer will then slash the medical benefits they would pay to patients and blame it on doctors’ fees,” said Dr McMullen.
“Yet for most insurers, medical benefits haven’t been indexed and the ‘known gap’ contract limit of $500 hasn’t changed for years, meaning that doctors are being asked to sign contracts that do not reflect the current costs of providing care.
“This is deceptive and unfair and leads to higher out-of-pocket costs for patients. Like MBS rebates, the value of insurer rebates has fallen considerably in real terms over the years and well behind the increasing cost of providing care.
“Most insurers require doctors to keep the terms of contracts confidential to prevent government or other scrutiny and may require contracted doctors to only provide treatment at hospitals with which the insurer also has a contract or else they will reduce the benefits the insurer will pay the patient.”
In its position statement, the AMA said insurer benefit payments had failed to keep pace with the real cost of providing medical care, tracking loosely with Medicare indexation while practice expenses such as staffing, indemnity insurance, rent, equipment, and technology have risen well above inflation.
The $500 known-gap cap, introduced in the early 2000s, has never been indexed.
The position statement also raised serious concerns about non-price contract terms that restricted transparency and patient choice.
Many insurers require doctors to keep contract details confidential, preventing public or regulatory scrutiny, while some contracts restrict where doctors can treat patients, effectively steering care toward insurer-contracted hospitals regardless of clinical appropriateness.
The AMA warned these practices were becoming more concerning as insurers increasingly invested in or acquired healthcare delivery businesses, creating conflicts of interest that allowed funders to influence not just how much care costs, but where and how it is delivered.
“Currently, there is also no regulatory prohibition on private health insurers establishing or buying businesses that provide healthcare,” it said in the position statement.
“This is a massive conflict of interest and a matter of mounting concern following increases to capital reserve requirements imposed by the Australian Prudential Regulatory Authority.
“This change has seen many of the large insurers using their profits to invest in the purchase or establishment of health service businesses.”
The statement also rejected the expansion of bundled contracting models, particularly in areas such as maternity care and joint replacement surgery, where insurers expect clinicians to negotiate a single, collectively agreed price covering all aspects of a patient’s care.
The AMA said such models undermined independent medical practice, threaten patient choice and prioritise cost containment over clinical judgement.
Central to the AMA’s position was the protection of clinical autonomy.
“Above all, it is critical that private health insurer contracts with doctors do not interfere with the treating medical practitioner’s clinical judgement regarding the treatment, procedure, or prosthesis a patient needs; where that treatment should be provided; or how urgently the patient should receive it to safely and effectively treat their medical condition,” the position statement said.
“The assurance that a consumer with an appropriate level of private health insurance cover will be able to obtain high-quality, safe, clinically appropriate and timely care from a medical practitioner of their choice is central to the value proposition of private health insurance.
“This must not be eroded by private health insurer contracting practices. Private health insurers must not be permitted to create their own ‘clinical guidelines’ to dictate the treatment they believe is appropriate for any patient, or to deny patient benefits for treatment they do not deem appropriate.
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“This function is appropriately fulfilled by medical colleges and societies, not insurers.”
To address these issues, the AMA has been calling for the creation of an independent, statutory and well-resourced Private Health System Authority to oversee the private health sector.
“Given there is currently no regulator in the health sector with oversight of all aspects of the private health system – let alone the Australian health system as a whole – the AMA has for several years been calling for the establishment of a statutory, independent, and well-resourced Private Health System Authority,” the position statement said.
“A Private Health System Authority must have the authority to gather all the data required to develop an evidence-based overview of the private health system, in the context of the Australian health system as a whole, and to provide patient-centred, independent, evidence-based advice to government about future directions for the sector.”
Dr McMullen said reform was essential to restore balance to a system increasingly dominated by insurer interests.
“We need an independent body to oversee regulation of private health insurance to ensure both a level playing field in private health and the sustainability of the system, which is hurtling towards an existential crisis,” she said.
“The private health system is incredibly important in Australia’s healthcare system. We need to act to ensure it remains sustainable and fair to everyone involved.”
Read the full position statement here.
