The Australian Medical Association has called for greater regulation and transparency in the contracts between private health insurance companies and doctors. It expressed concerns that doctors are being pressured into restrictive and opaque agreements on patient care.

Medical practitioners say that the contracts are affecting the choices they make for patient care by restricting treatments, rehabilitation, choice of hospital, and duration of stay.

Around two thirds of all scheduled surgery in Australia is now performed in the private sector, said Julian Rait, MD, ophthalmologist and vice president of the Australian Medical Association.

Nearly all those procedures are performed by doctors under “no gap” or “known gap” contracts with private health insurance companies. In a no-gap contract, doctors agree to charge the patient the same amount that the insurer will reimburse the patient, so there is no excess cost to the patient. In a known gap contract, doctors can charge a fee over and above the reimbursed amount, but that gap is set by the insurer.

The problem is that these contracts can be restrictive, and doctors have no power to negotiate, Rait told Medscape News Australia.

“If a doctor doesn’t sign because they consider the insurer’s remuneration too low, or even just charges a dollar more than the insurer believes is appropriate, the insurer will slash the benefits they would pay to patients and then blame it on the doctor’s fees being excessive,” he said. “Even if the fees are reasonably modest but not quite what the insurer is prepared to pay, they suggest the doctor’s being greedy or unreasonable.”

Medical Benefits vs Inflation

The height of the COVID pandemic raised fears among insurers of a huge surge in demand, and since then, they have sought to protect their capital, said Rait. “They’ve tried to be circumspect with the reimbursement of hospitals in anticipation that this surge might come.”

As a result, the medical benefits paid are not keeping pace with inflation, said Peter Sumich, MD, eye surgeon and president of the Australian Society of Ophthalmologists in Sydney. “The known gap contract limit that we have, which is how much they can charge as a deductible above what the insurer might reimburse, hasn’t changed for years, meaning the doctors have been asked to sign contracts that really don’t reflect the current costs of providing care.”

Private Healthcare Australia, which is the representative body for the private health insurance industry, has disputed accusations that profits are not being passed on to patients, saying in a statement that benefits paid to patients increased by 20% from 2017-2018 to 2023-2024, and that for every dollar patients spend on premiums, they are reimbursed $0.84.

Insurers are also exerting control over treatment and management choices, said Sumich. “They’re starting to see that the way to control their fund outlays is to control the doctors,” he told Medscape News Australia.

Contracts between doctors and insurers are confidential, but Sumich said that contracts can dictate, for example, the choice of prosthetic, the duration of hospital stay for procedures, and the type of rehabilitation used. “You as a patient should have a contract with a doctor. You go to see your doctor, and your doctor tells you what he wants to do,” he said. “There shouldn’t be a third party like a health insurer with their hand in the contract, guiding the doctor’s hand.”

Independence Increasingly Elusive

While doctors always have the choice to practice independently, Sumich said that this option is becoming increasingly difficult to pursue as insurers gain greater market share, including through the ownership of private hospitals, and can direct patients to their preferred doctors. “It’s harder and harder for a doctor to stay uncontracted because he’s starting to lose a lot of work,” said Sumich. “I’ve got patients I’ve seen for cataract surgery, and they ring us back and say, ‘My health insurer said you’re not one of our preferred doctors. Is there something wrong with you?’”

The Australian Medical Association has called for greater regulation of the private health insurance sector, citing a previous observation by the Australian Competition and Consumer Commission that there is no regulatory oversight or limitation on how doctors and insurers contract with each other. Current regulation focuses on interactions between private health insurers and patients, rather than doctors.

“We don’t have someone on the other side of the equation who’s regulating performance and making sure that the funding that’s delivered to the sector by the insurers is adequate to meet the needs of the community,” said Rait. A private health system authority could set a standard for how insurers work with healthcare providers and provide greater transparency in contracts, he said.

Rait and Sumich reported having no relevant financial relationships.