Medical treatment for more than six million Australians could be affected after the country’s second-largest private hospital operator announced it will terminate contracts with two major private health insurers.

Around half of all Australians with private health insurance will lose their cover at 38 of hospitals after Healthscope on Friday it had no choice but to end its contracts with Bupa and Australian Health Services Alliance (AHSA).

Healthscope said the two insurers refused to pay a proposed hospital facility fee, which it asserted would help cover the gap between health insurance payouts and the rising cost of hospital care.

It said Bupa and AHSA threatened legal action to stop the introduction of the fee.

Healthscope’s contract with Bupa is set to be terminated from February 20, 2025, with the AHSA contract to be cancelled from March 4, 2025.

The decision will impact some 6.6 million private health insurance holders.

Several funds are under the AHSA umbrella including Defence Health, Australian Unity, HBF, Police Health, Teachers Health Fund, Westfund and Nurses and Midwives Health.

Healthscope CEO Greg Horan said the hospital facility fee followed Bupa and the AHSA’s “failure to recognise and fairly fund the rising cost of care”.

“In the absence of fair funding, this fee was Healthscope’s best option,” he said.

Horan said in an environment of rising costs and private hospital closures, it is unacceptable for insurers to fail their core purpose – funding the care of their members.

“Particularly those like Bupa who are boasting of record profits,” he was quoted as saying by the ABC.

Healthscope said private hospital cost inflation was a sector-wide problem that resulted in the closure of 70 private hospitals in the past five years.

Bupa’s Asia Pacific CEO Nick Stone said the insurer was “shocked and deeply disappointed by the decision”.

Bupa struck its current deal with Healthscope in November last year, with the contract expected to last three years.

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

Private Healthcare Australia, the peak body for health funds, accused Healthscope of “throwing its toys out of the cot”.

PHA 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.