When insurers run the operating room: Medibank’s hospital power grab

Vertical integration in healthcare is linked to inefficiencies and higher costs for patients and taxpayers, according to a recent review. Yet, Australia’s largest private health insurer, Medibank, has aggressively funnelled its profits into buying hospitals in Sydney, Melbourne, Brisbane, and Adelaide.

“The conflict of interest in funding and owning hospitals is obvious, but now we see evidence that Medibank’s contracting with local hospitals has nosedived around its Sydney hospital, which distorts the market in Medibank’s favour,” said Brett Heffernan, CEO of the Australian Private Hospitals Association (APHA).

The US experience offers a cautionary tale. There, insurer-owned healthcare networks have failed to lower costs or improve care. Instead, competition has eroded, prices have surged, and patient outcomes have deteriorated.

Vertical integration also threatens market competition. Insurers who own providers can favour their own facilities over independent hospitals and clinics, starving competitors of patients and revenue. Innovation suffers as new entrants struggle to break into markets dominated by a few powerful players who both fund and deliver care.

Medibank acquired a 49% stake in East Sydney Private Hospital in August 2020. At that time, the insurer held contracts with 84.13% of private hospitals in surrounding areas (106 of 126 hospitals). By July 2025, this had plunged to just 54.89% (73 of 133 hospitals). The result is fewer options for patients, effectively steering them toward Medibank’s East Sydney Private Hospital.

Medibank’s recent expansion, including the opening of Adeney Private Hospital in Melbourne, Nundah Private Hospital in Brisbane, and its stake in Western Hospital in Adelaide, demands careful scrutiny.

“At Adeney Private Hospital the promotion is ‘no gap surgery’. At face-value it has appeal, but scratch the surface and it means that surgeons are paid their full asking rates by the insurer. In other words, surgeons are, effectively, working for the insurance company.

“The danger to clinical autonomy is real and patients deserve to be aware of the threat this funding approach poses in undermining the care they receive,” Heffernan emphasised.

A Harvard University study led by Soroush Saghafian reinforces these concerns. “Analysing more than 2.6 million patient visits, we found that physicians significantly alter their care process after they vertically integrate. Although integration improves operational efficiency measured by physicians’ throughput, it negatively affects quality and overall spending. What is more, this results in a substantial increase in patients’ post-procedure complications,” Saghafian stated.

Despite repeated lobbying from the Australian Medical Association (AMA), APHA, and the Australian Society of Ophthalmologists (ASO) to prevent a US-style managed care model in Australia, the trend continues.

“A serious line has been crossed and it’s a direct threat to patient care. By owning hospitals, insurance companies are hands-on in running the operation. It’s time the Albanese Government acknowledged and investigated this disturbing trend,” Heffernan urged.

In reimagining healthcare across the entire patient journey, Health Industry Hub^TM is the only one-stop-hub uniting the diversity of the Pharma, MedTech, Diagnostics & Biotech sectors to inspire meaningful change.

The Health Industry Hub^TM content is copyright protected. Access is available under individual user licenses. Please click here to subscribe and visit T&Cs here.