Bupa faces scrutiny over hospital contracts and ‘No Gap’ rules as private providers warn of reduced patient choice

Allegations of anti-competitive conduct in private hospital deals

Australia’s largest health insurer Bupa is facing renewed criticism over the way it negotiates and structures contracts with private hospitals, after leaked documents revealed terms that smaller operators say they cannot realistically refuse. Critics argue the arrangements ultimately narrow where Bupa members can receive treatment without significant out-of-pocket costs, effectively steering patients toward “contracted” hospitals.

Bupa denies the allegations. The insurer says its approach is designed to protect customers from unexpected bills and, in many cases, reduce medical out-of-pocket expenses to zero. The dispute has prompted calls from private hospital representatives for the competition regulator to intervene, and for the industry to adopt a new national benchmark pricing system.

At the centre of the controversy is Bupa’s Medical Gap Scheme, which has operated in its current form since 2021. Private hospitals and some industry figures say the scheme uses hospital contract terms to influence what doctors can charge, creating pressure on hospitals to sign agreements with Bupa even when they believe proposed prices are unsustainable.

Why contract status matters for patient bills

In private healthcare, hospital and medical bills are typically separate. Hospitals charge for items such as theatre, room and nursing fees, while doctors bill for their professional services. Insurers negotiate hospital agreements that set the benefits paid to hospitals for insured members. Separately, doctors may choose to participate in insurer “No Gap” or “Known Gap” schemes that limit or eliminate the patient’s out-of-pocket costs for medical fees.

Industry criticism of Bupa’s model focuses on the way its Medical Gap Scheme interacts with hospital contracting. Under the system described in leaked documents and by critics, Bupa’s terms can stipulate that doctors treating Bupa patients at a contracted hospital cannot charge a gap fee. It also means doctors who are part of Bupa’s No Gap arrangements cannot use the scheme at hospitals that do not have a contract with Bupa.

The practical consequence, critics say, is that patients who go to a non-contracted facility can face a “double hit”: out-of-pocket charges from the hospital and out-of-pocket charges from the doctor. That creates a strong incentive for patients to choose a Bupa-contracted hospital if they want the lowest possible costs for both their procedure and their hospital stay.

A former executive says the model can “remove choice”

David Du Plessis, a former Bupa executive who now works as a contracts consultant for private hospitals, has publicly backed claims that the insurer’s approach can reduce consumer choice. He argues that the complexity of billing and the way the scheme is structured leaves hospitals that refuse to sign a contract in a difficult position.

According to Mr Du Plessis, doctors working at a non-contracted hospital are left with a stark decision: accept lower payments from the insurer per procedure, or pass significant out-of-pocket costs onto patients. He describes this dynamic as a “wedge” that pressures hospitals to hold a contract.

While “no out-of-pocket” arrangements may sound straightforwardly beneficial to patients, Mr Du Plessis warns there can be broader effects. If doctors earn less when a hospital is off-contract, he says they may leave the hospital, which can weaken the facility’s ability to provide services and, in turn, further pressure it to sign a contract.

In his view, the result is a system where Bupa members can technically choose their specialist, but may face much higher costs unless that specialist operates at a hospital with a Bupa contract.

Bupa’s response: affordability and confidence for customers

Bupa rejects the suggestion that its Medical Gap Scheme is anti-competitive. In a statement, the insurer described claims about the scheme as baseless and said it is designed “to help customers pay less, and in many cases nothing, for medical out-of-pocket costs”.

The insurer says the scheme is intended to help customers avoid unexpected bills and “get the care they need with confidence”. Bupa also says its contracting practices comply with competition law and operate under regulatory oversight.

On the issue of non-contracted hospitals, Bupa says it has previously contacted some facilities to outline “voluntary contracting options” aimed at supporting lower out-of-pocket costs for members. It also disputes that it asks doctors to influence hospital fees, stating that it does not set doctors’ fees or hospitals’ charges at uncontracted hospitals.

Dispute extends to proposed undertakings from non-contracted hospitals

The controversy has widened beyond contracted hospitals. Since August last year, Bupa has been trying to impose a similar condition on doctors at uncontracted hospitals, according to a letter sent to the Australian Society of Ophthalmologists.

The letter stated that specialists could start using the No Gap scheme for doctors’ fees at some of the 99 hospitals where Bupa did not have a contract. However, it included a condition: the uncontracted hospital would need to provide and continue to comply with a written undertaking not to charge Bupa customers any out-of-pocket costs beyond the applicable excess.

The Australian Private Hospitals Association (APHA) described this approach as “beyond the pale”. The group argues it amounts to an attempt to dictate pricing and places hospitals “over a barrel”.

Calls for regulator involvement and a national benchmark

Private hospitals want the Australian Competition and Consumer Commission (ACCC) to intervene, with the APHA alleging anti-competitive behaviour. The concern is that the combination of market power and contract conditions can distort competition—especially in areas where there are fewer hospitals and fewer specialists.

There are also calls for an agreement on a new national benchmark pricing system. While details of such a system are not set out here, the underlying argument from hospital representatives is that clearer, more consistent pricing expectations could reduce the scope for disputes between insurers and providers and improve predictability for smaller operators.

How “No Gap” and “Known Gap” are meant to work

To understand the dispute, it helps to clarify the terminology used in private health billing:

• No gap cover: Patients receive no out-of-pocket charges for their treatment for doctor fees. Insurers pay a higher rate per procedure than Medicare’s Schedule Fee to doctors to encourage uptake.
• Known gap cover: Patients are charged a fixed out-of-pocket amount for treatment by a doctor, up to a maximum of $500 for general treatment and $800 for obstetrics.
• Out-of-pocket charges: Patients not using No Gap or Known Gap cover can face out-of-pocket costs, representing the difference between the overall cost of the procedure and the usual combined Medicare and insurer general rebates.
• Agreement or network hospitals: Agreements between hospitals and insurers relating to room, nursing and theatre fees. These agreements can sometimes result in fixed-fee arrangements similar to known gaps.

In many insurer arrangements, hospitals and doctors can decide independently whether to apply “No Gap” style billing. Critics say Bupa’s approach differs because it uses hospital contract terms to restrict doctors’ ability to charge gap fees, and because doctors cannot access Bupa’s No Gap scheme at hospitals without a Bupa contract.

Market power and regional concerns

Bupa’s size is a significant factor in the dispute. The insurer has nearly 4 million customers nationally and holds about a quarter of the Australian market, making it a crucial contracting partner for many private hospitals. In South Australia, it is the market leader with more than 40 per cent market share.

Mr Du Plessis argues that where Bupa’s market share is particularly high, the contracting dynamic becomes “doubly problematic” because hospitals may have even less ability to refuse terms without risking patient volumes and specialist participation.

Bupa acknowledges that patients in regional areas can have fewer choices, and says this is why it works closely with customers to ensure they have access to care at its contracted hospitals.

Benefits paid to members and the debate over value

As the argument plays out, industry figures are also pointing to financial metrics to question whether the balance between premiums and benefits is appropriate. APRA data shows Bupa’s benefits-ratio payment—the percentage of incoming premiums paid out to members as benefits—at 82.4 per cent.

That compares with 85.6 per cent for Medibank Private and 87.8 per cent for HCF. The APHA’s Brett Heffernan argues this indicates Bupa is “a long, long way behind” where it needs to be in meeting obligations to members, though Bupa maintains its schemes are designed to improve affordability and reduce surprise bills.

Competition law view: when contract terms may become a problem

Bashi Hazard, a lecturer in competition law at the University of Sydney’s Law School, says Bupa’s gap scheme could be anti-competitive if it were found to be both coercive and limiting competition in small areas. She notes this is something a regulator would need to examine closely, particularly in regional settings where the number of providers is limited.

This perspective highlights a key point in the debate: the same contractual mechanism can be framed as consumer protection by an insurer, or as a competitive restraint by providers, depending on how it operates in practice and how much choice remains for patients and hospitals.

Contract terms that hospitals say reach beyond pricing

Beyond gap arrangements, hospitals and consultants have raised concerns about other contract provisions that they describe as onerous. Leaked contracts show that some hospitals must obtain permission from the insurer if they intend to open a new unit or wing, provide evidence of why it is needed, identify the doctors involved, explain how patients will be attracted, and estimate how many Bupa patients might use the service in order to access higher contracted rates.

While such requirements may be legally permissible, the APHA argues they conflict with the expectation that insurers should cover services rather than direct them. Mr Du Plessis says these “business rules” can hamper flexibility even for larger hospital groups.

Secrecy provisions and the difficulty of public scrutiny

Another issue raised by hospital representatives is the presence of confidentiality clauses. Mr Heffernan says secrecy provisions can prevent hospitals from objecting publicly, alleging that some terms restrict what hospitals can say about contract conditions.

This matters because the debate is not only about what is written in contracts, but also about whether hospitals feel able to discuss and challenge those terms openly. In an environment where one insurer has a large share of insured patients, smaller providers argue that confidentiality can further limit their bargaining power.

Delays in offering contracts and the challenge for new hospitals

Mr Du Plessis also claims that Bupa can be slow to offer contracts, particularly to new hospitals. He says he has seen providers cite difficulties in obtaining contracts and establishing reasonable rates, with Bupa “in particular” raised as a concern.

He also recounts that when he worked at Bupa there were about six staff negotiating with more than 600 private hospitals, and he suggests delays were sometimes part of the strategy. The broader implication from hospitals is that slow contracting can make it harder for new facilities to build viable service models, especially if patients face higher out-of-pocket costs at non-contracted sites.

What this means for consumers comparing health insurance

For consumers, the dispute underscores a practical reality of private health insurance: the headline premium is only part of the cost equation. The total financial impact of treatment can depend on whether a hospital is contracted with the insurer, whether a doctor participates in the insurer’s gap scheme, and whether the insurer’s gap scheme is portable across hospitals.

Critics say Bupa’s model increases the importance of choosing a contracted hospital to avoid large bills. Bupa says its approach is designed to reduce unexpected costs and improve affordability. Either way, the controversy highlights why members may need to understand how their insurer’s gap arrangements interact with hospital choice—particularly if they live in regional areas, use smaller hospitals, or want to follow a specialist who operates at a facility without a contract.

Where the dispute goes next

Private hospital representatives are pressing for regulator scrutiny and broader reform discussions, including a national benchmark pricing system. Bupa continues to defend its contracting approach and gap scheme as lawful and focused on reducing out-of-pocket costs.

The central question remains contested: whether the arrangements primarily function as consumer protection against surprise billing, or whether they also operate as a form of leverage that limits competition and choice—especially for smaller hospitals and the patients who rely on them.