Medibank Private managing director George Savvides has said Australians overpay for common surgeries such as hip replacements and caesarean sections, as the health insurer ramps up its campaign to put a lid on private hospital costs before its $4 billion-plus float.
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Across the $19 billion health insurance industry the cost of medical claims is rising faster than revenue from membership premiums. As the government-owned insurer approaches its December initial public offering, Mr Savvides has made no secret of his goal to rein in the amount it pays to private hospitals for care.
Medibank's ability to put the squeeze on hospitals as a way to boost future earnings is expected to be a key selling point in the insurer's prospectus, which is due to be lodged with the corporate regulator early next week.
Mr Savvides will meet potential investors next week before travelling overseas in the coming weeks to promote the float, which banks have said could reap between $4.1 billion and $5.7 billion
He also gave a presentation about the sale to staff in Sydney on Wednesday, but declined to provide further comment about the process. The float's pre-registration closed on Wednesday.
Mr Savvides told a conference that "Australia cannot afford to let healthcare costs get out of control".
"We're seeing [customers] who are saying to us ... 'I'm finding it hard either to afford the constancy of health insurance premium increases, year on year, and also I'm tempted to downgrade my cover'," he said.
Medical claims account for about 87 per cent of Medibank's $5.6 billion in annual premium revenue.
The insurer, which has a market share of about 30 per cent, has recently begun promoting new "quality and affordability criteria" in contract negotiations with hospitals. Mr Savvides has previously said Medibank does not need to contract with all of the country's private hospitals.
He told the Australian Healthcare Summit that the insurer's move from just "paying bills" to having a greater say in where and how its members are treated has riled some in the medical industry. "That's raised a few eyebrows," he said.
Mr Savvides pointed to 2013 data from the International Federation of Health Plans, which show the average costs for a range of surgeries. He said he was "worried" that on some measures Australia is in line with the US, which spends 18 per cent of gross domestic product on healthcare, compared to Australia's 10 per cent.
"There are some things we don't really want to do well against in terms of US comparatives," he said.
A hip replacement in Australia was $US26,297 ($30,116), compared to $US26,489 in the US, but just $US19,011 in New Zealand and $US19,722 in the Netherlands, according to the data.
Caesarean sections, which account for about a third of births locally, cost $US10,263. In the US the same procedure cost $US15,240, compared to $US5492 in the Netherlands.
Mr Savvides said Australia performed much better on the cost of a day in hospital, which was $US1308 last year, compared to $US2491 in New Zealand and $US4293 in the US.
But the rising claims costs faced by insurers is not just a function of hospitals charging more, which the providers argue is underpinned by the rising cost of labour and medical supplies.
The jump is also due to an increase in the utilisation of healthcare. Mr Savvides said some of that care could be avoided by having a better functioning healthcare system. Medibank is running a trial in Victoria to better manage the care of chronically ill patients.
Across the industry, patients often described as "frequent flyers" are responsible for a large proportion of an insurer's outgoing costs. About 2.2 per cent of its 3.8 million members account for 35 per cent of hospital and medical expenditure and 70 per cent of this group have a chronic disease.
Correction: This article has been corrected to remove a reference to Mr Savvides meeting potential investors this week.
