Bupa hospital contracts and the debate over ‘No Gap’ care: what leaked documents suggest
Australia’s private health system relies on a web of agreements between insurers, hospitals and doctors. Those arrangements can determine not only how much patients pay, but also which facilities are financially viable and how much freedom doctors and hospitals have to set their own fees.
That system is now under renewed scrutiny after leaked contracts revealed details of how health insurer Bupa structures some of its agreements with private hospitals. Critics, including private hospital representatives and a former Bupa executive, argue the contracts contain conditions that can pressure smaller hospital operators and ultimately narrow choice for consumers. Bupa denies the allegations and says its approach is designed to help customers pay less and avoid unexpected out-of-pocket costs.
The dispute has also prompted calls for the competition regulator to intervene, and for a new national benchmark pricing system, as hospital groups argue the current dynamics allow a large insurer to exert outsized influence in negotiations.
Why Bupa’s contracts matter in the private system
Bupa is one of Australia’s largest private health insurers, with nearly 4 million customers and about a quarter of the national market. In some regions its influence is even greater: it is the market leader in South Australia with more than 40 per cent market share.
For many hospitals, access to a large insurer’s member base is critical. Critics say that imbalance can leave smaller hospitals with limited bargaining power when negotiating prices and conditions. Leaked documents have highlighted terms that, according to hospital advocates, extend beyond standard pricing agreements and into operational and commercial decisions.
Bupa says its contracting practices comply with competition law and operate under regulatory oversight. It also argues that its arrangements are aimed at improving affordability and providing patients with confidence about costs.
The centre of the dispute: Bupa’s Medical Gap Scheme
A key focus of the criticism is Bupa’s Medical Gap Scheme, which has operated in its current form since 2021. The scheme applies when patients are treated as either “No Gap” or “Known Gap” patients in a private hospital. Under these settings, patients should pay only their excess, or up to $500 on top of the excess if they are a Known Gap patient.
In the private system, the concept of “gap” refers to the difference between what Medicare and insurers pay and the total fee charged for a service. Insurers use gap arrangements to reduce or remove out-of-pocket costs for patients, often by paying doctors above Medicare’s Schedule Fee to encourage participation.
However, critics say Bupa’s scheme operates differently from other insurers’ approaches by using hospital contract terms to restrict what doctors can charge.
How hospital and doctor billing usually works
Typically, hospital contracts set out what an insurer will pay a hospital for things like theatre and room fees. Separately, doctors decide whether to use an insurer’s No Gap or Known Gap billing for their own professional fees. In that model, the hospital and the doctor can make independent decisions about whether a patient will face out-of-pocket costs.
According to the leaked documents and critics’ interpretation, Bupa’s Medical Gap Scheme links these elements more tightly. Private hospitals say Bupa uses the terms of its hospital agreements to prevent subcontracted doctors from charging patients any out-of-pocket costs when the scheme applies.
Claims of reduced choice and pressure on smaller hospitals
Former Bupa executive David Du Plessis, now a contracts consultant for private hospitals, has supported the claims that the scheme can be used as leverage in hospital negotiations. He argues that because of the complexity of billing, a hospital that refuses to sign a contract can place its doctors in a difficult position: accept lower payments from the insurer per procedure, or charge patients significant out-of-pocket costs.
He describes the dynamic as a “wedge” that can force hospitals to hold a contract. While avoiding out-of-pocket costs may sound beneficial for patients, he warns the arrangement can also reduce practical choice by steering members toward contracted hospitals.
One reason is that doctors are unable to use Bupa’s Medical Gap Scheme at a non-contracted hospital. Patients who choose one of the 99 facilities where Bupa does not have a contract can face a “double hit”: out-of-pocket costs from both the hospital and the doctor.
In Mr Du Plessis’s view, the effect is that members can technically choose a specialist, but may bear much higher costs unless that specialist treats them at a Bupa-contracted hospital.
Hospitals say doctors are subcontractors and the terms are unfair
Jane Griffiths, chief executive of Day Hospitals Australia, has also raised concerns, saying the doctors are subcontractors and that the relevant terms are unfair. Mr Du Plessis adds that if doctors earn less because a hospital is off-contract, they may leave, putting the hospital at a disadvantage and increasing pressure to accept contract terms even if proposed prices are unsustainable.
Critics frame this as a moral and market question: whether it is appropriate for an insurer to use contract settings in a way that can influence where doctors work and where patients feel they can afford to be treated.
Bupa’s response: “baseless” claims and a focus on affordability
Bupa rejects the allegation that its Medical Gap Scheme is anti-competitive. In a statement, the insurer said claims about its gap scheme were baseless and that the scheme was designed “to help customers pay less, and in many cases nothing, for medical out-of-pocket costs”.
Bupa has also said the scheme aims to help customers avoid unexpected bills and “get the care they need with confidence”. The insurer argues that it does not set doctors’ fees or hospitals’ charges at uncontracted hospitals and does not ask doctors to influence hospital fees.
Bupa says hospitals are free to negotiate with other insurers, which it argues can support competition.
A new flashpoint: conditions proposed for uncontracted hospitals
Leaked information also suggests Bupa has been attempting to extend similar conditions beyond contracted hospitals. Since August last year, Bupa has been trying to impose a condition on doctors at uncontracted hospitals, according to reporting on a letter sent to the Australian Society of Ophthalmologists.
In that letter, Bupa stated its specialists could start using the No Gap scheme for doctors’ fees at some of the 99 hospitals where it did not have a contract. But it stipulated this could only occur if the uncontracted hospital provided and continued to comply with a written undertaking not to charge Bupa customers any out-of-pocket costs beyond the applicable excess.
Australian Private Hospitals Association (APHA) chief executive Brett Heffernan described this approach as “beyond the pale”. The association has called on the Australian Competition and Consumer Commission (ACCC) to act, alleging anti-competitive behaviour.
Mr Heffernan argues the arrangement would allow Bupa to effectively dictate pricing by placing hospitals “over a barrel”, calling it inappropriate.
What competition law experts say regulators would look for
Bashi Hazard, a competition law lecturer at the University of Sydney’s Law School, says the gap scheme could be anti-competitive if it were found to be both coercive and limiting competition in small areas. She notes that, particularly in regional areas, the regulator would need to take a close look at the impact.
The underlying concern is that when a large insurer’s policies influence where patients can afford to be treated, smaller hospitals and local markets may have fewer viable options—an issue that becomes more acute where one insurer has a high market share.
Understanding the key terms: No Gap, Known Gap, and hospital agreements
The debate can be difficult to follow because the private system uses overlapping definitions for fees, rebates and agreements. The Department of Health and Aged Care definitions referenced in reporting outline the basics:
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 their 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. This is 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. Sometimes they also result in fixed fee arrangements similar to known gaps.
In the story at the centre of this debate, “No Gap” is used as a broad reference to both No Gap and Known Gap charging.
Profit, payouts and the question of member value
While the central argument is about choice and competition, the dispute also touches on how much value members receive for their premiums. APRA data shows Bupa’s benefits-ratio payment—the percentage of incoming premiums paid out to members as benefits—is 82.4 per cent. That compares with Medibank Private at 85.6 per cent and HCF at 87.8 per cent.
Mr Heffernan argues that a lower ratio suggests Bupa is “a long, long way behind” where it needs to be in meeting obligations to members. Bupa, for its part, frames its gap arrangements as a way to reduce costs for patients.
Bupa also reported a full-year after-tax profit of $594 million in 2024–25, higher than any other private health insurer. Critics point to the insurer’s market position and financial strength as reasons regulators should pay close attention to how contract terms affect smaller providers.
Contract terms beyond pricing: approvals, expansion plans and confidentiality
The leaked contracts also show what critics describe as the “long arms” of insurer agreements. According to the documents described, hospitals must seek permission from the insurer if they intend to open a new unit or wing and provide detailed information, including why it is needed, the names of doctors involved, how patients will be attracted, and estimates of how many Bupa patients might use the service—requirements linked to accessing higher contracted rates.
Hospital representatives argue that even if such terms are legally allowed, they can be onerous and may conflict with what they see as the basic compact with customers: that insurance should cover services rather than direct where and how care is delivered.
Mr Du Plessis says these “business rules” can hamper flexibility even for large hospital groups.
Another contentious issue is secrecy provisions. Mr Heffernan says contractual confidentiality prevents hospitals from objecting publicly to terms they consider excessive, claiming clauses restrict what hospitals can say about contract conditions.
Delays and negotiating capacity: claims about contracting strategy
Mr Du Plessis also argues that some small hospitals face difficulty even getting a contract offer, particularly new hospitals trying to enter the market. He says he has seen providers cite delays in establishing reasonable rates with Bupa.
Drawing on his time at the insurer, he says Bupa had about six staff negotiating with more than 600 private hospitals, and that delays were sometimes part of the strategy. Bupa has said it has contacted some non-contracted hospitals to outline “voluntary contracting options” that could support lower out-of-pocket costs for members.
Regional access and the practical impact on patients
Both sides acknowledge that regional areas can face fewer choices. Mr Du Plessis argues that where Bupa has a large market share, the effect of its contracting approach becomes “doubly problematic”.
Bupa has said patients in regional areas could have fewer choices and that this is why it works closely with customers to ensure they have access to care at contracted hospitals.
The disagreement is partly about what “access” means in practice: whether steering members toward contracted hospitals is a reasonable way to control costs, or whether it restricts choice and undermines competition—especially for smaller facilities that may struggle to negotiate.
What happens next: calls for regulator action and pricing reform
Private hospitals want the ACCC to intervene and are also seeking agreement on a new national benchmark pricing system. The push reflects broader frustration about negotiations between insurers and hospitals, and the extent to which contract terms can shape the market.
Peak body Private Healthcare Australia, representing health insurers, says No Gap arrangements are designed to avoid surprise medical bills. That goal is widely shared across the system. The unresolved question is whether the way a particular scheme is implemented can cross the line into coercion or market restriction, especially in smaller or regional markets.
For consumers, the controversy highlights a practical takeaway: out-of-pocket costs and hospital choice can depend not only on the doctor selected, but also on whether the hospital is contracted with the insurer and how the insurer’s gap rules operate in that setting. The industry debate now is whether those rules are a legitimate cost-control tool—or an anti-competitive constraint that warrants closer oversight.