Media releases

May 22, 2001

Health fund removes variation clause from hospital contracts

Australia's largest health fund, Medibank Private, has agreed not to include unilateral variation clauses in hospital contracts between itself and private hospitals.

These contracts, known as hospital purchaser provider agreements (HPPAs), among other things detail the health fund benefits in return for which hospitals agree to provide their services to eligible health fund members.

Following a dispute on commercial issues between the fund and Brisbane-based Toowong Private Hospital, agreement negotiations commenced which ultimately resulted in the Australian Private Hospitals Association (APHA) complaining to the ACCC about this particular clause.

The clause was a unilateral contract variation clause which Medibank Private had included in the new draft HPPA. According to the clause, the health fund could vary terms and conditions in the contract at its discretion. Variations could take effect after three months.

Unilateral variation clauses can be found in a number of industry contracts, such as bank credit arrangements.

In addition to the unilateral variation clause, the Medibank Private draft HPPA also contained a consensual variation clause that allowed either the health fund or the private hospital to terminate their agreement on 30 days notice.

Discussions between Medibank Private and Toowong continued from June 1999 into 2000. In January 2000, APHA took the complaint to the ACCC.

Meanwhile, Medibank Private signed a new HPPA with Toowong which took effect last September. That agreement did not include the unilateral variation clause that caused Toowong concern.

Given ACCC concerns, Medibank Private offered to enter into a Section 87 B undertaking.

In this, the health fund acknowledged it might have acted in a manner that led Toowong to believe it was attempting to unfairly impose a unilateral variation clause. In addition, Medibank Private has agreed not to insert similar unilateral variation clauses in HPPAs without the prior agreement of the ACCC.

Medibank Private is reviewing its hospital contracting process and will ensure HPPA correspondence and negotiations are handled quickly. It is also reviewing its Trade Practices Compliance Program.

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