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Australia's second-largest private hospital operator Healthscope is reportedly cutting all ties with two major private health insurers -- Bupa and Australian Health Services Alliance (AHSA) -- after the latter denied giving a proposed hospital fee.

Healthscope, which ran 38 private hospitals across the country, said the proposed fee addressed the funding shortfall between insurance payouts and rising hospital costs, ABC reported. The split will likely result in higher treatment costs for 6.6 million insured individuals.

Healthscope had proposed a AU$100 fee for Bupa and AHSA members using the former's care facilities to deal with what they called the "chronic underfunding" from insurers, amid rising cost of providing care. However, the insurance giants threatened legal action if the fee was implemented, Nine News reported.

The contract with Bupa was set to be terminated from Feb. 20, 2025, and AHSA will be cancelled from March 4, 2025.

Private Healthcare Australia CEO Rachel David condemned the fee, calling it non-sustainable for insurance providers, and warned it might lead to increased costs for members, potentially causing them to downgrade or drop their health coverage.

AHSA CEO Andrew Sando said Healthscope was placing investor monetary interest above the insurance holders, adding that they will redirect policyholders to other hospitals they represent should the fee come into effect.

"How and why the Australian government permits foreign private equity owners such as Brookfield to extract more profits from the already financially challenged private health care system is unclear," he said.

Greg Horan, CEO of Healthscope, said that financial issues were causing private hospitals, including Healthscope, to face a viability dilemma. Despite this, insurers have declined to recognize and resolve these issues.

Horan also hinted that Healthscope's capacity to deliver top-notch care would be jeopardized in the absence of adequate funding.