Medibank Private's managing director George Savvides threatened on Wednesday to use the insurer's market clout only to preference hospitals that agreed to its prices and quality standards and refuse to insure policyholders who went elsewhere.

But St Vincent's Health Australia, which is negotiating a new two-year contract with Medibank Private, is concerned this will lock high quality but more expensive providers out of Medibank contracts.

St Vincent's chief executive Toby Hall said it appeared Medibank wanted to create its own hospital network.

"There's a huge risk when an insurance company starts telling people where to go," Mr Hall said.

"They're going to go with the lowest cost provider rather than the best provider.

"We need to have absolute assurance that health insurers are looking after the best interests of the people they're insuring."

Cardiothoracic surgeon Emily Granger said she sent many of her patients to St Vincent's although it was more expensive because it had such a high level of care, with more nurses and better back-up systems.

"I'm very concerned because it means that a group of very challenging patients potentially won't get the best care available," Dr Granger said.

Medibank has asked St Vincent's to accept far more stringent conditions than those it has negotiated with other insurance companies, including stipulations that bring new costs.

"They're looking at offering us under 50 per cent of the average we've negotiated with the other funds," Mr Hall said.

A Medibank spokeswoman said its contract conditions were as much about the quality of care as they were about affordability.

"At Medibank, we are focused on quality and affordability and this is part of our commitment to improving our members' healthcare experience," she said.

"We will contract with any private hospital as long as they meet our affordability and quality criteria."

The arrangements between health insurers and hospital groups are commercial in confidence, but it is understood that some religious hospital networks have been able to negotiate more favourable contracts because historically they provided better care.

This does not necessarily remain the case, but as other hospitals have improved in quality their rates have not kept pace.

Medibank and Ramsay Health Care took their negotiations public last year in an audacious display of brinksmanship, with the insurer threatening to go off contract and subject patients to higher out-of-pocket costs and the health care provider urging its patients to switch policies.

But Ramsay, Australia's largest private hospital operator with about 30 per cent market share, was in a stronger bargaining position than St Vincent's, which has eight private hospitals in NSW, Victoria and Queensland.

"It's certainly much easier for [Ramsay] to have a fight and I think one of the risks now is it's very easy for someone like Medibank to pick off some smaller solid providers," Mr Hall said.