Medibank Private managing director George Savvides says the health insurer will take a tougher approach to negotiations with private hospitals and plans to use its market power and threaten to take its policyholders elsewhere when care is not of a high standard.

Mr Savvides said he was excited by the December float of the government-owned insurer, which could reap the Coalition between $4.1 billion and $5.7 billion, because it would allow Medibank to "flex its muscle".

"We've been very successful as a GBE [government business enterprise], but there comes a time that there's a stronger expression of what we want to do now and we certainly know what that is now," he told Fairfax Media. "This opportunity will let that loose."

With a 29.5 per cent share of the $21 billion private health market, Medibank has significant scale. However, it has been criticised for being a relatively inefficient organisation. Its management expense ratio, which measures the cost of administering policies as a proportion of its $5.6 billion in premium revenue, is higher than the industry average.

Mr Savvides admitted Medibank needed to work on reining in its management costs - and would do so in part by not replacing every employee who left - and investing in back office systems.

But he said there was a far greater opportunity to reduce the claims it payed out to private hospitals and other healthcare providers.

"Whilst Medibank has scale advantage in brand and distribution ... it hasn't really flexed its muscle on scale advantage in purchasing," he said.

Mr Savvides said in the past Medibank needed to have contracts with all of the nation's private hospitals to ensure coverage for its 3.8 million members.

But now that large hospital groups such as Ramsay Health Care and the newly listed Healthscope were adding thousands of beds to their existing hospitals through expansion projects, insurers had greater choice, he said.

"We'll see ourselves over time not needing to contract with 100 per cent of the market," Mr Savvides said. "That purchasing tension through the way we contract produces both cost efficiency but also our ability to discriminate around quality."

Across the sector the cost of medical claims is growing faster than revenue, which explains why insurers are trying to play a greater role in their members' health. Mr Savvides describes it as moving "from health payer ... to player".

Medibank's nearest competitor, Bupa, which accounts for about 27 per cent of the market, recently struck a deal with Healthscope that means it does not have to pay for care if an avoidable mistake occurs.

In the 2014 financial year, Medibank paid $100 million for revision surgery, Mr Savvides said. "That's surgery that was done a second time because the first time didn't work," he said.

Although sometimes revision surgery was needed, Mr Savvides said it was an example of an area where the cost of claims could be reduced.

Medibank's data can "very clearly show" which hospitals have quality indicators that were not up to scratch, he said.

Health insurers and private hospitals have regular contract negotiations over what the cost of services should be - everything from a night in hospital, to a hip replacement. These negotiations usually happen in private, but in August last year Medibank had a very public stoush with the largest private hospital operator Ramsay.

Mr Savvides declined to say whether he expected Medibank's tougher approach to negotiations to draw out similar showdowns. But he said the best hospitals would benefit from the approach.

High quality hospitals may be able to charge more for care, but if there are fewer failures or complications "the net cost is lower to the health fund and the experience of the customer is far superior," he said