Under current negotiations with hospitals, Medibank has dramatically reduced its hospital costs by refusing to cover what it deems as mistakes made by a hospital. It will also not pay the hospital if a woman dies giving birth.

"I find it offensive that a private insurer would refuse to cover the costs of that patient and hospital in such a tragic event," Dr Owler told the National Press Club on Wednesday.

"If someone thinks that a financial incentive will motivate doctors, nurses or anyone else in a hospital to prevent maternal death any more than they desire to do so now, then they have no understanding of medicine or the people in it."

Medibank responded angrily, saying it was disappointed by Dr Owler's comments and that it was not uncommon for hospitals to waive a charge to private health insurers if a woman died during childbirth.

"This tragic and rare event ... has been an inclusion in the contracts Medibank has agreed with hospitals for some time," a spokesman said.

"We are not afraid to say that we want to see preventable events eliminated from the healthcare system and one of the ways we seek to do this is though our contracts."

But Dr Owler warned that such cuts could lead to an Americanised health system in which an insurer can be "basically dictating what doctor you can be referred to, what treatment you can have".

"It actually increased costs and at the end of the day the only one that wins is the insurer," he said.

"Medibank Private have actually made no secret of the fact that they want to have a much greater say in the payment to providers, whether it be hospitals or doctors or anyone else."

Consumer groups were also outraged by changes made by the country's biggest health insurer.

"The suggestion that a health fund should be exempt from paying benefits in the event of a mother dying during childbirth is harsh and unreasonable," said Consumers Health Forum chief executive Leanne Wells

"It highlights the need for the development of a clinically led, nationally agreed register setting out those avoidable, adverse events where health funds would be exempt from paying benefits."

Federal Health Minister Sussan Ley said the Australian health system was "completely different" to the American system, and negotiations between health insurers and public hospitals did not indicate a shift to any new model.

"We have a strong, competitive health insurance market in Australia and it's important consumers don't underestimate their buying power if they think they're not getting the best deal possible," she said.

Former Liberal government health adviser Terry Barnes said insurers had a right to expect better quality from hospitals.

"If we're talking about the type of quality assurance we expect from tradesmen, if the plumber doesn't get it right the first time, you don't pay him again to do the same job.

"[But] it's important that patients are not penalised for things beyond the doctors' and the hospitals' control," he said.

Under current negotiations, Medibank will not cover 165 "highly preventable adverse events". This has been increased from a list of 20 "events".

For example, the insurer says it won't pay for bleeding or haemorrhaging of patients who have blood clot disorders and it won't pay if a patient slips and falls over while in hospital.

Maternal death is not included in the list of "highly preventable adverse events", the Medibank spokesman said.

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