The two parties signed a three-year contract just a day before an existing contract expired and after a protracted and at times ugly public spat over public safety and expenditure.

Negotiations between Australia's largest health fund and the hospital chain broke down in July when Medibank declared it would no longer pay for 165 "highly preventable adverse events".

About 4700 Medibank Private members used the territory's Calvary hospitals last year, at Bruce and John James. There are no alternative Medibank-contracted hospitals for obstetrics and psychiatry.

The health insurer was sold by the federal government in a $5.7 billion float last year.

Im a joint statement released on Sunday, both parties said the agreement would deliver improved outcomes and affordability for members and patients despite previously accusing one another of not acting in patients' interests.

At the height of the dispute Medibank took out full-page newspaper advertisements to counter what it termed misleading and misinformed statements about the end of the contract

"Unfortunately, unlike [other private hospitals] Calvary believes health insurers should pay for mistakes which can be prevented, like falls and pressure sores, even though they happen in their hospitals," Medibank said in advertisement.

Australian Medical Association president Brian Owler called for the federal government to intervene and Calvary Health Care chief executive Mark Doran warned the issue was a matter of patient safety.

On Sunday Medibank executive manager Dr Andrew Wilson and Mr Doran described the negotiations as "robust and challenging"

"However, we've reached an agreement that will deliver enhanced clinical safety, quality care and affordability for members and patients. It is good for both our organisations and all other stakeholders, be they staff or doctors," they said in a joint statement.

"We are pleased to have achieved certainty about ongoing care for Medibank's members who require care in Calvary hospitals.

The terms of the new contract have not been released, with both Calvary and Medibank claiming they are confidential.

Consumers Health Forum chief executive Leanne Wells said the secrecy was "not good enough".

"Consumers pay thousands of dollars a year in health insurance premiums and the health fund involved is a publicly listed for-profit company."

"For all members know, Calvary may have weakened and agreed to 160 or the 165 claims – hardly a big win for consumers because differential costs will still fall to consumers. Basically Medibank private members don't know what they don't know."

Professor Owler said the government's decision to sell Medibank Private was in part to blame for the dispute that became "a pivotal moment in our healthcare system".