Private hospital patients booked to have procedures at Calvary hospitals in Canberra could be forced to find an alternative after Medibank Private terminated its contract with the national healthcare provider.

Medibank Private says it took the decision following months of unsuccessful negotiations, because the Calvary hospital group was unable to agree to its "quality and affordability criteria".

A Calvary spokesman said the group is "surprised and dismayed at Medibank Private's action to initiate termination proceedings".

"To our knowledge, we were of the strong view that both parties were continuing to negotiate in good faith with a desire by each side to renew our contract."

The Consumers Health Forum said on Sunday the dispute highlighted the need for a searching inquiry into private health insurance.

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

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

Medibank chief executive George Savvides said last September, in the lead-up to the initial public offering, that privatisation would allow Medibank to take a harder line in contract negotiations.

The show of strength by the market leader would form part of a strategy to control growth in the amount it pays to hospital operators for care, he said.

A statement from Medibank said, "Calvary Health Care has requested an increase in rates Medibank pays for services provided to its members to a rate which Medibank considers to be unsustainable.

"Calvary Health Care was also unable to agree to a range of quality criteria Medibank requires of its contracted hospital providers.

"ACT members can still attend a Calvary hospital after August 31 and Medibank will continue to cover a large portion of their hospital costs.

"However, ACT members may face an increase in out-of-pocket costs as Calvary will be able to charge their own rates."

The Calvary spokesman said the group was committed to a mediation process and looked forward to resolving the issue as soon as possible.

"We ask Medibank Private to return to the negotiating table as soon as possible to continue talks aimed at a resolution that is in the interest of all parties, including its customers," he said.

It is understood both parties will attend a mediation session with the Private Health Insurance Ombudsman later this month.

Patients already booked before the termination date will be covered under the current agreement, provided they are admitted for treatment generally within two months from the date of termination, and within nine months from the date of termination for obstetrics.

"For bookings/admissions received after the date of termination, if that proceeds, Calvary will be forced to charge patients a hospital gap to make up any shortfall, which will be in addition to the gap imposed by the fund," the Calvary spokesman said.

Calvary's national chief executive Mark Doran said Medibank had "simply dictated the terms" of the agreement, including expanded access to patient records.

"We think that there's some consultation that needs to take place with the medical fraternity and indeed the patients themselves or their clients of Medibank Private," he said.

In the past decade Medibank's hospital benefits outlays have surged from $1.5 billion to $2.9 billion. Over the last five years the insurer's average hospital benefit outlay has risen 6.7 per cent, which has pushed up the cost of premiums for customers by an average of 5.9 per cent.