It says 44 of 53 private health insurers pay their fair share of bed costs, which are government subsidised, but some large insurers unfairly profit from the system.
NSW Health estimates the average hospital bed cost at $1075 per day, with some insurers contributing just $474 per hospital bed.
That is despite NSW Health already charging private health insurers below cost at $892 per hospital bed per day, the government says.
Treasurer Daniel Mookhey has praised smaller insurers for doing the right thing. (Dean Lewins/AAP PHOTOS)
NSW Treasurer Daniel Mookhey said private insurers refusing to pay their bills robbed the public system of critical funds.
"I commend those smaller and not-for-profit insurers who are doing the right thing," Mr Mookhey said in a statement on Monday.
Health Minister Ryan Park said private insurers shifting costs to taxpayers was a "burden our health system can no longer shoulder".
"We're seeing some of the largest for-profit insurers, who enjoy billions of dollars in profit each year, sticking taxpayers with the tab," Mr Park said.
In June, the government said it reserved the right to take stronger action on the issue if it was unable to get a breakthrough with the private health funds.
The problem arose after insurers withdrew from a deal struck in 2013 to pay the full bill of public hospital stays, the government says.
The Insurance Council of Australia has been contacted for comment.
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