The many types of payment models used in the Australian private sector are reviewed. Their features are compared and contrasted to those desirable in an optimal private sector payment model. The EPMTM (Equitable Payment Model) is discussed and its consistency with the desirable features of an optimal private sector payment model outlined. These include being based on a robust classification system, nationally benchmarked length of stay (LOS) results, nationally benchmarked relative cost and encouraging continual improvement in efficiency to the benefit of both health funds and private hospitals. The advantages in the context of the private sector of EPMTM being a per diem model, albeit very different to current per diem models, are discussed. The advantages of EPMTM for hospitals and health funds are outlined.