After missing out on the top job at National Australia Bank, Craig Drummond, the incoming boss of Medibank Private, is set to receive a handy pay rise, even as the company grapples with mounting pressure to cut its own costs and rein in rising charges from health care providers.

Medibank Private on Tuesday announced Mr Drummond would take up the role on July 2, replacing outgoing chief executive George Savvides.

Mr Savvides took home $2 million in the year to June 2015, with a base salary of $1 million topped up by $303,000 of short-term incentives, $602,147 of performance rights, and other sundry entitlements.

In all, incoming Medibank boss Craig Drummond could receive as much as $6 million a year. Photo: Jim Rice

However, Mr Drummond is starting at Medibank with a higher fixed base pay of $1.5 million and the opportunity to receive up to another $4.5 million in incentive payments. Half the top-up payments are short-term incentive payments and the balance are long-term incentive payments. In all, he could receive as much as $6 million a year, although hitting the top of his incentive payments would hinge on an "outstanding performance", Medibank said.

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Medibank chairman Elizabeth Alexander highlighted Mr Drummond's "leadership capabilities, strategic thinking and business acumen".

"He brings with him deep experience in regulated service industries requiring a strong customer focus," she said.

His appointment comes as the federal government is raising pressure on the health sector to curb its ballooning healthcare bill, and challenging premium hikes sought by health insurers. In turn, health insurers have been pushing hospitals and other service providers to reduce costs and improve operating efficiencies. This saw Medibank go public in a bitter dispute with Calvary Hospitals over claimed inefficiencies and other issues.

An estimated $3.5 billion of the $5 billion Medibank pays out each year goes to hospitals, which is why this is an area of keen management focus.

"The best way to deal with the 'health crisis' is to continue the work on achieving efficiencies in the system; it's something which Medibank Private has been at the forefront of doing [through statistical analysis] and the next leg is to pare back the costs of running the operation," CLSA analyst Jan van der Schalk​ said. 

Medibank and the UK-owned BUPA each hold about 30 per cent of the market, with HCF at 11 per cent and NIB the next largest with 8 per cent. NIB in particular has been seeking to grow by acquisition but since the industry is dominated by mutually owned operators, its ambitions have been frustrated to date.

"Unlike others in the sector, such as NIB, which have sought to expand outside the sector, near term, the focus at Medibank needs to be internal," another analyst said, pointing to the need to cut costs.

"Health care inflation is running at 6 to 8 per cent globally. With each of NIB, BUPA and Medibank seeking 5 to 5.8 per cent rate rises, if [Mr Drummond] keeps that going, costs, in relative terms, will come down as earnings rise, and that should attract more people to the system."

During his time as finance chief of NAB, Mr Drummond had a key role in a flurry of deals that were intended to help the lender turn around its fortunes after years or lagging rivals. 

These included a $5.5 billion capital raising in 2015, last month's spin-off of NAB's poorly performing Clydesdale Bank in Britain, the sale of NAB's US bank Great Western and a $2.4 billion deal to offload 80 per cent of its life insurance risk to Nippon Life.

When he stepped down last month, Mr Drummond said that having done these deals, "the type of work that will be required over the next two years as CFO is not something that fully excites me".

He made it clear he aspired to work in a chief executive role, and was linked to the Medibank appointment but declined to comment at the time. Mr Drummond had been viewed as a potential chief executive of NAB when he was hired in mid 2013, but the board opted for current chief Andrew Thorburn.

In the year to June 2015, his last full year at NAB, Mr Drummond earned $4.1 million, with a base pay of $1.26 million topped up with various incentive and other payments. A year earlier, he earned $6.78 million.

By way of comparison, Mark Fitzgibbon, who runs NIB, took home $1.54 million in the year to June 2015.

Medibank is raising premiums an average 5.64 per cent from April 1. It sought a higher premium rise but was forced to back down by the federal government. The average rise was 5.59 per cent, with the lowest 3.76 per cent and the highest 8.95 per cent.