The VHI has been accused of a "gross abuse of its position" because after three years of negotiations, it will not tell developers of a new private hospital in Galway whether its subscribers will be covered for treatment there.
The accusation was made by Mr James Sheehan, consultant orthopaedic surgeon at the Blackrock Clinic, who is also a hospital developer.
It arose during a debate on "Private practice - what is its future after the Health Strategy?"
Mr Sheehan was one of a panel of speakers at a question and answer forum chaired by Mr John Bowman of RTÉ.
Others included Mr Michael Kelly, secretary general of the Department of Health and Children and senior representatives of the State's health insurers, VHI and BUPA.
Pointing out that the last private bed provided in the west in an independent hospital was four years before the foundation of the VHI, Mr Sheehan said: "The total private bed supply is capable of dealing with less than 30 per cent of the needs of the privately insured population [in the west].
"The remaining 70 per cent have to try for private hospital facilities in the east coast or revert to the public service."
Referring to the position nationally, Mr Sheehan said people with private health insurance would require approximately 6,000 beds to service their needs.
However, with only 1,315 private beds available, "the privately-insured population is heavily dependent on reverting into the public system for their care".
His criticisms were strongly rejected by the VHI's chief executive, Mr Vincent Sheridan.
Referring to a recent PriceCooperWaterhouse survey on bed capacity he said: "Their view is that no demand exists for further bed capacity in the private sector."
Increasing the number of private beds would simply put up the cost of premiums, he added. In his address to the forum, Mr Sheridan predicted an encouraging future for private practice, but warned of challenges which must be faced. He called for a co-ordinated approach to the development of additional beds within the public and private sector and said the future of private practice was dependent on "all of us working together to reduce medical cost pressures".
Mr Kelly noted the Department of Health had been assured by the independent hospital sector of spare capacity within the private system at the time it was considering the introduction of the National Treatment Purchase Fund.
He added there was no hostility to private practice in the Government's health strategy and during its preparation "it was concluded that the present centrally funded tax-based system of funding, complemented by private health insurance would be retained".
BUPA Ireland's general manager, Mr Martin O'Rourke said: "The supply of beds must be decided in the market place."
Prof Ronan O'Connell, chairman of the division of surgery at the Mater Hospital, said: "The majority of patients with private insurance in urgent need of hospital treatment find that the private sector cannot respond and the public hospital can at best provide a bed in an already overwhelmed public ward.
"Those who value their health will continue to invest in VHI or BUPA policies. Market forces will determine the level of private practice the country can afford."