ACCC accuses Medibank of misleading customers

The ACCC is taking the nation’s largest health insurer to court alleging unconscionable conduct around the time of its IPO.

Former Medibank CEO George Savvides. The ACCC alleges that the company misled customers in part to protect its brand in the lead-up to the group’s $5.7bn IPO in November 2014.

Medibank Private shares have tumbled 5.5 per cent after the Australian Competition and Consumer Commission launched legal action alleging misleading conduct that left members with weaker coverage than they believed.

The actions threaten to tarnish the value of one of the nation’s best-known brands, with the consumer watchdog believing actions from the insurer that allegedly deceived customers were made in part to protect its brand in the lead-up to the group’s $5.7 billion IPO in November 2014.

The ACCC has initiated proceedings in the Federal Court and is seeking financial penalties, the admission of guilt and corrective notices from the nation’s largest health insurer.

Medibank has refuted the watchdog’s accusations and hinted it will fight the case in court.

At the heart of the ACCC’s case is the allegation Medibank deliberately opted against informing customers of a decision to limit benefits paid for in-hospital pathology and radiology services.

“Medibank estimated the change would lead to it making substantial financial gains, including from not paying the gaps, and from not paying the medical claims of members who left Medibank after becoming aware of the change,” the ACCC said.

“The members most likely to become aware of the change were members who claimed more frequently, some of whom were suffering from chronic conditions.”

The issue extends to the health insurer’s subsidiary ahm as well as the flagship Medibank brand and came around the time Medibank was preparing to shrug of public ownership and float on the ASX.

It is claimed Medibank failed to provide advance notice of changes to members, against guidance previously that it would inform its customers if such changes were to be made.

The ACCC also contends Medibank deliberately kept communications “contained and reactive” over the changes, leaving it to conclude the actions were “misleading and unconscionable”.

“Consumers are entitled to expect that they will be informed in advance of important changes to their private health insurance cover, as these changes can have significant financial consequences at a time when consumers may be vulnerable,” ACCC chairman Rod Sims said.

“Private health insurers must ensure their disclosure practices comply with the Australian Consumer Law. Competition and consumer issues in the health and medical sectors are a current enforcement priority for the ACCC.”

Medibank has quickly responded to the allegations this morning, suggesting it will defend its reputation in court.

“Medibank is committed to acting in the best interests of our members and refutes claims by the ACCC related to activities that took place in 2014,” the firm said in a statement, adding it encouraged customers to get in contact if they had any concerns.

“We have been working cooperatively with the ACCC throughout its investigation.

“As this matter is now before the court, we are unable to make any further comment.”

The conduct under fire from the consumer watchdog extends to most Medibank and ahm hospital policies in place since January 2012, with the significant tweaks that have riled the ACCC made in September 2014.

The firm’s high-profile ASX listing came in November of the same year.

The ACCC further claims Medibank was aware many members would be of the false belief certain services would still be covered, with the insinuation the health insurer failed to disclose key details for fear of a customer exodus.

It was also suggested the publicity of the changes would damage the Medibank brand and as a result, the firm decided not to make them widely-known.

If proven true, the damage to Medibank’s brand will be much greater now.

The action comes just a week after the Medibank brand was tagged as Australia’s 31st most valuable.

Macquarie analysts don’t foresee a hit to earnings on the news, but expect the group to face a few difficulties through the key June sales period.

“We expect that there is a risk that the ACCC proceedings negatively impact revenue growth for Medibank in the important June quarter sales period and potentially over a longer period as the legal proceedings progress,” Macquarie said.

“Although we don’t expect the impact to be material.”

At the closing bell, Medibank shares plunged 5.5 per cent to $2.91, against a flat broader market.