ACCC allegations: Medibank ‘trying to stop doctors overcharging’

Medibank Private will likely argue it was trying to stop doctors overcharging when it faces the ACCC in court.

Medibank is facing claims it intentionally misled customers

Medibank Private is likely to argue its alleged “unconscionable conduct”, involving keeping customers in the dark over policy changes, stemmed from a legitimate attempt to clamp down on doctors overcharging for pathology tests.

While Australia’s largest private health insurer puts itself on a war footing after the Australian Competition & Consumer Commission launched legal action against the company on Thursday, analysts believe any reputational damage from the scandal will likely blow over, minimising any financial blow to the insurer.

The ACCC alleged Medibank failed to inform members that it would limit benefits paid on in-house pathology and radiology services, meaning patients had to cover the “gap” between Medicare Benefit Schedule and the doctor’s charge for the service, known as the “Medigap”.

But a senior industry source said the alleged behaviour was part of an industry-wide attempt to reduce the incentive doctors and service providers had for booking unnecessary procedures.

“There’s a perverse incentive built into the system for doctors to admit patients when modern technology means specialists can often perform work within their own surgery,” the source said.

“Often doctors will admit a patient purely so they can get a Medigap payment.”

The revelations of Medibank’s quiet withdrawal of gap payments for pathology and radiology comes as federal Health Minister Sussan Ley reviews the $20 billion private health industry, with the government putting forward proposals to remove bulk-billing incentives for items such as blood tests, X-rays and MRIs.

The ACCC has also been closely watching the communication of insurers to customers for some time. Credit Suisse analyst Andrew Adams said the regulator’s 2015 report on the industry was “damning” around information provided to consumers.

Some funds have removed the Medigap payment in an attempt to address the incentive doctors have for booking services. Under the current Medigap arrangements, a health fund can not guarantee there will never be a gap payment footed by a patient.

“There are very genuine reasons why health insurers should be looking at their Medigap arrangements so they’re not actually encouraging the wrong type of behaviour,” the source said.

Medibank is also likely to argue in the Federal Court that it did not change its implicit contract with its customers, but rather its contracts with its clinical providers changed — something that regularly happens in the insurance space.

“That’s what they’ll be arguing in court,” the source said.

After Medibank shares plunged 5.5 per cent on Thursday in the wake of the ACCC’s action against the insurer, the stock recovered 1 per cent yesterday.

CLSA analyst Jan van der Schalk said the company’s bottom line would probably not be affected in the short term and that the number of affected clients would be small.

“We assume the company has already provisioned for a ‘worst case’ outcome. We would speculate that, in the medium term, there’s a negative impact to lapse rates but would suggest this would be offset by short-term margin expansion,” Mr van der Schalk said.

UBS analyst James Coghill said any potential compensation to affected customers was unlikely to be significant.