Medibank faces ‘misleading conduct’ claims from ACCC

The consumer watchdog has taken Medibank Private to court for engaging in ‘misleading and unconscionable conduct’.

Medibank is accused of keeping customers in the dark over a benefit limit for its ahm members.

Medibank Private’s hard-line cost-cutting drive has spectacularly backfired, with the consumer watchdog taking Australia’s largest private health insurer to the Federal Court alleging it failed to inform members that it would limit benefits paid on in-house pathology and radiology services.

The Australian Competition & Consumer Commission alleges the recently privatised insurer ­engaged in “misleading and unconscionable conduct” by keeping customers in the dark over a new benefit limit for members of its ahm brand, changes which Medibank hid to shore up customer numbers ahead of its $5.7 billion float.

Where Medibank once covered charges above the Medicare Benefit Schedule, one of the few funds that had the benefit, customers were now required to pay the gap but had not been notified of the changes to their policies.

Morgan Stanley estimated the direct savings from cutting the radiology and pathology gap payments contributed about $35 million a year to profit margins.

It is the latest scandal in the ­financial services industry and puts Medibank in the firing line for millions of dollars in penalties and customer reimbursements.

ACCC chairman Rod Sims told The Australian the regulator had concerns “beyond Medibank” and was in the middle of a sector-wide investigation into similar practices.

The legal action, which comes amid a federal election campaign in which rampant health insurance premium increases are in the spotlight, sparked a rout in Medibank shares, which plunged as much as 8.5 per cent on the news before closing 5.5 per cent lower at $2.91.

The ACCC alleged Medibank calculated the risk that some of its 3.9 million customers would leave the insurer if the changes to the benefit payments had been made clear, which would dampen the 2014 listing.

“We think these are very serious allegations and we think the behaviour that we’re alleging should change right across the industry,” Mr Sims said.

“We’re hoping to deter Medibank from continuing to do this and we’re hoping to send a deterrence message to the rest of the industry.”

The trouble for Medibank comes on the heels of the scandal at Commonwealth Bank’s ­CommInsure life insurance business, which was hit by allegations of unethical and unscrupulous behaviour in regard to rejected insurance claims.

Analysts had questioned Medibank management about the ACCC’s concerns on insurer conduct, which included “inadequate communication of policy changes”, at the company’s investor day in October last year. One analyst said Medibank “failed” to answer these concerns.

Opposition health spokeswoman Catherine King said the allegations that Medibank “deliberately deceived its members are deeply concerning”.

Mr Sims said Medibank profited from the alleged behaviour, which began in September 2014, in three potential ways: carving out savings from its ahm customers, which account for about 15 per cent of Medibank’s member base; maintaining premium flow; and giving expensive “frequent-flyer” customers who made claims a reason to depart the insurer.

The revelations of the alleged conduct, which Mr Sims said was still continuing, are a blow to Medibank’s otherwise successful push to clamp down on costs at its hospital partners. The insurer earlier this year upgraded its profit outlook by $100 million after reaping a windfall from its hard-fought battle with private hospitals over preventable costs it now refuses to cover.