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04 Jul 2016

Medibank Private hid cuts to in-hospital pathology and radiology cover to pump up its profits and boost its sale price, the Australian Competition and Consumer Commission has alleged.

The ACCC claims that the nation’s biggest health fund was motivated by profit and commercial advantage in failing to disclose to its members a change in cover that would leave them out-of-pocket for in-hospital pathology and radiology services.

The consumer watchdog said that Medibank “knew or expected” that many of its members incorrectly believed all of their in-hospital medical expenses were covered, and that most members did not make inquiries about out-of-pocket expenses before being admitted to hospital.

The ACCC said that not only was the insurer wary of the potential loss of members and damage to its brand if the change was publicised, but was concerned that such a disclosure, just two months before its public float, would hurt its market value.

“Medibank calculated there was a risk that the publicity around the benefit change would damage Medibank’s brand and reputation, and have a negative impact on its planned initial public offering of securities,” the ACCC said.

ACCC Chairman Rob Sims told the Sydney Morning Herald that the initial public offer was “a very relevant background factor, so one can draw inferences. Certainly, it makes logical sense this is the time when you’re trying to maximise your earnings”.

The health fund, with 3.9 million members, also saw an opportunity to boost its bottom line by hiding the benefit change from members, according to the watchdog.

“Medibank estimated the change would lead it to 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 alleged improper behaviour involved members of both Medibank Private and its offshoot ahm, and the policies involved included Medibank’s Basic Hospital, Mid Hospital, Standard Hospital, Top Hospital and Ultra Health Cover, and ahm’s Budget Hospital, Basic Hospital, Classic Hospital and Top Hospital.

The ACCC said Medibank had made no changes since its behaviour was uncovered, and the watchdog indicated it would seek declarations, injunctions, compensation orders, pecuniary penalties, findings of fact, corrective notices and costs in the action before the Federal Court.

Adrian Rollins

Published: 04 Jul 2016