The Australian Competition and Consumer Commission (ACCC) has taken Medibank Private (ASX: MPL) before the Federal Court while alleging that it has engaged in misleading and unconscionable activity because it has failed to notify policyholders that it has reduced coverage in the case of common hospital tests such as blood tests and X rays. On average, members were charged expenses of $151 for the committee and $80 for radiology as shown by court filings with one reported to be charged with a whopping $1500. ACCC said that MPL concealed the change in policy implemented in September 2014 to prevent migration of customers and to inflate profits before the public float of $5.7 billion two months thereafter. The finance minister Mathias Cormann who was the prime mover of the float has denied knowledge of any misconduct and pointed out that as part of the due diligence process the ACCC was consulted.
Under the terms of the policy changes which were secret, policyholders had to pay out part of their pocket for the gap in hospital services such as blood tests and X-rays.
The Labor party said that if the allegations turn out to be the true, it would indicate that the process of privatisation was of no benefit to the health system or to policyholders. The opposition spokeswoman Catherine King also raised concerns over re-election of the Turnbull government and possible push to put profits before patients such as the privatisation of Medicare.
The ACCC charges that Medibank calculated that it would make big profits in the future on medical claims of members who left because of the change but were likely to make frequent claims. The ACCC chairman Rod Sims commented that the IPO was a very relevant background factor so that inferences can be drawn and that it would make logical sense for the company to maximize its earnings. A spokesman for the company said that that the health fund with 3.9 million members through the flagship and its subsidiaries refutes the claims of the ACCC.
However, the ACCC wants the company to reimburse members for any out of pocket expenses incurred since September 2014 because it believes that only ad hoc payments were made to members who complained. The ACCC also charges the company with exploiting consumer confusion about health insurance and says that the company should have given advanced notice of detrimental changes and provided updates in marketing and product information. The legal action comes just a few months after MPL reported the growth and profit for the first half of 2015/2016 of $271.7 million up almost 60% over the previous year.
Sufferers have been asked to file a complaint with Medibank first and then with the Private Health Insurance Ombudsman if MPL fails to meet the expectation. A financial penalty along with compensation for policyholders is being sought by ACCC.
While MPL refutes the claims by ACCC, market now expects that the court action may impact MPL’s revenue growth in the June-ended sales period or for longer as proceedings progress. The stock price has fallen 8.2% in the last five days (as at June 16, 2016).
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