In June 2016, the Australian Competition and Consumer Commission (ACCC) brought proceedings in the Federal Court against Medibank Private Limited (Medibank) alleging it contravened the Australian Consumer Law by engaging in misleading conduct, making false or misleading representations and engaging in unconscionable conduct.

At the heart of the claim were allegations that Medibank failed to notify its policy holders regarding its decision to terminate contracts with providers in-hospital pathology and radiology services. Yesterday, the Court dismissed all allegations against Medibank largely on the basis that the evidence did not bear out key aspects of the ACCC’s case.

The key allegations

Misleading or deceptive conduct

The ACCC’s case with respect to Medibank’s alleged misleading and deceptive conduct was grounded on two key representations:

• the “diagnostic cover representation” - Medibank allegedly represented that under the terms of its private health insurance policies, members would not incur any out-of-pocket expenses for “in-hospital diagnostic services”
• the “notice representation” - Medibank allegedly told actual and potential health insurance policy holders that it would tell them in writing if it proposed to make any “detrimental changes” to the benefits it offered under its policies.

The ACCC asserted that the diagnostic cover representation became false after 1 September 2014, following changes to its contractual arrangements with diagnostic service providers (such as radiology and pathology), which had the effect of reducing benefits payable for these types of services (or, expressed another way, increasing the out-of-pocket costs of those services). The notice representation was allegedly false, due to the inadequate nature of the disclosure of this change provided by Medibank to policy holders after 1 September 2014. If the ACCC had been able to establish these matters, then the conduct would have been misleading and deceptive and a breach of Australian Consumer Law, potentially exposing Medibank to considerable penalties.

Unconscionable conduct

A further related allegation by the ACCC of unconscionable conduct was based on assertions that:

• policy holders were vulnerable (in terms of a lack of knowledge of hospitals and their pricing practices) and that this was known to Medibank
• due to the two representations (discussed above) they had an expectation that they would be notified of any detrimental changes to their level of coverage for hospital diagnostic services before any such change occurred
• Medibank adopted a strategy of keeping communications of the Benefit Change “contained” and “reactive” and did so for commercial gain despite knowing of the adverse impact that it would have on policy holders.

The Court’s findings

In very simple terms, the ACCC lost this case on all grounds and did so largely on the basis of the Judge’s views of the evidence led at trial. On the key allegations:

The “diagnostic cover representation”

The Court was not satisfied that this representation arose out of the various communications with consumers before and after they entered into one of the various Medibank policies. This aspect of the matter turned on the meaning attributed to the word “cover” by the ordinary reasonable consumer in the context of the various pre- and post-policy marketing materials produced by Medibank. In very simple terms, the question was whether Medibank’s statements that consumers would be "covered" for various treatments and services meant consumers understood that to mean an “indemnity” for all relevant costs and expenses of those treatments and services. The Court was not willing to make this finding in the context of the pre-policy information provided by Medibank to consumers (of which there did not appear to be much) and the very detailed, post-policy information provided to policy holders. The Court instead found that "cover" simply identifies the kinds of medical services and treatments to which the policy responds.

The “notice representation”

This allegation failed for three reasons: first, the Court was not convinced that statements made by Medibank gave rise to an assurance that Medibank would inform policy holders of any detrimental change to benefits. Second, there was no independent legal duty on Medibank’s part to notify consumers of all detrimental changes to benefits and that, while the Court accepted that Medibank had promised to notify policy holders of certain changes (in particular, changes to Fund Rules), the change to contracting arrangements with providers of in-hospital diagnostic services did not fall with this this category. Third, in the absence of an assurance from Medibank or an independent legal duty to notify policy holders of all changes to benefits, Medibank’s failure to give notice of (according to the Court) a fairly insignificant change to its level of coverage to benefits payable, could not be said to be misleading or deceptive.

Unconscionable conduct

The Court found that this allegation was dependant on the ACCC being successful with its case for misleading or deceptive conduct, which (as explained above) it was not. In any case, the Court was not willing to accept the ACCC’s allegations that Medibank had the knowledge of the vulnerability of policy holders attributed to it by the ACCC or that Medibank’s strategy was anything more than a business judgement made by the management of Medibank.

So what next for the ACCC?

There is no doubt that the ACCC has a keen interest in conduct in the private health insurance sector of the kind alleged against Medibank, which it believes to be harmful to consumers. As such, it will not be happy with the outcome in this case. However, given the findings by the Court on the evidence as to the pre- and post-policy information provided to consumers and the representations that did not arise from that material, it does make the possibility of an appeal that much more difficult for the ACCC. In short, while we are sure the ACCC would like to appeal, based on the judgement alone, prospects of any such appeal seem low.

So what next for the private health insurance sector?

The sector will likely be comforted that the Court did not accept the ACCC's proposition that there is no distinction between changes to benefits resulting from changes to Fund Rules and changes to benefits resulting from other causes. They will also take some comfort that the Court placed such heavy reliance on post-policy material in determining what representations were made to consumers. However, they will be less comforted with the Court’s apparent acceptance of the submission that the mere existence of sector specific regulation doesn’t relieve participants in that sector from their obligations under the Australian Consumer Law. And, of course, we still have to see what is the outcome of the ACCC’s similar case against private health insurer, NIB, which commenced in May of this year.