The Federal Court has dismissed an action brought by the Australian Competition and Consumer Commission against Medibank Private Limited, one of Australia’s largest providers of private health care.

The ACCC alleged that by failing to notify its members (and members of subsidiary provider ahm Health Insurance) of changes to benefits for in-hospital pathology and radiology services at all but two hospitals, Medibank had engaged in misleading and deceptive conduct, and had acted unconscionably, in contravention of sections 18, 21, 29(1)(g), 29(1)(m) and 34 of the Australian Consumer Law.

The Federal Court dismissed all allegations against Medibank.

No representation by Medibank to indemnify its members in respect of costs associated with diagnostic services

The ACCC alleged that Medibank represented. under the terms of its private health insurance policies. that members would not incur any out-of-pocket expenses for "in-hospital diagnostic services”. However, following the abolition of agreements with certain pathology and radiology service providers in September 2014, members were no longer completely covered for those services except where they were provided by two companies. The ACCC argued that Medicare deliberately did not disclose this change to its members, as it anticipated this would likely cause members to leave the insurer.

Medibank argued that at no point did it represent to members that it would cover all costs associated with in-hospital diagnostic services. The debate centred on what a reasonable consumer would take the word "cover" to mean. The Federal Court agreed with Medibank, stating that none of the documents could be read or construed by a reasonable or ordinary consumer as a representation that Medibank would indemnify members for all costs associated with in-hospital diagnostic services.

Medibank’s conduct not unconscionable

Further, the ACCC alleged that Medibank had represented to its members and potential members that it would notify them in writing of any "detrimental changes" to the benefits offered, and had failed to do so when the provider agreements were abolished. However, the Court found that the termination of the majority of the provider agreements did not alter the benefits applicable under any of Medibank's policies given that members were still able to receive the benefit if the service was provided by one of the remaining provider companies. In these circumstances there was no requirement for a notice to be sent to members.

In relation to the unconscionable conduct allegations, the Court was unwilling to accept the ACCC’s allegation that Medibank had made a calculated decision not to disclose the changes to members in an effort to preserve its brand and reputation. This was for the reason that, given the way that the ACCC had framed its case, in order to succeed on the unconscionable conduct allegations, the ACCC had to succeed on the misleading and deceptive conduct claims; which it had not. In any event, the Court decided that if it was wrong in that analysis, it would have held that the decision was merely a business judgement and did not amount to unconscionable conduct.

Medibank’s conduct merely a “business judgement”

The Court's conclusion that Medibank's decision was merely a "business judgement" arose from a consideration of Medibank's communication strategy in relation to the changes. Medibank lead uncontested evidence that the approach adopted by the company was to reinforce communications about out-of-pocket expenses generally, with a specific mention of diagnostic services. This, in conjunction with the fact that Medibank had never had agreements with all pathology providers, and had maintained its agreement with one of the largest pathology providers in Australia, meant that members still had access to covered services, and no "across the board" change had occurred.

The Court accepted that this evidence demonstrated that the decision not to notify members of the change was a decision made in exercise of a business judgement and was "not remotely unconscionable."

The ACCC has said that it is carefully considering the judgment and has until 20 September 2017 to appeal the decision.

ACCC action against NIB

In May 2017 the ACCC also instituted proceedings against another private health insurance provider NIB for allegedly engaging in misleading or deceptive conduct, unconscionable conduct, and making false or misleading representations in relation to its "MediGap Scheme." This case has not yet been listed for trial.