Federal Court dismisses allegations of misleading and deceptive conduct and unconscionability
September 27, 2017
Australian Competition and Consumer Commission v Medibank Private Limited  FCA 1006
The Australian Competition and Consumer Commission (the ACCC) alleged that Medibank Private Limited (Medibank) engaged in misleading and deceptive conduct, and acted unconscionably, in contravening ss 18, 21, 29(1)(g), 29(1)(m) and 34 of the Australian Consumer Law.
Pursuant to the Health Insurance Act 1973 (Cth), the Commonwealth prescribes a scale of fees for healthcare services such as radiology and pathology (diagnostic services). This is referred to as the Medical Benefits Schedule (MBS fee). Where a consumer who has private health insurance makes a claim for diagnostic services, Medicare will pay 75% of the MBS fee and the private health insurer is required to pay the remaining 25% of the MBS fee.
However, many health care professionals elect to charge a consumer more than the prescribed MBS fee for that particular service. The result is that in some circumstances, even where 100% of the MBS fee is covered by Medicare and the private health insurance provider, there may still be an ‘out-of-pocket’ expense for the amount charged above the MBS fee.
Some private health insurers cover this extra amount (commonly referred to as ‘gap cover’), although not all insurers provide gap cover, or otherwise only provide gap cover for specific procedures.
Since 2010, Medibank by and large provided gap cover for in-hospital diagnostic services pursuant to Medical Purchaser Provider Agreements (MPPAs). In late 2013, Medibank decided to terminate all but two of the MPPAs. The result of this was that in many instances where Medibank had previously provided gap cover for certain diagnostic services, cover was no longer available and members (as Medibank policy holders are known) incurred out-of-pocket expenses.
The misleading and deceptive conduct allegation
The ACCC said that Medibank represented that members would not incur any
out-of-pocket expenses for ‘in hospital diagnostic services’ (the diagnostic cover representation).
The ACCC alleged that the diagnostic cover representation was conveyed to members via marketing materials and other documents provided to members and also by conduct, in that prior to the termination of the MPPAs, Medibank provided gap cover for certain diagnostic services.
The ACCC also alleged that Medibank represented to its members that it would notify them in writing if it proposed to make any detrimental changes to the benefits it offered and that it failed to do so when it abolished the MPPAs (the notice representation).
The unconscionable conduct allegation
The ACCC alleged that Medibank acted unconscionably in terminating the MPPAs and not informing its members of the change. The ACCC relied on research conducted by Medibank which revealed that, if members were told of the change, there was a risk that members would leave Medibank and that it would otherwise have a negative effect on Medibank’s brand reputation.
The ACCC said that Medibank’s decision to terminate the MPPAs in light of this information was unconscionable, because Medibank knowingly exploited what was alleged to be a lack of understanding by members, knew its decision would cause members harm, and breached normal industry norms in not providing members with information about their entitlement benefits.
The allegations were denied by Medibank.
As to the alleged representations, Medibank denied that the representations had ever been made and that it had in fact notified members of the risk of incurring out-of-pocket expenses. Medibank submitted that the ACCC misconstrued the meaning of the word ’cover’ as it appeared in extracts of the marketing material and product documents relied upon by the ACCC. It said that ‘cover’ did not mean ‘indemnify’, as the ACCC contended.
In relation to the notice representation, Medibank said that the termination of the MPPAs was not a change to Medibank’s Fund Rules and so no notification was necessary.
In regard to the unconscionable conduct allegations, Medibank submitted that the unconscionable conduct allegation was dependant on the misleading and deceptive conduct allegation being successful. It further said that the research material relied upon by the ACCC did not represent Medibank’s own views on the matter.
The Court’s decision
Misleading and deceptive conduct
The Court ultimately found that the ACCC had not established that the diagnostic cover representations were made.
The Court identified that this allegation relied on three core elements:
- That Medibank promised that it would provide protection unless ‘restricted’ or ‘excluded’
- That ‘cover’ meant ‘indemnify’
- That the post-sale material provided to members (which arguably qualified any alleged misrepresentation) was insufficient because the member had already been enticed into the ‘marketing web’.
The first proposition was that Medibank represented that it would provide cover for items, unless they were expressed to be ‘restricted’ or ‘excluded’. The ACCC said that this was further endorsed by a representation that by acquiring a Medibank policy, the member could have ‘peace of mind’. The ACCC submitted that the message being delivered was that a member would be entirely covered. This is interrelated to the second proposition that ‘cover’ should be read as ‘indemnify’.
The Court however considered that having regard to the context, no reasonable consumer would understand ‘cover’ to mean ‘indemnify’. The Court considered that the word ‘cover’ was clearly meant to identify the types of medical procedures which would be covered as opposed to the benefits payable to those procedures.
In relation to the third proposition, the ACCC sought to convince the Court that any disclaimer or qualification contained in the post-sale material was ineffective, as the ACCC said the consumer had already been enticed into Medibank’s ‘marketing web’. Nevertheless, the Court addressed the material exhaustively and ultimately considered that none of the material referred to by the ACCC supported the ACCC’s allegations. Moreover, the Court noted that much of the post-sale material was in fact available to consumers prior to a policy being purchased and that the ACCC had incorrectly assumed that a purchaser would not read or receive any other information apart from that referred to by the ACCC.
In relation to the notice representation, simply put, the Court found that Medibank only represented to notify members of changes to the Fund Rules. As the termination of the MPPAs was not a change to the Fund Rules, there was no obligation to notify its members.
In dismissing the unconscionable conduct allegation, the Court accepted Medibank’s submission that the allegation could not succeed in light of its findings in relation to the misleading and deceptive conduct allegation. Despite this, it did go on to examine Medibank’s decision to terminate the MPPAs and not inform its members.
In doing so, the Court noted that there were a number of difficulties with the ACCC’s allegation. The ACCC relied on evidence such as Medibank’s market research and internal research documents, which it said demonstrated Medibank’s decision to terminate the MPPAs was unconscionable. However, the Court pointed out that there was no evidence that the research material represented Medibank’s own views, or that the research was taken on board or had played any material role in Medibank’s decision.
In this regard, the Court accepted the evidence of Dr Wilson for Medibank, ‘unhesitatingly’, in that the decision to terminate the MPPAs was a decision made in the context of Medibank’s business judgment. The Court noted that while some may agree with the decision, and some may not, there was nothing remotely unconscionable about it.
As such, all allegations against Medibank were dismissed.
Ultimately, the ACCC allegations were dismissed because all of the marketing material held up to the scrutiny of the Court. The case demonstrates that post-policy explanatory material can be very helpful, although it remains necessary to review pre-purchase marketing material closely to ensure it is not misleading.
Authored by Tim Daley, Lawyer, Melbourne
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