In light of the ACCC's announcement in February 2017 that it is focused on unfair contract terms, cartels, and misconduct in the health, construction and agriculture sectors, it comes perhaps as no surprise that the ACCC has appealed the decision of the Federal Court in proceedings commenced by the ACCC against Medibank Private Limited (Medibank) in relation to its communications (or failure to communicate) with its members. In those proceedings, which were ultimately dismissed by the Federal Court, the ACCC claimed that Medibank had engaged in misleading conduct, making false or misleading representations, and unconscionable conduct in contravention of the Australia Consumer Law (ACL)1.
Background
Since January 2012 Medibank has had agreements with pathology and radiology providers who supply services to hospital patients. This includes services such as blood tests, x-rays, CT scans and MRI scans. Under these agreements, where these providers charged above the Medicare Benefit Schedule fee (known commonly as “the gap”), Medibank members were covered by their selected policy and Medibank paid the gap on their behalf. From 1 September 2014, Medibank terminated, or phased out, these agreements. As a result of the agreements no longer being in force, Medibank members now pay the gap as an out-of-pocket expense.
In Australian Competition and Consumer Commission v Medibank Private Limited [2017] FCA 1006, the ACCC’s misleading and deceptive conduct claims focussed on two key areas of alleged conduct by Medibank:
- Representing to members that under the terms of its policies, members would not incur any out of pocket expenses for “in hospital diagnostic services”; and
- Advising members (and potential members) that it would notify them in writing if it proposed to make any detrimental changes to benefits offered under those policies.
In addition, the failure to inform members of changes to their policy was said to amount to unconscionable conduct. The ACCC alleged that Medibank had made a calculated decision not to disclose the policy changes to members in order to preserve Medibank's reputation.
Diagnostic cover
The Court was not satisfied that the alleged representations regarding diagnostic cover arose out of the various communications with individuals before or after they entered into one of Medibank’s policies. To determine this, the Court focussed its attention on the meaning of the word “cover” to the ordinary reasonable consumer in the context of pre- and post-marketing communications made by Medibank to individuals.
The Court concluded that Medibank’s statement regarding "cover" represented to individuals that they would be covered for treatments and services. This did not translate to consumers understanding that they would be indemnified for all relevant costs and expenses of those treatments and services. Therefore the Court found that the statement regarding “cover” only identified different kinds of medical treatments offered under a policy and not the indemnity aspect claimed by the ACCC.
Notice on detrimental changes
The Court was similarly not convinced that statements made by Medibank gave rise to an assurance that Medibank would inform policy holders of any detrimental change to their benefits. The Court accepted that Medibank had promised to notify policy holders of particular changes. This included for example, changes to Medibank’s Fund Rules. However, communicating the change to contracting arrangements with providers of in-hospital diagnostic services to policy holders did not fall within the ambit of what Medibank had assured consumers.
In this regard, the Court found that despite the termination of the majority of the provider agreements, this did not actually alter the benefits that were applicable under Medibank’s policies. Members were still able to receive the benefit of the service, if that service was provided by one of the remaining provider companies. Consequently, the Court did not think it was necessary for Medibank to provide notice to consumers of the contractual change.
Unconscionable conduct
In order for the ACCC’s arguments in relation to unconscionable conduct to succeed, the ACCC had to succeed on its misleading and deceptive conduct claims. Interestingly, the Court held that even if it was wrong in its analysis of the misleading and deceptive claims, the conduct by Medibank in respect of its representations around “cover” and the decision not to provide notice, was a business judgment decision and would still not amount to unconscionable conduct (at [302]):
Ultimately, that evidence, which I unhesitatingly accept, demonstrates that the decision not to communicate with members (about which the applicant complains) was a decision made in the context of the exercise by the relevant committee of its business judgment. Some may agree with it, some may disagree with it, but, in my view, there was nothing remotely unconscionable about it.
Conclusion
It is clear from the ACCC's appeal to the Full Federal Court that the ACCC is dissatisfied with the Court's decision. It will be interesting to watch the Full Federal Court case unfold. Given the Federal Court's findings on the evidence as to the pre-policy and post-policy information provided to consumers, and that the representations did not arise from that material, the appeal is unlikely to be a straightforward one for the ACCC.
