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Medibank Private share price lower after ACCC alleges incorrect claims rejections

In morning trade the Medibank Private Ltd (ASX: MPL) share price has come under pressure after the ACCC revealed that it would be taking the company to court.

At the time of writing the private health insurer’s shares are down 1% to $3.58.

What was announced?

This morning the ACCC revealed that it has instituted proceedings in the Federal Court against Medibank, alleging that it made false representations about benefits covered by its health insurance policies. This is in breach of the Australian Consumer Law.

According to the release, the competition watchdog alleges that Medibank falsely represented to members holding ahm Lite or ahm Boost policies that they were not entitled to cover for joint investigations or reconstruction procedures, when in fact their policies covered these procedures.

ACCC Chair Rod Sims said: “We will allege that Medibank incorrectly rejected claims or eligibility enquiries from over 800 members for benefits that they were entitled to and were paying for. As part of our case, we estimate about 60 members needlessly upgraded their policies so they could access the joint investigation and reconstruction procedures they were already entitled to under their existing, cheaper insurance policies.”

Furthermore, the regulator alleges that some members that upgraded their policies were then forced to serve a further waiting period to access the procedures in question.

“Medibank’s alleged misrepresentations had serious consequences for members requiring procedures including spinal surgery, pelvic surgery, hip surgery and knee reconstructions, which often cost thousands of dollars. Some members were forced to delay surgery due to high out-of-pocket costs for these procedures and to seek alternative remedies to manage pain, when they were in fact entitled to insurance cover,” added Mr Sims.

Medibank response.

This morning Medibank responded to the allegations and acknowledged that mistakes had been made. It revealed that in 2017 it “discovered that not all MBS item codes applicable to this category were entered into ahm’s claims assessment system.”

The issue was identified as a result of receiving customer complaints, which led to an internal investigation and the establishment of a compensation program to ensure affected customers were compensated.

It also pointed out that it voluntarily notified the ACCC of the issue in 2018 and briefed the regulator on its approach to customer communication and its compensation process.

The company contacted around 130,000 customers in 2018 who were insured by ahm Boost and Lite products to ensure that anyone affected by the error was compensated. As a result, ahm has paid compensation to around 175 customers, totalling around $745,691.

ahm senior executive, Jan O’Keefe, said: “We apologise unreservedly to our customers who have been impacted by the error. We have already notified all customers who are or were insured by the ahm Boost and Lite products since inception of the products. We did that to ensure that any customers affected by this error were compensated.”

“We believe the approach we have taken to be transparent with all past and current ahm Lite and Boost customers about the issue, the way we have implemented a compensation program and how we have engaged proactively with the ACCC, reflects our commitment to do the right thing,” added O’Keefe.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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