16 June 2016


The Australian Competition and Consumer Commission has accepted court enforceable divestiture undertakings from Primary Health Care Limited and Healthscope Limited following investigation by the ACCC over the past year into whether Primary’s acquisition of Healthscope’s pathology assets in Queensland breached section 50 of the Competition and Consumer Act 2010 (Cth).

The ACCC reports that "investigation included multiple statutory notices and the compulsory examination under oath of executives from both firms".
 The Primary undertaking requires the divestiture of the pathology assets that Primary acquired from Healthscope, therefore largely reversing the acquisition. The package of divestiture assets, including more than 70 collection centres, will be sold to Medlab Pathology, an experienced pathology provider based in Sydney, to enable it to establish a competitive presence in Queensland. 
“Primary and Healthscope completed the transaction without notifying the ACCC, despite being on notice that the ACCC would have serious concerns about the likely competitive effect,” ACCC Chairman Rod Sims said. “It is of considerable concern to the ACCC that well-advised firms such as Primary and Healthscope chose to complete the transaction in the way that they did.” 
“While there is no legal obligation to obtain ACCC clearance before completion of a transaction, this matter highlights the risks to companies if they complete contentious acquisitions without seeking ACCC clearance beforehand,” Mr Sims said. 
“The acquisition removed a significant third player in Queensland, leaving just two major full-service pathology providers in that state. We considered that this change in market structure would be likely to result in increased prices and reduced service levels for pathology services in Queensland.” 
“The ACCC has decided not to commence proceedings against both Primary and Healthscope seeking penalties and other remedies including divestiture. In making this decision, the ACCC’s motivation has been to restore a competitive market structure in Queensland as expeditiously as possible, and the onerous undertakings given by Primary and Healthscope should achieve that,” Mr Sims said.
The ACCC has concurrently announced that it has instituted proceedings in the Federal Court against Medibank Private Limited alleging contravention of the Australian Consumer Law by engaging in misleading conduct, making false or misleading representations and engaging in unconscionable conduct.

 The Commission's allegations relate to Medibank’s failure to notify Medibank members (and members of its subsidiary brand, ham) regarding the business's decision to limit benefits paid to members for in-hospital pathology and radiology services. Medibank allegedly did not provide members with any advance notice of the change despite previously representing that it would do so. The ACCC states that "Medibank also adopted a strategy of keeping communications about this change contained and reactive".

In characterising  Medibank’s conduct as misleading and, in all the circumstances, unconscionable the ACCC states that “Consumers are entitled to expect that they will be informed in advance of important changes to their private health insurance cover, as these changes can have significant financial consequences at a time when consumers may be vulnerable”.

 The ACCC alleges that additional circumstances in support of unconscionable conduct include that:
  • Medibank knew or expected that many members incorrectly thought all of their in-hospital medical expenses were covered, and that most members didn’t make enquiries about out-of-pocket expenses before being admitted to hospital; 
  • Medibank calculated there was a risk that, if the benefit change was disclosed, members might leave Medibank; 
  • Medibank calculated there was a risk that the publicity around the benefit change would damage Medibank’s brand and reputation, and have a negative impact on its planned initial public offering of securities; and 
  • Medibank estimated the change would lead to it making substantial financial gains, including from not paying the gaps, and from not paying the medical claims of members who left Medibank after becoming aware of the change. The members most likely to become aware of the change were members who claimed more frequently, some of whom were suffering from chronic conditions. Most of these members were then confronted with out-of-pocket expenses when in hospital receiving treatment. 
The ACCC also alleges that Medibank represented that its policies covered in-hospital pathology and radiology services, such that members would not pay any out-of-pocket expenses for these services, unless Medibank provided them with prior notice otherwise. "These representations were false or misleading from 1 September 2014, since from that time members incurred out-of-pocket expenses for such services and were not notified by Medibank".

The ACCC is seeking declarations, injunctions, compensation orders, pecuniary penalties, findings of fact, implementation of a trade practices compliance program, corrective notices and costs.