How healthy is Medibank Private?
Medibank Private (ASX: MPL) presented at the Macquarie Conference for the first time as a public company. Is the company doing enough to maintain a position in both funds?
By way of background, our investment thesis for Medibank rests on its ability to meaningfully reduce its claims ratio. We view Medibank Private as one of the only health funds (aside from Bupa) that has sufficient scale to not only extract insights from its customer database, but also drive the necessary changes in the industry to realise the benefits of these insights.
At the Macquarie Conference, management spoke at length about the progress Medibank was making in identifying abnormal claims and working with industry bodies to reduce the excess. Medibank is having particular success with dental claims, which comprise half of its out-of-hospital expenses (referred to as ancillary benefits).
Medibank Private also announced at the conference that the exposure of the ‘ahm’ brand to the price aggregator websites will be reduced. While many customers are drawn to the price aggregator websites for their convenience and transparency in comparing policies, Medibank considers the prices charged for these customers are at a material premium.
At present, it seems that the investment thesis is playing out to expectations, and we remain comfortable in our holding of the company in both funds.
Ben MacNevin is an Analyst with Montgomery Investment Management. To invest with Montgomery, find out more.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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shawn-tarafder
:
Dear Roger & Team
Whats your thought on the recent price movement re: MPL.
I have done some decent online research but cant really find any bad news about them on any media.
So I put this down to Mr Market being pessimistic as the weather is gloomy here in SYD! Would love to hear your guys thoughts on this.
Thanks
Stuart Jackson
:
Hi Shawn, the market is concerned with the weakness in MPL’s revenue growth in FY15 and trading down by consumers as a result of the high price rises in recent years, combined with the impact of the Government reducing the amount of support provided by the private health insurance rebate. The company has reiterated that it expects to achieve its prospectus forecast in FY15, even when excluding the A$10m one off benefit after tax from a write back of claims provisions in the first half result. However, it acknowledges that revenue growth is likely to fall short of prospectus forecasts, meaning that it will need to make up the difference through a better performance on costs. The market is concerned that the weaker revenue growth is likely to be an ongoing issue given structural headwinds in the industry. At the same time, the cost reduction story is seen as a longer term story, particularly in terms of reducing the claims ratio. We have recently reviewed the investment thesis and the stock remains a key part of the portfolios based on its long term investment fundamentals.
Ben MacNevin
:
Hi Gaveen. An example of an anomalous claim is when a patient is “over-serviced”, where work is performed which isn’t covered by the patient’s healthcare policy. This can occur knowingly or unknowingly. Medibank will work with the industry associations to inform their members that they are aware that inappropriate claims are occurring. This allows Medibank to drive change in the industry on a larger scale while maintaining the value of its brand among the healthcare professionals (it doesn’t want to put the doctors offside with the perception that it’s just a health fund trying to minimise costs).
Gaveen Jayarajan
:
Thanks Ben. So some dentists are putting some procedures with patients under their Medibank dental benefits cap when they strictly shouldn’t be. Makes sense to keep track of this.
Gaveen Jayarajan
:
Actually I can see this happening if someone has basic extras cover which may only cover general dental work (eg. cleaning, fillings etc.) but this is used to do a
cover a root canal procedure (which comes under major dental work in top extras cover).
Gaveen Jayarajan
:
Ben, are you able to elaborate on what they are doing to reduce dental claims?