Health insurer Bupa has admitted to rejecting more than 7,000 claims over five years without having the refusal assessed by a doctor as required by law.
Bupa says the oversight was discovered in a recent internal audit and the company has now contracted more doctors to review 7,740 claims rejected between January 2011 and May 2016 on the grounds the person had a pre-existing illness or condition.
Insurers are required under the Private Health Insurance Act to have a doctor assess any claims their assessors knock back as a pre-existing illness.
Bupa Health Insurance managing director Dwayne Crombie said there had been a breakdown in the process and the company was introducing measures to prevent it from happening again.
"We are treating this matter seriously," Dr Crombie told AAP.
"Where cases have been incorrectly assessed, customers will be reimbursed.
"Based on the medical reviews so far, we don't think a huge number have been affected."
Dr Crombie said cases rejected during 2016 - about 700 in total - had been reassessed and only a small percentage were found to be incorrectly refused.
He said those wrongly rejected had paid for minor procedures and Bupa would reimburse them.
The reassessment of all cases is expected to be completed by December and customers will be individually informed as their case is reviewed.
Bupa has also restructured its team in charge of pre-existing assessments, including installing new managers and adding quality assurance staff.
It said it will improve policy and document management and will introduce tailored compliance training.
The head of Australia's health insurance industry's peak body, Private Healthcare Australia chief executive Rachel David, commended Bupa for being proactive.
"Our organisation hasn't had any complaints about it and it wasn't flagged to us by any regulator," she told AAP.
"Bupa has picked this up themselves from their own internal audit and it is very good to see that they have taken immediate steps to address the issue."
She said given Bupa had been proactive, it was unlikely to face any regulatory repercussions, however that was up to regulators, including the Australian Competition and Consumer Commission.
The pre-existing condition rule exists to prevent customers who are knowingly unwell to join a health fund and claim for a planned procedure and then leave.
If customers are found to have a pre-existing condition, they are required to wait, usually for about 12 months from the date of joining or upgrading, before being able to make a claim.
