Council for Medical Schemes on its 2010/11 Annual Report

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Health

25 October 2011
Chairperson: Dr M Goqwana (ANC)
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Meeting Summary

The Council for Medical Schemes (CMS) spoke about some of its highlights in 2010/11 which werewere:
▪ The Council was dealing with the National Health Insurance (NHI) Green Paper that was published for comment by 31 December; schemes would continue to exist side by side with the NHI although their role might change.
▪ The Council was working on alignment with the Consumer Protection Act and was about to conclude a MoU with the Consumer Commissioner.
▪ CMS had received a clean audit for the eleventh year in a row, which was since its inception.

On the NHI system, the Council said that it had always supported and continued to support strategic reform of the entire health system in the country, which was why Section 7 of the Medical Schemes Act specifically mentioned that Council needed to advise the executive authority on matters that spoke to health care systems and health policies.

Amendments to the Medical Schemes Act were needed to ensure that medical aid schemes existed in an efficient way. Rising health costs were a major concern. Supply side regulation was required; on the supply side CMS assisted in curbing possible perverse behaviour where it was picked up. CMS monitored and reported on private hospital costs; a commission needed to be established to look into that and CMS was contributing and participating to make that happen but had constraints of resources, both financial and human. Price negotiations between schemes and providers should take place to address the rising costs.

On Prescribed Minimum Benefits (PMBs), the CMS was awaiting judgement from the High Court. The PMBs and Regulation 8 of the Act was an important pillar of the Medical Schemes Act. It was meant to protect individuals who were members of a scheme in cases of real need when very expensive and catastrophic medical intervention was needed. The CMS and the Department of Health and the country would be doing a disservice to members if that part of the pillar was broken. There were guarantees in the Medical Schemes Act. If the judgement ruled against the Council for Medical Schemes, all would need to rally to bring that important pillar back into the statutes. Regulation 8 of the of the Medical Schemes Act stipulated that schemes must pay for PMBs in full (at cost), and must be covered from the risk pool, not from the savings of the member contributing to the scheme. It covered serious and life threatening diseases/conditions; a list of 25 chronic diseases and any emergency condition. The CMS believed that medical emergencies were also an area that should be paid for in full; in an emergency it should not be an issue as to whether there was money or the medical scheme would cover or not. CMS noted the top ten complaints and explained how one should complain.

The CMS Head of Research and Monitoring provided information about how schemes worked and provided statistics. This was followed by a presentation on how the CMS funded itself.
Members asked questions about ex gratia payments; how the Council investigated and resolved members’ complaints; how often CMS met with the providers about prices; consumer education; Auditor General findings on performance information that was deficient; why salaries had increased from R39 million to R47 million in one year; what was happening with the Risk Equalisation Fund that stabilised medical schemes; how CMS envisaged curtailing private hospital costs; why negotiations between providers and medical schemes were necessary despite the Competition Commission decision against this in 2004; inspections of medical schemes and the CMS growing litigation costs. Considerable discussion centred around the letter written by the Committee Chairperson to the Council for Medical Schemes about reaching a resolution to a disagreement with a medical aid scheme, to prevent the two from resorting to costly litigation. The Democratic Alliance saw this as an abuse of power as the Council should be independent of any political interference.
 
Professor William Pick, Chairperson of CMS for the past six years, had reached the end of his term and was warmly thanked.
 

Meeting report

The Council for Medical Schemes (CMS) delegation consisted of Professor William Pick (Chairperson); Dr Monwabisi Gantsho (Registrar); Ms Tebogo Maziya (Head: Financial Supervision); and Mr Thulani Matsebula (Head: Research and Monitoring).

Dr Monwabisi Gantsho (CMS Registrar) briefed the Committee and indicated that the highlights in the presentation were for the financial year 1 April 2010 to 31 March 2011, but the overview of the medical schemes industry was for the period 1 January to 31 December 2010.

The mandate of CMS was derived from the Medical Schemes Act 131 of 1998, which governed CMS and the industry as a whole. At the heart of the Act was the protection of medical scheme beneficiaries and the regulating of schemes. CMS was the Statutory Regulator and as it became effective, it was constantly accused of abuse of power.

During the year under review the Council’s strategic goals were reduced from seven to four:
- Ensure access to good quality medical scheme cover was maximised;
- Ensure that medical schemes and other regulated entities were properly governed, were responsive to the environment, and beneficiaries were informed and protected at all times;
- Be responsive to the needs of the environment by being an effective and efficient organisation; and
- Provide influential strategic advice and support for the development and implementation of strategic health policy, including support to the NHI development process with the benefit of regional and international experiences.

Among the highlights for CMS in 2010/11:
▪ The Council was dealing with the National Health Insurance (NHI) Green Paper that was published for comment by 31 December; schemes would continue to exist side by side with the NHI although their role might change.
▪ The Council was working on alignment with the Consumer Protection Act and was about to conclude a MoU with the Consumer Commissioner.
▪ CMS had received a clean audit for the eleventh year in a row, which was since its inception. CMS had challenges during that time but was assisted by the Portfolio Committee, the Department of Health, the Minister and all other public entities associated with it. Dr Gantsho asked for the Committee’s continued support in dealing with matters that would assist in CMS continuing on the path of a clean audit.

Dr Gantsho turned to the Annual Financial Statements. CMS had received a clean audit; it had robust internal controls and a competent Audit and Risk Committee that oversaw the role of the internal auditors. CMS passed the Auditor General’s readiness test in terms of the Performance Information Report. Revenue was derived from levies from the medical schemes, broker fees, and the Department of Health Budget. There was a misconception that the levies were paid by the schemes themselves; they were paid by the members of the schemes. Legal fees were of some concern as they consumed a large portion of the budget.

The major area of expense over the period under review related to staff costs 63%, legal fees 12%, and administration expenses 7%.

Dr Gantsho referred to the NHI system. The Council had always supported and continued to support strategic reform of the entire health system in the country, which was why Section 7 of the Medical Schemes Act specifically mentioned that Council needed to advise the executive authority on matters that spoke to health care systems and health policies. The Council also supported the Director General and the Department of Health on matters that required specialised care and specialised focus on those matters, and also assisted the Portfolio Committee on Health’s Research Unit with in-depth information and contributed to health economics and policy research. A task team was exploring the NHI Green Paper to formulate a view on it by 31 December. The Green Paper recognised the continued existence of medical schemes although their role may change; medical schemes would co-exist with the NHI. It was recognised that medical schemes further advanced health care systems and access to quality health care in South Africa.

Governance issues were important for the Council to monitor medical schemes. There were provisions in the Medical Schemes Act that the Council would very soon be asking to be amended. These had been identified over the past seven to eight years. Now that it was known that medical aid schemes would co-exist with the NHI it was critical that the Medical Schemes Act amendments (which had been in abeyance for some time since it was not known what would be happening with medical schemes) be effected now to ensure medical aid schemes existed in an efficient way. Now was the time for all parties concerned, including the executive authority and the Portfolio Committee on Health to assist the Council to amend the Act and CMS would identify those areas that needed amendment. If that were not done, many members of medical aid schemes would be exposed; the Act had to be amended. Dr Gantsho noted that boards that were not good in governance or did not comply with the Act were removed and curators appointed. Where it was found that boards were not fit and not acting properly the schemes could be put under liquidation or deregistered. The Council was currently formulating a view on the scope of applicability of King III to medical schemes.

Rising health costs were a major concern. Supply side regulation was required; on the supply side CMS assisted in curbing possible perverse behaviour where this was picked up. CMS monitored and reported on private hospital costs; a commission needed to be established to look into that and CMS was contributing and participating to make that happen but it had constraints of resources, both financial and human. Price negotiations between schemes and providers should take place to address the rising costs.

Dr Gantsho turned to Prescribed Minimum Benefits (PMBs). The CMS was awaiting judgement from the High Court. The PMBs and Regulation 8 of the Act was an important pillar of the Medical Schemes Act. It was meant to protect individuals who were members of a scheme in cases of real need when very expensive and catastrophic medical intervention was needed. The CMS and the Department of Health and the country would be doing a disservice to members if that part of the pillar were broken. There were guarantees in the Medical Schemes Act. If the judgement ruled against the Council for Medical Schemes, all would need to rally to bring that important pillar back into the statutes. Regulation 8 of the of the Medical Schemes Act stipulated that schemes must pay for PMBs in full (at cost), and must be covered from the risk pool, not from the savings of the member contributing to the scheme. It covered serious and life threatening diseases/conditions; a list of 25 chronic diseases and any emergency condition. The CMS believed that medical emergencies were also an area that should be paid for in full; in an emergency it should not be an issue as to whether there was money or the medical scheme would cover or not.

Mr Thulani Matsebula (Head: Research and Monitoring) said the medical schemes industry was seen as an integral part of the country’s health system, and illustrated the impact of that on the population that was covered by medical schemes. The number of beneficiaries in the medical schemes industry had grown to 8.3 million from 8.1 million last year, while the number of schemes went down over the years. A fair amount of consolidation took place and some schemes were growing. The Government Employees Medical Scheme (GEMS) came into being in 2006, after which the number of beneficiaries increased, but some schemes were affected by that. Thus the number of large schemes began to decrease slightly, the medium schemes remained more or less stable, and small schemes decreased at an accelerated pace. The smaller schemes were consolidating into larger schemes, a number being affected by GEMS and consolidated into larger schemes. The consolidation trend was continuing.

Mr Matsebula turned to the benefit options. In the open schemes sector the average number of benefits tended to be higher, which was an indication of a higher level of risk rating between the options. Where there was a large number of benefit options, there was a tendency to have certain categories of risky members being by default located in certain benefit options. There were a lesser number of benefit options in restricted schemes, which traditionally were linked to employer groups and as a result tended not to segregate according to risk.

The risk of ill health tended to increase with age. Open schemes had a stable age profile which tended to rise in 2006 about the time that GEMS came into being, and the restricted schemes started to have a lower age profile due to the impact of GEMS. In the year under review, open schemes had an older age profile and restricted schemes a younger age profile. That had implications for beneficiaries in other schemes because it meant there were older and sicker people in the open schemes, which made them more vulnerable and had viability implications for the industry going forward and explained some of the consolidation taking place.

Mr Matsebula highlighted that utilisation had gone down but in terms of expenditure for General Practitioners increased by 9%; for Medical Specialists increased by 12,2%, medicines increased by 5.6%, and hospitals increased by 10%. There was moderation in terms of the percentage increases. For example, in 2009 the private hospitals increase was 18,1% but this slowed down in 2010 to an increase of 10%. The same applied to medical specialists, the increase in the previous year was 19,1% and in the current year 12,2%.

Ms Tebogo Maziya (Head: Financial Supervision) briefed the Committee on how medical schemes performed financially in the past financial year.

The industry was represented by R96.5 billion of income, which was an increase of 13.7% from R84.7 billion in 2009. Claims increased by 11% to R84.7 billion against R76.3 billion in 2009.

Risk contributions increased by 13.7% to R87.7 billion; and relevant healthcare expenditure incurred increased by 11.2% to R76.6 billion.

Medical savings account contributions increased by 13.2% to R8.7 billion; and medical savings account claims increased by 12.0% to R8.3 billion. The reason for that was 2009 was a particularly bad year for medical schemes in terms of claims overall so that was adjusted by higher contributions in 2010, which was why overall contributions increased by more than claims.

In terms of contributions and claims per average beneficiary per month, average contributions increased by 9.6% to R975.3 per month; relevant healthcare expenditure increased by 7.3% to R858.4 per month.

Risk contributions increased by 9.6% to R886.9, compared to a lower increase of 7.2% for relevant healthcare expenditure to R774.6.

Medical savings accounts contributions increased by R4.9% to R110.8; and medical savings accounts claims decreased by 3.7% to R105.0.

There was a downward trend in terms of the risk claims ratio between 2000 and 2004, which was the period in which medical schemes had to build reserves and were paying out less of the monies received; schemes needed to build reserves and they did that at the expense of claims. There was a rise to 2006 due to the exit price being introduced and also the deregulation of prices by the Competition Commission, which led to higher costs. In 2006 was the introduction of deductions by medical schemes and lesser being paid out of the risk pool. 2009 was a bad year overall for medical schemes and in 2010 it came down to 87.3 because contributions increased by more than claims to adjust for the previous year’s higher than average claim.

Non-healthcare expenditure increased by 6.9% to R11.6 billion. Open schemes increased by 4.8% to R147.1 per average beneficiary per life; compared to 3.5% increase for restricted schemes to R74.1.

Gross administration expenditure increased by 4.4% to R7.8 billion. Open schemes increased by 1.4%, compared to a higher increase of 13.1% for restricted schemes. The reason for that was that in the open scheme environment, the largest scheme in the country rebalanced its classification of non-healthcare expenditure. Some items that were previously in admin were moved to managed healthcare expenditure. Also in 2009 some schemes had large expenditure that was no longer there. That explained why the increase in open schemes was much lower at 4.1% compared to 13.1% for restricted schemes.

Managed healthcare expenditure included things like disease management programmes, pre-authorisations and those services that were classified as managed healthcare: management services; increased by 16.2% to R2.3 billion.

Broker costs increased by 8.9% to R1.3 billion; on an average member per month basis it amounted to an increase of 7.7% to R44.4.

In terms of solvency: all schemes, initially from 2000 to 2004 schemes needed to build up reserves, currently the requirement was 35% of contributions. Overall medical schemes were above the required solvency level, however, from about 2006 there was a decline in the overall solvency level, which was a function of a sector such as aging, which affected the ratio.

Ms Maziya explained the overall trends. From about 2006, which was when GEMS was registered, trends changed. In 2006/07 there was a slight increase in reserves for open schemes from 27.7 to 28.6, which was because members that left other schemes to join GEMS left reserves behind. After that it decreased, being affected by the aging. As government people left to join GEMS, they left behind an older risk pool in open schemes, therefore affecting claims, profit and solvency, which was why there was a downward trend. The pensioner ratio for restricted schemes was much lower than the pensioner ratio for open schemes. That was because GEMS attracted younger members. The smaller schemes that were consolidating were typically restricted but were collapsing into open schemes, which further increased the aging of those schemes.

Dr Gantsho announced that Professor Pick, who had been the chairperson of CMS for the past six years, had reached the end of his term as chairperson for the CMS. He would like the Portfolio Committee to note that he had served with distinction during that time; he provided leadership, he had coached and mentored many of the staff of CMS, and as the former Professor at the University of the Witwatersrand his skill and his background had been very handy in dealing with the young professionals at the Council for Medical Schemes to ensure their efficiency and effectiveness. The team had been very thankful to have worked with him. The end of October would be his last day as Chairperson of the Council for Medical Schemes.

The Chairperson thanked Professor Pick for the sterling work he had done. He hoped the Professor would write a book; he had mentioned that the first medical school started in Kingwilliamstown in the Eastern Cape.
 
The Chairperson thanked the Registrar for the work done; judging by the Auditor General’s report, it was good. He noted that CMS was a statutory body. It would be very nice if some of the departments had people who were such hard workers. He noted that CMS asked the Committee for assistance, the Committee Researcher would be approaching CMS for some research work on the NHI so the Committee could decide which countries it should go to.

He thought the work of CMS was very difficult; people did not like being told that they were wrong, so CMS was treading a very thin line as a regulator. As the Registrar, Dr Gantsho had decided to work for CMS because there were problems in the medical aid industry, and there were still serious problems there, but the Regulator had to be someone who was very objective and in that objectivity be driven by humanity and kindness, and the regulating must be done by putting in corrective measures. There would be people who felt they were being abused, obviously that was not the situation. The Committee wanted CMS to ensure that there was some coverage for health for everybody, even for the person that could not afford it. The Green Paper spoke about a single payer and medical aids were concerned that if there were a single payer then they would go down; and when some of the medical aids were regulated they thought CMS was trying to kill them because it wanted to have a single payer. It was human nature that that would happen. Medical schemes could also be concerned because there might be people in the institution who were conniving with certain people to say ‘lets kill that medical aid to get their members’. That could be covered using objectivity, humanity and kindness. They needed to understand that when talking about the Regulator it meant all of us looking in the same direction.

Discussion
Ms M Segale-Diswai (ANC) was encouraged to note that CMS received a clean audit for the eleventh year.

Ms Segale-Diswai was concerned about consumer education. She had not heard of CMS before becoming a Member of Parliament. She had been frustrated with the issue of prescribed minimum benefits when she lived in a rural area 100 kilometres from Rustenburg and the medical scheme only allowed her to see a doctor in Rustenburg, irrespective of her circumstances. How did CMS reach people in those rural areas in terms of consumer education? How did they reach the cleaners and the ordinary people working in the mines?

Dr Gantsho responded that accessibility of “designated service provider” was put firmly into the education and training to educate members, to educate consumers, and to educate the labour movement. They would be informed of the existence of the PMBs and the designated service providers, and it was also indicated in the rules that were registered with the Council for Medical Schemes by the schemes, that those rules would typically outline the benefits and the options and the rules that the schemes must abide by and that the members needed to be aware of. CMS was picking up gaps in the process in that most of the members did not seem to be active enough in the affairs of their own schemes. The officials in the CMS were in most instances out in the field dealing with education and training all the trustees, principal officers and members of the schemes. Dr Gantsho admitted that it could never be enough; it was work in progress.

Ms Segale-Diswai suggested that CMS should brief the Committee on NHI.

Ms Segale-Diswai asked for an explanation of King III.

Ms Maziya responded that King III was basically a code of good governance practice that emphasised elements such as accountability, transparency, and ethical leadership. A new element had been introduced which spoke to concepts such as integrated reporting and CMS was using it particularly on sustainability to see whether medical schemes should in fact report on sustainability, and the Council was working with organisations such as the Institute of Directors (IoD) and SAICA (South African Institute of Chartered Accountants), which was the accounting authority in South Africa as to determine to what extent medical schemes should report on this, since it would have an added cost to the scheme, because if more items had to be audited, there would be more cost to the member.

Ms E More (DA) referred to CMS Expenditure 2010, 7% was ‘Other operating costs’, what were those costs?

Dr Gantsho responded that that 7% related to a host of other things that CMS had to deal with in order to continue functioning, such as cleaning services, banking charges, gardening services, and such things.

Ms More referred to the report of the Auditor General on page 161 of the Annual Report. Her understanding was that CMS received an unqualified audit with findings. What had CMS done with the performance information that was lacking or deficient in terms of validity, accuracy, consistency, and the other findings?

Ms More noted that the reported targets were not consistent with what was planned, and that CMS made changes without any approval, the content performance was not consistent with planned targets, and the plan and reported targets were not SMART (specific, measurable, attainable, relevant, time bound).

Dr Gantsho responded that last year the Council had done a ten-year review of the Council for Medical Schemes. One of the important milestones was the migration in the regulatory environment to a point where CMS had a full Council that governed and tracked the governance, compliance, and financial stability of the industry. It was an important achievement that over the eleven years the clean audit indicated, though minimal growth in the membership in schemes at the time, it rose from 4.1 million to the 8.3 million people currently in medical aid schemes. Governance had improved. There were challenges that were being addressed. Compliance with the schemes and the regulations and the provisions of the Act had improved. There were still challenges the Council was addressing. The protection of members in terms of the complaints and adjudication, the appeals process had matured over that period of time. Dr Gantsho thought there was a clear relationship between the way CMS managed the resources and the service delivery that many members currently had. The people in this country who had a medical aid scheme had a voice to express when they were satisfied or dissatisfied. They had an institution they could go to when their matters were not resolved with their scheme. The Council for Medical Schemes had systems in place to deal with those that were not resolved. CMS encouraged medical aid schemes to deal with them by having internal resolution systems in place.

Dr Gantsho responded on the reported targets. CMS reporting requirements as per the Public Finance Management Act and the Treasury had over the past few months been made even better by interaction with the Technical Advisory Unit at Treasury. That unit guided the Council in terms of three-year plans for performance targeting. It made the Council revise its strategic objectives from seven to four. They also changed from instead of holding the strategic plans at the beginning of the year to holding it earlier in order to have six-month periods between the strategic plan and the actual end of the financial year. That had assisted a lot in terms of getting budgets approved.

Ms More referred to page 152 of the Annual Report and asked what CMS had done with all those audit findings in order to show that this year it achieved a Clean 1, which was one without findings.

Mr M Waters (DA) referred to page 137 of the Annual Report. Salaries were increased from R39 million to R47 million. Who determined the salaries and what was the reason for the huge increase? He asked for an indication as to what the salaries were.

Dr Gantsho responded that CMS was a service-orientated institution, and its strength lay in its people. The Council prided itself in having highly specialised, professional, highly skilled individuals and he had mandated the HR Committee to look for the best and they did not come cheap. The Council had in the past lost people because they were poached, therefore their salaries had to be competitive. To compromise would mean high turnover of staff and loss of the quality of professionalism. What was in the report with regard to staff costs was not out of line.

Mr Waters noted that the CMS would be formulating a view on the NHI, had it considered compulsory membership of medical aids for all working people? That would ensure that the age profile decreased and there would be more of the healthier people in the medical aid schemes.

Dr Gantsho responded that CMS would express that view to the Department of Health before 31 December as per the provisions of the Green Paper. It had to be remembered that this Annual Report was for the previous year, in which there was no NHI Green Paper on the table. A special team had been formed to zoom on the comments that should go to the Department of Health on the NHI Green Paper. The Council would use the expertise and eleven years’ experience that it had to give guidance, to advise the Ministry and the Department of Health. The Council was also interacting with various research institutes in order to benefit from the experiences of other countries with regard to this.

Mr Waters asked what was happening with the Risk Equalisation Fund that was supposed to stabilise medical schemes.

Dr Gantsho responded that the REF was an important component of looking at the sustainability of the medical aid schemes. It needed to be part of the amendment to the Act. That Act had not been amended since 2003 and there were a host of amendments that looked at deepening the protection of the members going forward, including the REF. Currently there was no REF in place. This would be an amended.

Mr Waters noted that some boards had been removed; he asked for an indication of how many boards from medical schemes had been removed, and which were they?

Mr Waters referred to the monitoring and reporting of private hospital costs. The department had given an indication as to how it was managing private hospital costs through centralised bargaining, which went against the Competition Commission ruling. Had CMS given any input to the department for that and how did CMS envisage curtailing private hospital costs?

Mr Matsebula explained why negotiations were necessary. One of the difficult problems in health care was that there was a problem of information asymmetry. As a member of the public or as a member of a medical scheme, patients hardly knew what they would be paying for because it was not clearly defined, which was why it was necessary to have a transparent mechanism in place that would facilitate the sharing of information from the provider’s side so that there was some measure of objectivity as to what medical schemes were reimbursing providers for, such as standardised types of benefits. In 2004 the Competition Commission outlawed that, they said the provider associations could not negotiate with medical schemes because that was deemed to be anti competitive. That had unintended consequences in that it ultimately resulted in a spike in terms of costs the medical schemes were incurring. Negotiations needed to happen because the health industry could not be treated as any other. CMS had subsequently been putting together some research projects looking at the problem of cost escalation; and had also given input into the process being run by the Minister and the Department of Health in terms of putting together a pricing commission to look at addressing those problems. All CMS could do was to give input into what was essentially a DoH process.

Medical schemes did engage with providers on an annual basis, but because the Competition Commission outlawed a collective negotiation each of the schemes had to negotiate with the big provider groups individually. Medical schemes did not have an equal bargaining power with the providers because of their size. A small scheme would find it difficult to negotiate with an institution such as Netcare. So they did negotiate but by and large the medical schemes became price takers and had to settle for what the providers asked. The central bargaining process was just a mechanism to make that process more effective than it was currently.

Mr Waters asked whether the Council had many decisions with regard to inspections of medical schemes, particularly with Medshield. It was his understanding that the Council had given instructions to proceed with the inspection of Medshield and could the Registrar and the Professor explain why the instructions of the Council had not been followed to date, and what was the problem in holding that inspection.

As far as the letter from the Committee Chairperson was concerned, Mr Waters asked the Professor to explain the contents of the letter. Mr Waters quoted from the letter as he asked questions:  The Committee Chairperson had said ‘once again Medshield had complained about the abuse of power by CMS officials’. What abuse of power was that, it seemed to be quite serious? The letter carried on to say ‘we thought we had made some serious strides and moved significantly to finding common ground and a solution to this impasse. I am now informed that the CMS officials are seeking to reinstitute an inspection when we all agreed to an Alternative Dispute Resolution (ADR)’. What dispute resolution was that and what powers did the Chairperson have in finding alternative dispute resolutions? ‘which both you and me endorsed’? He asked on what grounds the Chairperson endorsed that.

’This is most disappointing since both of us would be seen to have negotiated in bad faith or allowed CMS to blind side Medshield.’ Who did they negotiate with?

’This could discredit both CMS and Parliament’. Mr Waters did not see how Parliament came into it because this Committee had not taken a decision.

’It was important to ensure that CMS appreciates that the Department of Health and Parliament wants to ensure ultimate buy-in by medical aids and schemes of the NHI system. We cannot have the Regulator embark on a collision course with own stakeholders and in the process, destabilising the industry and hope for the Department and Parliament to implement NHI successfully.

Medshield is the fourth largest scheme in the country and we need them as much as we need other medical aids and schemes. They said at our meeting that they want self-administration which helped reduce costs but also understand administration efficiencies better. We need such medical aid schemes.

Should we not succeed to manage the dispute resolution process which we have agreed and embarked upon’ Mr Waters asked if they had embarked upon that?

’we are likely going to have the parties go to court and this would be most unfortunate and otherwise costly to all involved? Parliament is already concerned about the CMS budget which reflects large sums allocated towards escalating legal fees. It is thus not surprising that the legal budget has increased from R3 million to R8 million in three years. We think this can be managed better.

We had an understanding and an agreement. Please tell me what has changed and how do we return to the negotiation table with the intention to resolve this matter amicably and expeditiously,’ Mr Waters asked the Committee Chairperson what that agreement was and how it had legal standing? ‘without any legal wrangles and legal people?’ That was the end of the letter from the Chairperson of the Committee.

The Committee Chairperson said that letter was addressed to Professor Pick and was not a public document. Members of Parliament were public figures and anybody could go to them when they felt aggrieved.

The Chairperson said he had received a letter from Medshield complaining that there was abuse of power by the Council of Medical Aid Schemes. He replied that he would communicate with Professor Pick and Dr Gantsho to hear their side of the story. The Registrar said there had been no abuse of power and the Chairperson suggested that they meet with Medshield. He felt he was empowered by Parliament to do that. He asked that the Registrar and Professor Pick and anyone they felt were important to come to that meeting. He did likewise with Medshield; he felt it was his duty to listen to them. Last year there had been problems with Bonitas and he assisted them and everything was resolved.

So they had the meeting and the Chairperson said his only role was to facilitate, but another reason was that Medscheme had said if the matter was not resolved they would go to court and that would escalate the legal fees of CMS. To avoid litigation, which was paid by scheme members, something had to be done. At the end of the meeting, CMS requested certain things from Medshield and Medshield agreed to those terms of reference. Both sides agreed to the terms of reference and he told them to see that it was implemented.

The Chairperson said he understood that medical schemes had fears about NHI as the ‘single payer’ and it was on that basis that he was at that meeting. He then received another letter to say that the same terms of reference they had gone back on. Despite reaching consensus, Medshield had a whole entourage of lawyers and he had said they must go, the resolution would come from CMS and Medshield. So now they said they had no option but to go to court again and he wrote to Professor Pick and said there was a process that was agreed to, what had changed? He was overseeing CMS and protecting the members of medical aids and their money, and in doing that also ensuring that the medical aids would not feel that they were being killed deliberately.

Prof Pick thanked the Members of Parliament for being patient with CMS over the past six years and for having conducted their oversight duty as well as they had. He had always enjoyed the questions asked of Council on their visits there and he hoped that they would continue in that vein.

The questions Mr Waters had asked were important for the Council to respond to and it was important that he made it clear to everybody, to Parliament and to the country, that the Council for Medical Schemes took decisions independently of any other organ. CMS was governed entirely by the Medical Schemes Act that this Parliament, that represented the people, had given it to administer. No one, not the Minister, not the Chairperson of this Committee, nor the President, could decide how the Council ought to govern. The Chairperson of the Portfolio Committee could attest to the fact that CMS on the Bonitas matter insisted on doing what was the right thing.

He would not respond to the letter in public, he felt he should respond to the letter in writing.

Prof Pick clarified that CMS had authorised an inspection of Medshield under certain provisions of the Medical Schemes Act. The terms of reference were spelt out. During the course of the inspection, the organisation doing the inspection found things beyond the prescripts of that inspection and compelled CMS, on the basis of being accused of abusive power, to reconsider. The decision taken at that meeting to try to resolve the impasse, as mentioned in the letter, was that the staff of CMS would sit with the Medshield board of trustees and agree to the terms of reference, because there was indeed the possibility that the Council could be perceived to have not paid attention to the Promotion of Administrative Justice Act, which would have really sunk all their efforts. So the Council had to be sure that when the inspection was done, no one could say it had gone beyond what was agreed to.

The staff of the Council and Medshield board of trustee members were meant to meet over time to agree to which things would be acceptable to both parties, but CMS always retained the right to inspect as and when was necessary. That agreement did not lead to any concrete outcomes and Council resolved that as there was no progress it would do an inspection. That decision seemed to have led to the letter from the Chairperson of the Portfolio Committee.

Prof Pick emphasised that the Council had discussed the challenges of having outside persons asking CMS to engage with those that it was regulating. The Council was not averse to being reasonable and did not wish to be seen as an organ that abused its power, and it was open to meet with people. The decision taken by Council was that it would not in future entertain those kinds of approaches to the Council and its staff. That needed to be documented and registered. It was very important that the Committee as parliamentarians left the meeting knowing that the Council for Medical Schemes was not influenced by anybody, it would take its own decisions.

Ms B Ngcobo (ANC) referred to the number of litigation cases and asked who paid for the litigation; was it the members who contributed or the scheme itself?

Dr Gantsho explained that the highly litigious environment that CMS worked in was costly and various other ways of resolving problems needed to be put in place. He and his officials were waiting for proper guidance on how to deal with the issue. CMS could not tolerate having more than 50% of its budget being consumed by one item. The people who paid were the members of the scheme.

Ms Ngcobo asked in what way CMS encouraged members’ participation?

Dr Gantsho replied that members must know what they were buying and what their benefits were. They must know the 270 PMBs may not be refused.

Ms Ngcobo noted the mention of admin fees by Medscheme, who paid at the end of the day? She asked a question about cancer treatments that were not made locally and were deemed to be ex gratia payments.

Mr Matsebula said one of the problems experienced in the past few years was that of ex gratia. This came up by and large when there were new treatments and new technologies to address certain ailments and where the scheme had to make a decision as to whether or not to fund the treatment as it was a discretionary benfefit. CMS left it to the discretion of the scheme because that was what “ex gratia” was. The Council approved the benefits of the scheme but when it came to that kind of treatment, the board of trustees had complete discretion on which instances to grant the ex gratia and which not to. Medical schemes were incurring problems in terms of operational losses, so as the operational losses increased, the ex gratia payments decreased.

Ms H Msweli (IFP) asked how the Council investigated and resolved members’ complaints?

Ms Maziya explained that a member would first have to lodge a complaint with the medical scheme, which was supposed to have a dispute resolution committee that would consider the matter. If no joy came from that, then the member could go to the CMS, which would look at the case, engage the scheme, look at what the Medical Schemes Act provided for, and ultimately make a ruling, which may be in favour of the medical scheme or in favour of the member. If again the member was not satisfied, CMS had an appeals committee and an appeals board, and the member could ultimately go to court. It could be a lengthy and costly process to protect member rights.

Ms Msweli also asked how often CMS met with the providers about the prices? She asked for clarification on restricted and open schemes.

Ms Maziya explained that closed schemes were schemes that had restricted membership by virtue of either employment or professional associations, for example an Anglo Medical Scheme was restricted to employees of that company. Open meant any member of the public could join that medical scheme.

Ms Msweli asked whether CMS worked with all the schemes or only certain ones?

Dr Gantsho responded that the Consumer Protection Act and the Medical Schemes Act were two pieces of legislation but the view was that they were not subservient to each other. They had specific provisions as to what CMS should do in the same way that the National Consumer Commission did. Dr Gantsho had discussions with the Commissioner and some misunderstandings with regard to the two pieces of legislation were resolved and there should be a MoU as to what had to be dealt with by whom. When it came to members of the medical aid scheme and their rights being protected, the members had a place to go. The CMS had systems and experience and expertise in dealing with those.

Mr Waters thanked Prof Pick for clarifying the Council’s independence from any political interference and the fact that the Council had obligations to fulfil and nobody could interfere with that. He would be taking the letter up to a higher level because he thought it was an abuse of power.

Mr Waters asked for confirmation. Once the Council agreed to inspect any medical scheme what was the time frame from the Council making the decision to the start of the inspection, and who was responsible for that? Had the inspection of Medshield started and when was it anticipated it would be completed?

Prof Pick responded that the Council passed a resolution to inspect; that was handed over to the Registrar and staff. The Council met four times a year. If the inspection took place between Meetings one and two the Council would get feedback at the second meeting. The Medshield decision was taken a little while ago. How long it took would depend on the details of the inspection itself.

Dr Gantsho continued that Ernest and Young did the inspection on Medshield. When the alternative dispute resolution took place, Medshield, the Council Chairperson, the Registrar, and the Chairperson of the Portfolio Committee, according to the terms of reference referred to, that process hit snags right from the beginning because the terms of reference could not be agreed on between the parties concerned. Ernest and Young came in as the inspector and that process also was not an easy one and could not be concluded. However, the Council had a copy of the inspection report of Ernest and Young. Subsequent to that, further discussions took place, calling all parties to sit together and iron out their differences. Those differences were between the office and the scheme and the request that came in from the Council with the guidance of the Chair were that point-by-point differences needed to be put before the Council in order to see who was not agreeing to the processes. Then that would necessarily lead to an inspection and that was where the situation was currently.

The Chairperson said it was nice to be in a democratic dispensation, but at the same time it was very important that when people complained, the complaints must be handled honestly, with integrity and looking at them to get the correct decision. The key was Medshield and CMS must sit down and see how to find each other, and having found each other, go and implement that.

It was not the first time that CMS spoke about amending the Act. The Committee had tried to talk to the department about those amendments and there seemed to be a delay, he was hoping that by next year something would have been done.

The Committee was still concerned about the legal fees that CMS incurred. It was very important that ways should be found to resolve those issues without wasting members’ money.

As Members of Parliament, the Committee was continually listening to people who had problems. There would always be problems; they must be managed. Medical aid schemes had serious problems, they needed to be handled, but in handling them they must not be killed. They did not want NHI, but Parliament saw them as an important group. CMS must do what it was supposed to do.

Prof Pick said how the Portfolio Committee had changed. When he came in six years ago the atmosphere was openly adversarial. That had changed; he had a sense that there was more cohesion – yes there were differences, there was healthy robust debate and challenges, because the Members were the custodians of our democracy and it was their job, but he sensed much more coherence in the way the Committee was operating. As an outsider, he commended all the Members of the Committee and their courage to do what they were doing in the interests of the people of South Africa.

The Committee’s input into CMS’s deliberations was very critical, yet many of its innovations and ideas came from this Committee. When he came in six years ago the Council did not have an actuary on its books and the Committee asked if it had an actuary. The Committee’s questions and challenges were critical for the process of regulating medical schemes in South Africa to continue.

Prof Pick thanked the Committee for embedding the work of the Council in the national concept. People who worked in councils and entities did not always understand the bigger issues of which Parliament was the custodian. He wished the Committee well for the foreseeable future.

The Chairperson thanked the Professor; it gave the Committee enthusiasm to continue with its work. He had been given powers to work in this Parliament but tried to ensure he did not abuse them. He had always called for unity in the Committee, they came from different backgrounds but there must be unity. He wished the Professor well in his retirement.

The Chairperson thanked CMS for their presentation and responses.

The meeting was adjourned.






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