Council for Medical Schemes on its 2011/2012 Annual Report

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12 October 2012
Chairperson: Dr B Goqwana (ANC)
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Meeting Summary

The Council for Medical Schemes (CMS) presented its Annual Report for 2011/12, and was pleased to announce its twelfth consecutive clean audit. The income of the CMS was derived mainly from levies charged to medical schemes (which amounted to about R25 per member), accreditation fees for administrators, MCOs and brokers, and registration fees for medical schemes, although it also received a government grant of around R4 million. In total, in this financial year, CMS had received R94 million. It was regulating an industry that had, overall, received R1.7 billion in contributions. Its financial results were summarised, and a breakdown of the expenditure was given. One of the biggest cost drivers, apart from salaries, was the legal costs but the nature and extent of litigation against the Registrar and Council remained unpredictable. In this financial year, CMS had expended R10.4 million on legal fees, but this was compared to medical aid litigation costs of R50.5 million overall. The CMS had been successful in an appeal case around prescribed minimum benefits. Quite an extensive time was devoted to explaining the provisions of the Medical Schemes Act.

One of the key responsibilities of CMS was to resolve complaints about the medical schemes industry. It had, in this year, received 6 138 complaints and managed to resolve 5 963. Trends in schemes were outlined in detail, to show access to cover. CMS had managed to achieve only partially against its goal of ensuring good governance in schemes, as most of the factors were outside its control. Trends in beneficiaries showed 8.5 beneficiaries in 2011, with the breakdown given for open, restricted (including the Government Employees Medical Aid Scheme) and managed schemes. More beneficiaries had used private hospitals, and stayed longer. The percentage of the benefits paid were the major cost drivers, and the breakdown into categories was given, as well as the breakdown of administrative and broker costs. The solvency trends were also outlined. In relation to its third goal, it was noted that CMS was responsive to environmental needs, as it was providing influence on and support to health policies.

Members asked a number of questions, many of which needed still to be responded to in writing. They asked what the Health Professions Council of South Africa (HPCSA) was doing to regulate hospital costs, and asked about the contribution of CMS to the debate. They queried whether the changing numbers of schemes were positive or negative, the impact of the government schemes, the contributory factors, and whether CMS also looked into hospices and similar services, whilst another member asked if government funded hospices. More details on the budget and spending were requested, including why CMS was renovating a rented building. Concerns were expressed about healthcare providers encouraging longer hospital stays, and the concerns about failure by schemes to pay for surgery. More detail was requested on committees and their stipends. They were concerned whether enough was known about CMS, and the availability of medical aid, particularly in rural areas.

Meeting report

Council for Medical Schemes 2011/2012 Annual Report
Mr Trevor Bailey, Acting Chairperson, Council for Medical Schemes, read out his Chairperson’s Statement from the Annual Report for 2011/12. He noted that South Africa’s health system was undergoing a much-needed strategic review and that both the public and the private sectors were affected. The role of regulators remained crucial in this changing environment. The Council for Medical Schemes (CMS or the Council) continued to execute its mandate in the financial year under review. By guiding the medical schemes industry into unprecedented stability and performance, Council continued to support efforts aimed at strengthening the entire health system of the country.

CMS continued to support the Department of Health (DoH) in its efforts to strategically review the entire health system of South Africa. It had provided input to the technical sub-committees of the Ministerial Advisory Committee on the proposed National Health Insurance (NHI) system and submitted a formal document on the NHI policy paper (provided on the CMS website).

He also mentioned that ever–escalating costs in the industry, which were driven by private hospitals and medical specialists, had been an ongoing concern of the CMS, including in this financial year. CMS believed strongly that a platform was needed for medical schemes and healthcare providers to meet and negotiate prices, for the benefit of all South African consumers.

CMS placed priority on beneficiaries of medical schemes, who, as consumers of healthcare, must get value for their hard-earned money, and must continue to enjoy protection against unpredictable, undesirable, and potentially catastrophic health events. The Medical Schemes Act 131 of 1998 provided a unique legislative framework aimed at providing equitable access to private healthcare, on par with the best in the world. Where there were imperfections, CMS continued to engage with the Ministry of Health to ensure consideration of the necessary legislative amendments, especially those aimed at strengthening the protection of beneficiaries and improving the functioning of the entities that Council oversaw.

Mr Bailey said that the financial health and long-term sustainability of medical schemes and the businesses affiliated with them remained a Council priority. Only well-managed and financially sound medical schemes, empowered and supported by good legislation and a strong regulator, could offer just and adequate protection against ill health, and guarantee respect for the constitutional imperative of fair treatment for all. Ultimately, the entire health system would benefit from the work of the CMS.

Much progress was made in efforts to distinguish and protect medical schemes from commercial health insurance, without infringing on the provisions of the Medical Schemes Act, when the Minister of Finance published draft Regulations on the so-called ‘demarcation’ matter. CMS hoped that the legislative amendments would enhance efforts aimed at creating a fairer environment for South African consumers.

Compliance with the Medical Schemes Act (the Act) remained one of the main issues of CMS. It monitored good governance, which was a pillar of any healthy organisation and industry, by introducing routine inspections into medical schemes in this year. The accreditation standards for managed care were also improved. Other projects on which CMS embarked to enable it to become a more proactive and effective regulator included the Composite Risk Index (CRI) and Real-Time Monitoring (RTM) projects.

Dr Monwabisi Gantsho, Chief Executive Office and Registrar, CMS, outlined the highlights of the 2011/12 financial year. By way of introduction, he noted that the Medical Schemes Act No 113 of 1998 governed both the CMS and the industry, divided into four categories of medical schemes, administrators of medical schemes, managed care organizations, and healthcare brokers and broker organizations. He too emphasised that the priority lay in protection of the beneficiaries and regulation of the medical schemes industry for the benefit of the entire health systems.

The Act promoted non-discriminatory access to privately funded healthcare, through open enrolment. The community ratings meant that benefits were not linked to age. There were guaranteed prescribed or minimum benefits (PMBs). The Act promoted financial stability and sustainability, encouraged active participation in scheme affairs; and a procedure for investigating and resolving complaints.

Performance highlights of the CMS in this financial year had included its involvement in the NHI, work on proposed amendments contained in the Medical Schemes Amendment Bill, and the demarcation between medical schemes and health insurance products. PMB was a pillar of the Act and the determination of these and of prices in the private health sector were paramount. The CMS had the duty to speak openly about the interests and the rights of members, and this was illustrated by the Supreme Court of Appeal  judgment in the Selfmed defamation case. It had carried out inspections and investigations into Sizwe and Medshield. The Risk Equalisation Technical Advisory Panel (RETAP) became the Industry Technical Advisory Panel (ITP). Various rule amendments were proposed, in the form of regulations, including guidance on contribution increases, the observed trends in registered contribution increases. Improved regulatory effectiveness was seen through the routine inspections of medical schemes, RMI, the Composite Risk Index (CRI) and the improved accreditations standards for managed care organizations (MCOs).

He noted that, for the twelfth consecutive year, the Auditor-General (AG) had given an unqualified audit.

The income of the CMS was derived mainly from levies charged to medical schemes, accreditation fees for administrators, MCOs and brokers, and registration fees for medical schemes. In this financial year, CMS had received R94 million. It was regulating an industry that had, overall, received R1.7 billion in contributions.

Dr Gantsho noted that one of the key responsibilities of CMS was to resolve complaints in relation to the medical schemes industry. CMS received thousand of complaints every financial year, and this number kept growing. In 2011/12, it had received 6 138 complaints and managed to resolve 5 963. Most complaints related to the non- or short-payment on prescribed minimum benefits (PMBs), or decisions of a legal nature.

The challenges were that the nature and extent of litigation against the Registrar and Council remained unpredictable. In this financial year, CMS had expended R10.4 million on legal fees. By comparison, however, the medical schemes spent about R50.5 million on legal fees, including litigation. Six schemes who appealed against decisions of the Registrar and Council in 2011/12 spent R27 million on legal fees, including litigation. Dr Gantsho tabled a chart of the comparative spending on legal fees.

Mr Dan Lehutjo, Chief Financial Officer, CMS, then gave an overview of the CMS financial results. Assets were 3% Intangible assets, 19% Trade and other receivables, 21% for Property, plant and equipment and 57% Cash and cash equivalents. The Liabilities were categorised as 3% Operating lease payable, 34% Provisions and 63% Trade and other payables.

He noted that the revenue from exchange transactions totaled R89.43 million, and revenue from non-exchange transactions, which was the government grant, was at R4.29 million. The main source of revenue was, as mentioned earlier, the levies. However, the levies amounted to only R24.95 per medical scheme participants, which had not increased. He also tabled a comparison to the revenue in previous years (see attached presentation).

Expenditure was listed. The major expenses were in relation to staff costs. Other administrative expenses were comprised of rent at 24%, building expenses at 13%, telecommunications at 11%, and 10% of general expenses. On the operating side, 55% of expenses related to legal costs, 19% to  Committee expenses, 16% to “other”, 6% to consumer education and 4% to investigation costs.

Mr Michael Willie, Acting Senior Manager, CMS, then presented the non financial information as well as operations on medical schemes in the previous financial year. The numbers of medical schemes, benefit options, health care service used and expenditure trends wee outlined. He reminded Members that the first strategic goal for the CMS was to ensure maximisation of access to good medical cover, and to ensure that members of schemes derived a benefit. The trend in schemes showed that in 2002 there were 143 schemes, but only 97 in 2011, mainly due to the number of mergers.

CMS’s second strategic goal was to ensure that medical schemes were properly governed, responsive to the environment, and that beneficiaries were informed and protected. However, CMS was prevented from achieving these goals, as they were influenced by a number of factors, including ageing profiles of beneficiaries, declining membership, governance failures and increasing healthcare costs.

He then spoke about the beneficiary trends which saw an increase from 6.7 million beneficiaries in 2000 to 8.5 million beneficiaries in 2011, an increase of 26.9%. This was not particularly significant when viewed over the time period. Open schemes showed trend from 4.7 million in 2000 to 4.8 million in 2011, a 2.1% growth. Restricted schemes, in 2000, were 2.1 million in number, and 3.7 million in 2011, a 76.2% growth. The Government Employees Medical Scheme (GEMS) had been responsible for growth in restricted schemes in membership, since 2006.

He then outlined the age profiles. The average age of beneficiaries was 31.6 years, up from 31.5 years in 2010. Average age in open schemes was 33.3years, whilst average age in restricted schemes was 29.5 years. Since 2006, the average age in open schemes was more, whilst in restricted schemes it was becoming younger.

 Mr Willie went on to explain the utilisation of healthcare services. More beneficiaries used private hospitals in 2011, and they stayed longer than in 2010. Fewer beneficiaries used general practitioners (GPs), dentists and private nurses in 2011, as people preferred to go directly to specialists. Beneficiaries in restricted schemes used healthcare services more often, and for longer, than beneficiaries in open schemes, and this was also influenced by the GEMS numbers. Beneficiaries between the ages of 1 to 4yrs, and the older beneficiaries, tended to have longer stays in hospitals.

Mr Willie then explained the percentage of benefits paid, which were the major cost drivers. These were divided into total hospitals at 22.8%,  medical specialists at 16.3%, doctor's medicines at 7.3%  and other at 17.3%, a figure that included GPs.

The total healthcare benefits paid between 2000 and 2011 were outlined (see attached presentation for full details of per month and per beneficiary payments).

CMS’s strategic goals 3 and 4 demanded that CMS be responsive to the needs of the environment. CMS was doing so, by providing influential strategic advice and support to health policies. The CMS tried  innovative ways of responding to the beneficiaries, whilst attempting to be a proactive regulator and align its internal resources to be more effective.

Ms Tebogo Maziya, Head: Financial Supervision, CMS, then provided further financial information on the claims as a function of the contributions, the relationship between claims and non-healthcare expenditure, components of non-healthcare expenditure, net healthcare results, the solvency position and overall industry trends.

She noted that risk contributions were contributions without savings. In 2011, R107.4 billion was collected, an increase of 11.3% on the previous year. Total claims expenditure, including savings, saw an increase of 10.3% in this year, to R93.6 billion in 2011. The rate of increase in contributions was higher than in claims because medical schemes experienced a bad year in 2009 and had since tried to correct their pricing to recover losses. On average, beneficiaries in 2011 paid R1 063.9 per month in gross contributions, and R966.6 per month in risk contributions, excluding savings.

Claims ratio had increased since 2000, and non-healthcare had declined. The latter included gross administration / operational fee expenditure, managed healthcare services, broker fees and impaired receivables (see attached presentation for more details). When adjusted for inflation, there was a real decrease, from 2008 onwards, in the amounts that medical schemes were spending on non-healthcare expenditure, after the Act was introduced. Gross administration expenditure comprised the largest part of non-healthcare expenditure in schemes. IN open schemes, this was R5.6 billion in 2011, in restricted schemes it was R2.4 billion and in managed healthcare it was R2.4 billion.

The number of members covered increased, by 2.5%, to 8.4 million. 98.9% were covered by managed healthcare services.

Broker costs increased by 5% to R1.4 billion in 2011. However, life coverage included only a 3.3% increase, from restricted schemes which did not pay broker fees. The average spent on broker fees increased by 206%, compared to an 84% growth in membership.

The average solvency of healthcare schemes in 2011 was 32.6% for all schemes, and this was above the minimum 25% solvency requirement. Nine of the 26 open schemes (compared to 12 in the previous year) were below solvency in 2011. Five restricted schemes, out of 71 were below solvency levels in 2011.

She reiterated that some of these trends were explained by the overall trends since the introduction of GEMS in 2006; restricted schemes were getting younger and impacting open schemes that were getting older.

The Chairperson noted that one of the main cost drivers in the healthcare sector was the hospitals, and enquired what the Health Professions Council of South Africa (HPCSA) was doing to regulate them.

Mr Bailey said that although this did not fall within the mandate of CMS, as these costs fell outside of the Medical Schemes Act, the CMS had nonetheless given thought to this, and had recently spoken to the Minister about getting more involved with the HPCSA and other bodies that it regulated. He mentioned that the Competition Tribunal had also revisited the issue.

The Chairperson asked if there was anything that could be done by Parliamentarians to change the costs of hospitals and specialists.

Dr Gantsho noted the Competition Tribunal ruling, in 2004, on costing, and the fact that a number of the stake holders were penalised. HPCSA had taken over the responsibility of setting tariffs for the service providers. The Minister of Health had called a number of meetings with the stake holders, which included Competition Commission, Department of Trade and Industry (dti) and the Commission of Enquiry on costing.

The Chairperson asked if the decrease in medical aid schemes was a good or bad thing.

Dr Gantsho responded that in fact the number of medical schemes was now again rising. Only time would tell if this was a positive development.

Mr Bailey noted that there were no concerns around the decrease in medical schemes at the moment. The issue of prescribed minimum benefits had had some influence on the decrease of the schemes. Medical Schemes have been told that they have to pay the prescribed minimum benefits, in the best interests and protection of all beneficiaries, as instructed by the recent court case that CMS had won. Discovery had been spending more on administrative costs and recently notified CMS that it would cut down on costs.

The Chairperson asked if CMS looked into hospices.

Ms M Dube (ANC) asked for further explanation on the figure of R25 that was described as a per-beneficiary payment to fund CMS.

Dr Gantsho mentioned that CMS would be willing to give more detail on its budget and spending, provided that the Medical Aid Schemes Act allowed it to do so.

Ms Dube questioned why CMS was renovating a building that it was renting; surely it was the responsibility of the landlord or owner, and this was affecting CMS’s expenses.

Ms Dube raised the issue that healthcare providers encouraging patients to stay in hospitals for four to five days, or referring them to the ICU when they did not have serious problems. CMS should look into these issues, which were one way in which hospitals simply increased their revenue.

Ms Dube wondered if salaries and bonuses fell under healthcare expenditure. She also questioned how CMS spent the money given by government.

Mr Bailey mentioned that a large portion of the budget was going to legal costs, but it was money well spent as the Council had always gone to court if need be, and had been winning the cases.

Ms Dube asked for more detail on the committees, who they comprised, what they did and the stipends paid to the members.

Mr Bailey said that committees sometimes comprised of members of the Council or specialists brought in. He gave an example of the Appeals Committee which was made up of an Expert Counsel as well as other members.

Ms D Robinson (DA) was concerned that despite their beneficiaries having made contributions for so long, many Medical Aid Schemes were not paying when patients had surgery.

Mr Bailey said that CMS had recently noticed a number of appeals by scheme members in this regard. He said that part of the reason could be the increased expensive nature of the claims.

Dr Gantsho thought that HPCSA had to be stricter with specialists and that CMS was working very closely with fellow regulators to ensure this.
Ms Robinson wanted more detail on what medical schemes had contributed to losses.

Ms Robinson noted that people in both rural and urban areas were not aware of the CMS, and asked  that it market itself better.

Ms R Motsepe (ANC) also asked if rural areas were aware and or informed about medical aid schemes and or CMS.

Ms M Segale-Diswai (ANC) asked CMS what happened to follow up on discussions or issues brought up in meetings, as she would like to avoid the same questions being asked every year. She mentioned that she personally did not know who CMS was, and wondered how it marketed itself. The general public probably did not know of its existence and role in society. She also asked how an ordinary person could participate in the medical aid schemes.

Dr Gantsho mentioned that rural areas were usually informed via family members who were working in the urban areas. The beneficiaries in the rural areas definitely had a say and had access to all benefits, but there were remaining challenges with healthcare facilities in the rural areas, and with reach. If any beneficiaries had issues or complaints about their medical aid schemes, the CMS had open lines to deal with such issues.

Ms Segale-Diswai asked about the value of the tenders on page 60. She enquired if creditors were being paid on time.

Ms Segale-Diswai questioned the staff turn over and asked if this could be because CMS was situated in the urban areas.

Ms Segale-Diswai also asked if government workers were eligible for GEMS when they retired or resigned.

Ms Segale-Diswai asked why the primary healthcare numbers seemed to be low, and also questioned why people tended to not pay when they attended public and or government hospitals, but paid when they went to private hospitals. She also questioned why older people were not in schemes.

Ms Robinson then commended CMS on its presentation but was concerned that the money spent on such a good presentation could have been used to market CMS better.

Ms Robinson noted the increase in cancer patients, and wondered if government contributed to hospices that cared for cancer patients, or if that was left to NGOs.
Dr Gantsho noted that the very reason behind PMBs was to cater for beneficiaries with chronic diseases, including cancer. Cancer required different treatments, depending on the type of cancer, but did not necessarily require specialist and or private care.

Ms Robinson asked how the situation with GEMS would affect medical aid schemes in the long run.

The Chairperson mentioned that Medical Aid Schemes had more than 8 million members and that it was the job of the brokers to make sure that the people in the rural areas were aware of the likes of CMS. He also mentioned that business people made a lot of money, and should assist in primary healthcare, especially for the elderly.

The Chairperson noted that Discovery had given its support to the NHI but after an initial flurry, there was not much being heard about it at present.

Dr Gantsho finally noted that the CMS had initiated the amendments to the Act, but did not know where this process was at the moment. He would investigate and report back.

The Chairperson asked that the outstanding questions and issues raised by the Committee be responded to in writing.

The meeting was adjourned.


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