Council for Medical Schemes Annual Report 2013

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Health

10 October 2013
Chairperson: Dr B Goqwana (ANC)
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Meeting Summary

The Council for Medical Schemes (CMS) presented its Annual Report for 2012/13, and was pleased to announce it had received its 13th unqualified audit from the Auditor General.
The total budgeted income of CMS for the financial year was R102.2m, with fees levied on medical schemes constituting the biggest chunk of its revenue, at R97.9m. The remaining income was a grant received from the Department of Health, amounting to R4.3m.  Total expenditure amounted to R99.3m, with staff costs constituting 67% of the total expenditure.  Legal fees formed the biggest portion of CMS’s operating expenses -- 48% of the total -- due to numerous suits brought against the Council, challenging its decisions.
Some of the challenges to achieving the Council’s strategic goals were the high volume of complaints, especially those arising from clinical resolution, coupled with the limited capacity in this area; legal costs, owing to the fact that the regulatory environment is highly litigious; and governance challenges in schemes, causing them to be placed under curatorship.   Examples of governance challenges included lack of skills and expertise on some boards, the lack of an arms-length relationship between trustees and third parties, and a failure to establish fit and proper standards.

A total of three schemes had been amalgamated or liquidated in 2011, whereas no new schemes had been registered during the same year.  The actual and predicted trend in scheme growth showed a decline, with the total number of schemes of 141 in 2001 declining to 93 in 2012, and predicted to decline further to about 54 in 2025.
Members of the Committee commended the Council on its unqualified audit report. They asked what austerity measures the Council had put in place to deal with the issue of its limited financial resources. They also asked whether CMS was renting the building that it currently occupied or whether it had purchased it. They wanted to know the impact of the challenges it faced on service delivery. They were concerned about the high volume of complaints, and asked what was being done to address them.

Meeting report

Presentation of the Annual Report (2012-2013) of the Council for Medical Schemes
Dr Monwabisi Gantsho, Chief Executive and Registrar, CMS, explained that the Council derived its mandate from the Medical Schemes Act 131 of 1998. The purpose of the Act was to ensure protection of beneficiaries and regulation of the medical schemes industry; it thus applied to the entire health benefits system, including medical schemes, administrators of medical schemes, managed care organisations and brokers.

The strategic goals of CMS were to ensure medical schemes were properly governed, were responsive to the environment, and beneficiaries were informed and protected. Other goals were that CMS would be responsive to the needs of the environment by being an effective and efficient organisation; that it provided influential strategic advice and support for the development and implementation of strategic health policy, including support to the National Health Insurance (NHI) development process and also to ensure that access to good quality medical scheme cover was maximised.

Some of the challenges to achieving these strategic goals were the high volume of complaints, especially those arising from clinical resolution, coupled with the limited capacity in this area; legal costs, owing to the fact that the regulatory environment is highly litigious; and governance challenges in schemes, causing them to be placed under curatorship.   Examples of governance challenges included lack of skills and expertise on some boards, the lack of an arms-length relationship between trustees and third parties, and a failure to establish fit and proper standards.

Dr Gantsho presented statistics of amalgamation and liquidation of schemes for the period 2002 to 2011, as well as the number of new schemes registered during the same period. A total of three schemes had been amalgamated or liquidated in 2011, whereas no new schemes had been registered during the same year.  The actual and predicted trend in scheme growth showed a decline, with the total number of schemes of 141 in 2001 declining to 93 in 2012, and predicted to decline further to about 54 in 2025.

Mr Daniel Lehutjo , Chief Financial Officer, CMS, presented the Council’s Annual financial statement for 2012-2013.  He informed the Committee that CMS had received an unqualified opinion from the Auditor General.   There had been some matters of emphasis that related to the issue of the useful life of the fixed assets of the Council, and reclassification of expenditure from function to nature, as required by the current accounting standards.  However, these did not have an effect on the unqualified opinion.

The current assets of CMS stood at R20.6m and the non-current assets at R14.7m broken down as follows: cash and cash equivalents constituted 48% of the total asset value; property, plant and equipment constituted 35%; intangible assets constituted 7%; and receivables from exchange transactions constituted 10%. On the other hand, total liabilities stood at R19.5m, with operating leases payable forming the biggest part of the expenditure.

The total budgeted income of CMS for the financial year was R102.2m, with fees levied on medical schemes constituting the biggest chunk of its revenue, at R97.9m. The remaining income was a grant received from the Department of Health, amounting to R4.3m.  Total expenditure amounted to R99.3m, with staff costs constituting 67% of the total expenditure; administrative expenses constituted 10%; audit fees made up 2%; operating expenses amounted to 20%; and depreciation  and amortisation of assets constituted 1% of total expenditure.

Mr Lehutjo presented the specific components of the administrative expenses, with rent for the old building that the Council had occupied forming 46% of the total administrative costs; building expenses for the new building to which the Council had relocated accounted for 21%; telecommunication expenses constituted 16%; and general administrative expenses constituted 7%.  The Committee was informed that legal fees formed the biggest portion of CMS’s operating expenses -- 48% of the total -- due to numerous suits brought against the Council, challenging its decisions. Professional fees constituted 12% and Council member’s fees constituted 13% of the total operating expenditure.

The CMS had adjudicated over two tenders in the period.  The first tender related to internal audit services for the Council, since it currently did not have the necessary resources to conduct an audit in-house. The second tender concerned the lease of the new office accommodation, costing over R10m.  The Council had involved representatives from National Treasury and internal audit to look into the tender process. Internal audit had issued a certificate to confirm that the Council had complied with the necessary supply management processes.

Discussion
The Chairperson applauded the CMS for the good audit opinion it had received from the Auditor General. He expressed concern over the resource constraints that the CMS was facing, considering it was regulating a very lucrative industry. This issue needed to be looked into.

Dr Gantsho responded that the issue of the Council budget was still a challenge considering that it regulated a lucrative industry.  The Council had put in place some austerity measures in order to manage within its limited budget.

Ms M Dube (ANC) sought clarification on CMS’s legal costs -- whether the monies paid out went to lawyers or to the courts.

Dr Gantsho explained that the legal fees are paid to lawyers for cases brought against CMS. The CMS had won most of these cases, but the process of recovering the costs awarded to it took long --sometimes they were not recovered within the same financial year.

Ms T Kenye (ANC) thanked the CMS for the presentation and commended them on the unqualified audit opinion. She asked whether the issue of placing medical schemes under curatorship was solving the challenges of governance in the industry.

Dr Gantsho answered that curatorship did solve the problem in most cases.

Ms Kenye wanted to know whether the national health insurance (NHI) scheme would have an impact on the reduction of medical schemes in the period 2013-2015, during which CMS has predicted a decline of medical schemes to 54.

Dr Gantsho responded that the analysis of the trend of amalgamation and liquidation of schemes had been based on the NHI Green Paper, as the White Paper was not yet available. The projection of a decline in the number of schemes to about 54 in 2025 would take place with or without the NHI, and the NHI fund in particular.   The analysis had factored in that part of the health care system and only the details were the unknown factor.

Ms M Segale-Diswai (ANC) commended CMS on the unqualified audit report and encouraged it to strive towards obtaining a clean audit report next time. She wanted to know what the impact of the challenges cited in the presentation were on service delivery. She further asked the Council to elaborate on how it was dealing with the problem of a lack of skills.

Dr Gantsho welcomed the comments on the unqualified audit and said that the Council would strive towards obtaining a clean audit. The issue of challenges impacting on service delivery was one that the Council is very much committed to addressing.   The Council measured its service delivery success rate by finding out whether members and beneficiaries were protected -- whether members’ individual rights were upheld under the schemes, and whether they received the benefits that they had joined the scheme for. 

Ms Segale-Diswai asked what the Council meant by ‘limited capacity’ to deal with the high volume of complaints received, especially arising from clinical resolution.

Dr Gantsho answered that that the high volume of complaints had occurred due to increased awareness about the existence of CMS. There were currently about 8.56m beneficiaries covered by medical schemes and they were becoming aware of the complaint mechanism offered through the Council. The issue of limited capacity became glaring when it cames to the expertise required to handle complaints that varied in nature, with some requiring legal expertise, medical expertise and sometimes financial expertise, that may or may not be available within the CMS offices.

Ms B Ngcobo (ANC) also thanked the Council for the presentation and its unqualified audit report and asked how it was dealing with the matters of emphasis in the audit report and the austerity measures in place to make use of its limited financial resources. She also asked for statistics on the number of young people joining medical schemes.

Mr Lehutjo responded that CMs had employed mechanisms to deal with the matters of emphasis in the audit report. One such mechanism was employing a resource person to deal with issues in procurement and supply management.  The Council planned to keep up-to-date with developments in the accounting area. 
On the issue of young people joining schemes, Ms Tebogo Maziya, Head: Financial Supervision, CMS,  explained that young people were particularly sensitive to price changes in the industry owing to what medical schemes charged and what providers were willing to pay, and this had impacted on the statistics.

Ms Ngcobo asked whether CMS was renting the building that it currently occupied or whether that it had purchased it.

Dr Gantsho said that the building wass rented, but the Council planned to purchase it in the future, subject to approval from National Treasury.

The Chairperson noted that there was a need to debate the issue of having competent boards on the schemes in future. He thanked CMS for the presentation and said that the Committee had accepted the report.

The meeting was adjourned.
 

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