National Health Laboratory Service & Council for Medical Schemes (CMS) on their 2014/15 Annual Report

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Health

14 October 2015
Chairperson: Ms M Dunjwa (ANC)
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Meeting Summary

The National Health Laboratory Service forged a relationship with the Southern African Development Community (SADC) in which the NHLS spearheads the development of training materials and provides laboratory training courses. It is satisfying to note that during the 2014\2015 period, the demand from provinces for NHLS’ services showed an increase of 4.52% from 79 507 377 to 83 278 870 in test volumes, mainly driven by Viral Load and GeneXpert volumes. The NHLS entered into collaboration with Roche Diagnostics and Abbott Molecular in a landmark programme to decrease the price of HIV viral load testing; the new pricing structure will benefit the 2.5 million South Africans who are on anti-retroviral treatment.

The HIV PCR and cervical smears targets were not met due to the tests being referred to centralised sites. The newly appointed logistics manager is reviewing the routes to improve efficiency. For the purpose of improving the quality of their test, proficiency tests were done. Their budget turnover of R5 036 billion was achieved and NHLS had a turnover of R5.6 billion. NHLS was not able to reach their target to improve employee satisfaction via a survey due to financial constraints and a low vacancy rate was not achieved due to the unavailability of cash resources, and only the critical positions were filled. In order to improve the translation of research, their research reports had to be submitted to influence policy and the research reports were to be translated into service. This was not achieved due to universities delaying in submitting the relevant evidence to support the output of the work conducted.

The NHLS was pleased to report that through the increased collection of debtors their financial status has improved and they are able to meet their operational needs; although prior debt remains an area of concern. The 2014/2015 financial highlights indicate that NHLS achieved an unqualified audit opinion – the ninth year in a row and maintained the same 2013/14 prices. The negatives are that debtors’ recovery was at 84% and a capital expenditure percentage of turnover of 1%. Considerable improvements were noted by the end of the financial year and this was largely due to cash inflows in the latter part of the year. Small, Medium and Micro Enterprise Businesses (SMMEs) and courier service providers are current in their outstanding balances due to maintaining a two month rolling cash flow strategy.

The challenges facing the NHLS today is the outstanding prior trade liability of approximately R1 billion; the outstanding amount receivable from provinces, mainly KZN at R3.5 billion and Gauteng at R1.2 billion. The plans going forward are to draft a strategic goal plan, have a continued stringent management of cash flow, continued focus on suppliers and a new focus on organisational efficiencies.

The Committee asked questions about NHLS’ relationship with other African countries and the continent as a whole. NHLS was told to structure its Human Resources report according to the template given to them by the National Treasury. They also asked for a detailed breakdown of the students who were awarded bursaries, what measures have they put in place to ensure that irregular expenditures do not happen again, the outcome of the investigation involving the previous CEO, what had caused salary disparities and what has the NHLS done to resolve its debt dispute with KZN and Gauteng.

The Council for Medical Schemes audited by the Auditor-General found no material findings on the usefulness and reliability of the reported performance information for the programmes. CMS achieved 86% of its planned targets. The total number of their targets was 35 with the negative deviations being 14% (5); positive deviations as 40% (14) and indicators outside control of CMS 14% (5).

The CMS will focus on software development and maintenance. Due to electrical interruptions and ageing infrastructure the network, server uptime and software availability was negatively affected. Corrective action was taken to avoid future disruptions as new generators were acquired. The estimated number of requests for knowledge and records information responded to was targeted at 350, the target was not achieved due to the target was based on estimated figures. The unit attended to all requests that were received.CMS targeted to have 4964 broker and broker organisations accredited within 21 working days of receipt of complete applications. They went over the target by 63 accreditations. Their target for the number of research projects and specialised technical support projects finalised was eight and CMS achieved 11 because there were additional research projects required by the office during the period under review. The target for the percentage of positive feedback received on CMS reputation through a media monitoring tool was targeted at 70%, they exceeded the target and achieved 72.5%. The target for the number of governance interventions implemented was 69, the target was exceeded again and CMS achieved 88 targets because there were more matters that required governance interventions.

The number of healthcare benefits paid in 2013 was R111.7 billion and in 2015 it is R124.1 billion; this is an increase of 11.1%. The healthcare benefits paid from the sick pool was R100.7 billion in 2013, it increased by 11.1% in 2015 to R111.8 billion. Benefits paid from savings are R12.3 billion. The cost of Prescribed Minimum Benefits (PMBs) for 2014 was R567 per beneficiary per month. Proportionally 53% of all risk benefits paid out is for the PMBs and there are still 47% of risk benefits paid on top of the PMBs. Medical Scheme inflation included tariff inflation plus the utilisation. The tariff inflation is approximately 5-7% and the utilisation is approximately 2-4%. The utilisation increases are in prevalence, ageing, member movement, patient and provider behaviour.

The administrator market share of the medical schemes is dominated by Discovery Health and Medscheme Holdings with both owning 27.2% of the market. This is followed by Metropolitan Health Corporate with a share of 25.3% and Momentum Medical Scheme with a share of 2.9%. All decisions concerning potential regulatory interventions are carefully researched and considered prior to implementation. Regulatory interventions by CMS are consistently upheld by independent tribunals and the High Court. There is an  increasing trend by certain regulated entities to challenge clearly legislated regulatory interventions.

The Committee asked about the causes of the inflation of medical fees, what will be the effect on medical schemes if everyone is covered by the NHI, what corrective measures have they taken against fruitless expenditure, what are their responses to the Auditor-General’s findings, why have they not bought any of their own buildings and what role do the medical schemes play in issues relating to men’s health.

Meeting report

National Health Laboratory Service (NHLS) on its 2014/15 Annual Report
Ms Joyce Mogale, NHLS Chief Executive Officer, said in order to attract prospective employees from rural areas into this sector that faces scarce and critical skills shortages, and to promote the NHLS as an employer of choice, 91 biomedical technology students from universities of technology were awarded study bursaries. Focused support towards strengthening the diagnostic laboratory platform was received from the Centre for Disease Control (CDC) and global funding in conjunction with the National Department of Health. A healthy relationship has also been forged with the Southern African Development Community (SADC) in which the NHLS spearheads the development of training materials and provides laboratory training courses.

Collaboration between the NHLS and the Council for Scientific Industrial Research (CSIR) resulted in the initiation of the National Pathology Database in 2014 which aimed at teaching, training and outreach in order to improve the accuracy and throughput of diagnoses related to diagnostic morphology. The database and associated technology infrastructure was permanently implemented throughout the NHLS centres as of February 2015 and was used for the 2014 and 2015 annual morphology training courses. It is satisfying to note that during the 2014\15 period, the demand from provinces for NHLS services showed an increase of 4.52% from 79 507 377 to 83 278 870 in test volumes, mainly driven by Viral Load and GeneXpert volumes. KwaZulu-Natal (KZN) and Gauteng had the most number of test volumes, for both 2013/14 and 2014/15. The number of HIV viral load tests performed across the country increased from 2.4 million in 2013/14 to 2.9 million in 2014/15. The NHLS entered into collaboration with Roche Diagnostics and Abbott Molecular in a landmark programme to decrease the price of HIV viral load testing. The new pricing structure will benefit the 2.5 million South Africans who are on anti-retroviral treatment.

The national CD4 count volumes tested in in2013/4 were 3 902 660 and 3 899 346 in 2014/15. KwaZulu-Natal has the most CD4 volume test in both financial years, followed by Gauteng in both financial years too. The national viral load volumes for 2013/14 was 2 585 245 and 3 009 598 in 2014/15. Again, KZN and Gauteng had the most counts. The national HIV Polymerase Chain Reaction (PCR) volumes in 2013/14 was 338 291 and 366 627 in 2014/15, with KZN and Gauteng having the most volumes. The national GeneXpert volumes for 2013/14 is 2 049 335 and 2 450 542 in 2014/15, with the Eastern Cape having more volumes in 2013/14 and KZN having more volumes in 2014/15. She added that it was important to take note of the figures before the media releases them. The national cervical smears for 2013/14 is 789 612 and in 2014/15 it is 828 154, with KZN having more volume smears in both 2013/14 and 2014/15.

Customer/Business Process Perspective
In order to improve customer satisfaction a Customer Satisfaction Index (CSI) had to be determined and the target which NHLS was aiming for was 76%. The survey was not conducted and NHLS was unable to determine its potential due financial constraints, therefore the target was not reached. To improve total turnaround times a number of volumes had to be increased in their test volumes. The CD4 count target was 90% and NHLS only managed to reach 89%, this was due to shortage of staff in the laboratories. The HIV PCR and cervical smears targets were not met due to the tests being referred to centralised sites. The newly appointed logistics manager is reviewing the routes to improve efficiency. For the purpose of improving the quality of their testing, proficiency tests were done, this excludes the paracytology and morphology tests. However, the targets were not achieved due to a shortage of staff in the laboratories.

Financial Perspective
Their budget turnover was achieved; it was targeted as R5 036 billion and NHLS managed to have a turnover of R5.6 billion. The budget overheads target was not achieved due to debt impairment. The material percentage of sales and cash received, creditor days (excluding accruals) and debtors targets were not achieved due to poor payments from provinces and expensive tests being conducted.

Employee Perspective
Key performance areas were to improve employee satisfaction, maintain a low vacancy rate, improve Employment Equity profile and Broad Based Black Economic Empowerment (BBBEE) procurement and status and maintain a high registrar pass rate. NHLS was not able to reach the target to improve employee satisfaction due to financial constraints; hence a survey was not conducted. A low vacancy rate was not achieved due to the unavailability of cash resources, as only the critical positions were filled. Their BBBEE status and registrar pass rate targets were not achieved. This was due to delays in filling of vacancies and slow payments to suppliers negatively impacting on the rating due to poor cash resources and the following reasons contributed to the poor performance: lack of continuous assessment programme and a lack of curriculum standardization. There were national challenges in terms of pathology colleges, and there was a perceived reluctance by the medical universities to take responsibility for registrars. These matters have been identified and are being addressed.

Internal Perspective
The SANAS Accreditation (academic and regional laboratories) targets were not achieved due to positions being put on hold as a result of cash constraints. In order to improve the translation of research, their research reports had to be submitted to influence policy and the research reports were to be translated into service. This was not achieved due to universities delaying in submitting the relevant evidence to support the inputs and the output of the work conducted was used to improve laboratory service activities for diagnostic methods update, introduction of new technology or improvement of technology in a laboratory and improvement of Thematic Apperception Test (TAT).

Financial Report
Mr Sikhumbuzo Zulu, Chief Financial Officer, said their finances took a dramatic turn for the better during the last four months of the reporting period. NHLS is pleased to report that through the increased collection of debts, its financial status has improved and it is able to meet its operational needs; although prior debt remains an area of concern. He added that this could not be achieved without the continuous support from the Minister of Health, Dr Aaron Motsoaledi, and the Director General of Health, Ms Precious Malebona Matsoso, in encouraging provinces to pay their bills. The 2014/2015 financial highlights indicate that NHLS achieved an unqualified audit opinion for the 9th year in a row and maintained the same 2013/14 prices. The negatives are the debtors’ recovery was at 84% and a capital expenditure percentage of turnover of 1%.

Collections from accounts receivables averaged R366 million for the first two thirds of the year under review. For the latter part of the year, the collections increased by 13% to R414 million and substantial payments were noted from Gauteng and KZN departments of health. The highest receipts which happened in the later part of the financial year are 1.9 times more than monthly collections. The bank balance grew considerably year-on-year by 87% to R651 million by the end of the financial year. Trade payable days outstanding closed at 70 days as compared to 74 days at the beginning of the financial year. Considerable improvements were noted by the end of the financial year and this was largely due to cash inflows in the latter part of the year. Small, Medium and Micro Enterprise Businesses (SMMEs) and courier service providers are current on their outstanding balances due to maintaining a two month rolling cash flow strategy to cover the debt for when it becomes due. No fruitless and wasteful expenditure was reported but there was irregular expenditure amounting to R341million of which R110 million was expired contracts and R241 million procured through quotation subsequently resulting in expenditure exceeding the quotation limit. Prior year irregular expenditure has since been condoned by National Treasury and current year irregular expenditure is in the process of being condoned.

The challenges facing the NHLS today is the outstanding prior trade liability of approximately R1 billion; the outstanding amount receivable from provinces is mainly KZN at R3.5 billion and Gauteng at R1.2 billion. If the outstanding amount receivable is not addressed it may affect the implementation of the global budget. Almost 90% of the budget goes to KZN and Gauteng. The plans going forward are that NHLS have a strategic goal plan which has already been drafted. The plans for financial practices are to have a continued stringent management of cash flow, continued focus on suppliers and a new focus on organisational efficiencies to ensure continued sound financial practices. To ensure motivated employees, NHLS will address salary disparities, improve staff morale and ensure zero tolerance on corruption, favouritism and unethical behaviour. NHLS also plans to improve stakeholder relations, focus on the department’s policy translation, continue to focus on laboratory medicine and work closely with the Expert Committee to improve the implementation of new technology.

Discussion
Mr H Volmink (DA) said the NHLS is an organisation which is admired by many other organisations because of the wonderful work they are doing. He congratulated them on their achievements with diagnostic tests. He asked if the public can be assured that NHLS would be able to cope with the demands of the industry and whether it was possible for false tests to be issued. He asked if NHLS had enough resources and infrastructure to deal with any outbreaks which may happen, and if not what resources does NHLS need to deal with such and ensure efficiency. He said the irregular expenditure should have been reviewed and asked whether the people causing the irregular expenditure will be held liable.

Ms C Ndaba (ANC) said the organisation should have given the Committee a racial breakdown of the students which were awarded bursaries. She asked what has been causing the high rate of failure of students that study medical technology, what measures has NHLS put in place to deal with the increase in failure and what measures have they put are in place to rectify the failure of cash collections from provinces.

Mr I Mosala (ANC) said the organisation had not mentioned what their role in the Southern African Development Community (SADC) and African continent is, and whether NHLS has formed relationships with the other BRICS countries; and what have they learned from the other countries. Some of their properties are still not registered in their name; how sure are they that the buildings still belong to them and how will they prevent them from not being sold or taken because they do not have a title deed. He added that their statement and report on grants for partnerships is not clear and he asked for clarity.

Dr P Maesela (ANC) asked why their key performance indicators are low and what is being done to improve the situation. What measures have NHLS put into place to solve their issues of the fruitless expenditure and what has caused the salary disparities.

Mr A Mahlalela (ANC) asked why there was an interim CEO and for how long will the CEO be interim. He mentioned that he found it difficult to understand their human resource report because it was not clear and it was different from the template which was handed to them by the National Treasury. They have only achieved 32% of their targets; why are they not performing. He failed to understand what the gender perspective of the organisation is; they were supposed to follow a simple template, which they did not do hence it was difficult to follow the slide. The report was supposed to indicate how they have managed to transform as an organisation but they have not indicated that in the slides. He added that it is understood that KwaZulu-Natal and Gauteng do not owe them money yet they claim that the two provinces owe them billions; has this matter been solved and is the money that is owed recoverable? He does not believe that the provinces will be able to pay them back owing to their current financial status. The report indicated that the previous CEO is being investigated; what have they found and how will the finding be implemented? He asked what is causing the increasing liabilities and what is being done to resolve the matter.

Mr Barry Schoub, NHLS Board Chairperson, replied that many of the mother to child transmissions have decreased and a lot of surveillance is being done to detect any disease outbreaks. He argued that extensive networks have been set up in other African countries and there is no formal agreement with BRICS countries but they do from time have scientific information exchanges.

Ms Mogale replied that the NHLS always issues quality results. There was an article in Times Media which reported that they have an increased trend in releasing false test results, which is not true because there are various systems which have been put into place to ensure that their tests are always accurate. Although they will admit that mistakes do happen, they are confident with their results because new machines have been purchased to ensure correct results. She is confident that the provinces which owe them money will eventually start paying because they have implemented strategies to help with the cash collections. Many of their employees lost their jobs due to the closure of laboratories; but they have managed to retain all their employees. Bulletins are issued on a monthly basis for the available positions. They are meeting their deadline targets except for the pap smears because they require a much more intensive type of labour, which the organisation does not have. She can state that 91 bursaries were awarded to black students and their most difficult issue is being too realistic when it comes to their goals. They have acquired title deeds for most of their properties – they will be signing the title deed for the property in Braamfontein but they are yet to finalise the Green Point property because they were told that it is a heritage site. The issue of payment is that some employees are being paid more money that the others; this issue is being handled by the Department of Labour and it will communicate with them as to what the outcome is. She noted that from the 1 September 2015 she was appointed as the CEO and is no longer an interim CEO.

Mr Zulu replied saying Tuberculosis testing has grown in the past years and preventative measures against irregular expenditure have been established. NHLS have also established a Registrar to deal with users so that they will know when their contracts will expire. The materials have also increased in the last five years over a volume of 13 per cent; however the NHLS is not facing any threat in providing services to the public.

Ms Mogale said that R5.2 billion is a lot of money and the NHLS have been doing their best to build good relationships with the provinces. Gauteng had promised to pay R1.4 billion of the money which they owe the NHLS and some provinces like Limpopo and the North West have overpaid their debt to the NHLS.

Mr Volmink said that debt can affect all the other departments of an organisation, such as the human resources department, as well as the patients who will be affected by not getting their results on time. He asked how NHLS will apply their minds to ensure that the debt does not affect other areas of the organisation. He asked about the number of staff members who have left the organisation; why they left and what steps are being taken to retain staff.

Dr Maesela asked if the NHLS was satisfied with their recruiting methods and are there any other methods of recruitment which NHLS can use.

Mr Mahlalela asked if the previous debt dispute with KZN and Gauteng has been resolved. The organisation has not answered most of his questions; what was the outcome of their investigation regarding the previous CEO and why has the NHLS deviated from the template which was given to them by National Treasury because their report on Human Resources (HR) is not clear. Their HR capacity is not included in the report. He added that their vision and the organisation’s goals are not clear.

The Chairperson asked if it was possible for NHLS to give a written report of the number of students that received bursaries; their gender, in which provinces were the most bursaries awarded and did people with disabilities also apply. The report did not indicate whether there was transformation in the NHLS but the Committee will make a follow up on this information. She asked NHLS to compile a breakdown of the staff in the organisation.

Mr Schoub replied that the vision included in their report does not indicate what the NHLS wants to achieve. He asked that the Committee provide them with information on what they would have liked to see in their vision statement.

Ms Mogale replied that NHLS advertises internally to recruit staff; there have been plans to try and recruit from schools in order to educate learners about the organisation and to create an interest amongst young learners. She asked the Committee to give them time to compile a report which will indicate their HR capacity, and breakdown of their bursary awards. She asked if Dr Anban Pillay could assist them with answering the questions about the dispute between the organisation and the two provinces.

Dr Anban Pillay, Deputy Director General: Health Regulatory and Compliance Management, Department of Health, said that KZN has never budgeted to pay back their debt. They have approached National Treasury to help the NHLS finance the gap due to the amounts not being paid and there is an ongoing dispute about the amounts which have to be paid to the NHLS; both provinces have denied that they owe the money.

The Chairperson said the Committee will always ask difficult questions because it is their job to ensure that the work of public entities is being done. She suggested that NHLS should install trackers in their vehicles so that they could indicate whether tests arrived at their destinations on time; this will eliminate the abuse of resources and improve quality. She said that the Committee is passionate about transformation because not everyone was able to access the resources and study medical technology in the past.

Ms Mogale replied saying that salaries are currently being revised to retain employees.

Ms Ndaba said the NHLS should investigate why black students are struggling to pass their examinations but manage to pass their medical practicals.

Ms Mogale replied that when the students enter into internships they are given all practical work; hence they pass their practical examinations. The students who study medical technology fail the most and the solution here is to revamp the leaning academy so that training can be done extensively.

Council for Medical Schemes (CMS) on its 2014/15 Annual Report
Mr Daniel Lehutjo, Acting Chief Executive Officer and Chief Financial Officer, said the CMS strategic goals are to have access to good quality medical schemes, to ensure that medical schemes are properly governed, ,beneficiaries are informed and protected, ensure that CMS is responsive to the needs of the environment and that CMS provides influential strategic advice and support for the development and implementation of a strategic health policy, including support to the NHI development process.

The audit by the Auditor-General found no material findings on the usefulness and reliability of the reported performance information for CMS programmes. CMS achieved 86% of its planned targets. The total number of their targets was 35 with negative deviations being 14% (5); positive deviations 40% (14) and indicators outside the control of CMS 14% (5).

Programme 1: CEO and Registrar
To make provision for strategic leadership and effective regulation of the industry, CMS had to ensure that 100% of all quarterly performance indicators are met or exceeded by its units. The target was not achieved due to the negative deviations in the units of the Strategy Office, Complaints, Information and Communication Technology (ICT) and Human Resources. The CMS will take corrective measures in providing clinical opinions as there was a large backlog to be cleared during the year due to staff constraints, as well as a demand for new increasingly complex clinical matters. The unit cleared much of its backlog due to interventions that were put in place such as block week. Additional resources have been budgeted for in the unit for two new positions for 2015/16.The CMS will focus on software development and maintenance, due to electrical interruptions and ageing infrastructure the network, server uptime and software availability was negatively affected. Corrective action was taken to avoid future disruptions as new generators were acquired.

The number of benefit definitions and CMS scripts published were targeted at 11 and they managed to publish 12 because the need for an additional script was published taking into account the trends in complaints received. The number of National Health Insurance reports submitted to the Ministerial Advisory Committee (MAC) was targeted at only one of which CMS did not achieve because there were no reports required under the financial year under review.

Programme 2: Corporate Services
The aim of the programme is to provide an effective, efficient and transparent financial management system. An unqualified audit report was issued by the Auditor-General on the annual financial statements, submission of the final Annual Performance plans and budget were made to the Executive Authority for approval by November. The CMS achieved all their targets in this regard. The CMS did not achieve their target of the percentage of network and server uptime per quarter due to electrical interruptions and ageing infrastructure. Server uptime and software availability was negatively affected and corrective action was taken to avoid future disruptions. The estimated number of requests for knowledge and records information responded to was targeted at 350, the target was not achieved due to the target being based on estimated figures. The unit attended to all requests that were received. The CMS has improved the quantity and quality on its website and most material is accessible from it by external stakeholders. Due to the special project to digitize CMS records, members of staff also have access to organisational records in full text through the M-Files content management system. Both of these factors have led to a decrease in the number of requests for information.

Programme 3: Accreditation
CMS targeted to have 4964 broker and broker organisations accredited within 21 working days of receipt of complete applications. They went over the target by 63 accreditations. The accreditation of managed care organization (MCO) applications accredited within three months of receipt had a target of 27 but it only achieved 26. The planned target was based on estimated figures. The unit attended to all requests that were received. Right to Care did not apply to renew its accreditation.

Programme 4: Research and Monitoring
Their target for the number of reports on provider compliance according to the International Classification of Diseases (ICD-10) was four but CMS only achieved one of their targets because the Ministerial Task Team decided to produce only one report for the year. Their target for the number of finalised research projects and specialised technical support projects was eight and CMS achieved 11 because there were additional research projects required by the office during the period under review. The only target which they managed to achieve in the programme is the number of quarterly reports received from the Practice Code Numbering System (PCNS) service provider reflecting active practice code numbers.

Programme 5: Stakeholder Relations
The target for quality of information provided at training sessions through training feedback questionnaires was 90% but CMS went over their target and achieved 92.5% of their target. The Education & Training unit managed the evaluation of presenters and the training material so that feedback was obtained from almost all attendees. Their high rating led to the target being exceeded. The target for the percentage of positive feedback received on CMS reputation through a media monitoring tool was targeted at 70%, they exceeded the target and achieved 72.5%. After the negative publicity, the Stakeholder Relations Unit managed to present the media with positive articles, resulting in exceeding the target of 70%.

Programme 6: Compliance
The target for the estimated number of enforcement interventions undertaken was 48, CMS exceeded this and achieved 52 because there were more matters that required enforcement interventions during the period under review. The target for the number of governance interventions implemented was 69, the target was exceeded again and CMS achieved 88 targets because there were more matters that required governance interventions during the period under review.

Programme 7: Benefits Management Unit
The estimated target for the estimated number of rule amendments analysed was 280 and CMS achieved 242 of the targets. The rule amendments submitted to Parliament is based on decisions made by the Boards of the schemes. Receiving a lower number than targeted is not within the unit’s control.

Programme 8: Legal Services
The target for the estimated number of written and verbal legal opinions provided to the internal and external stakeholders is 6. The target was exceeded by 167 because the planned target is based on past experience but can never be anticipated with perfect certainty. The unit experienced unusually high and unpredictable demand for legal opinions on a range of issues during the period under review, but was nevertheless able to meet the expectation within the specified timeframes for delivery. Also, the target for the estimated number of legal matters handled by the unit was at 20 and the target exceeded again by 4. This was due to the fact that was more matters that were handled during the period under review.

Programme 9: Financial Supervision Unit
The recommendations in respect of Regulation 29 (schemes below solvency) for 100% of business plan, as well as the number of Quarterly financial return reports published (excluding quarter 4) was achieved.

The statement of their financial position had a total of assets worth R34 450 million in 2014 and R34 872 million in 2015. The assets included cash and cash equivalents, receivables from exchange transactions, property and plant equipment. The revenue for 2014 was R113 077 million and R120 095 million for the 2015 year. Their revenue included monies from accreditation fees, appeal fees, government transfers, registration fees, levies income. The cost incurred in the irregular expenditure was the bids awarded without following the correct procedures, no-compliance to cost containment measures and quotations accepted based on lowest price instead of points scored. The plans to address irregular expenditure for CMS is to appointed a dedicated supply chain officer and develop internal policies that will be in line with supply chain management regulations.

Dr Anton de Villiers, General Manager of Research and Monitoring, said the number of healthcare benefits paid in 2013 was R111.7 billion and in 2015 it is R124.1 billion; this is an increase of 11.1%. The healthcare benefits paid from the sick pool was R100.7 billion in 2013, it increased by 11.1% in 2015 to R111.8 billion. The benefits which were paid from the savings are R12.3 billion. The total benefits which were paid to specialists are recorded as following: Anaesthetists were paid 2.07%, Pathology were paid 5.32%, Radiology were paid 4.31%, Medical Specialists were paid 6.61% and Surgical Specialists were paid 5.2%. He added that there is an increase in prevalence rates for the industry but this should not be a concern. The top five increases are in Hypertension, Hyperlipidaemia, DM2, Asthma and HIV.

The utilisation of services is as follows: the number of beneficiaries visiting GPs at least once a year is 763.1, the number of beneficiaries visiting dentists at least once a year is 213, the number of beneficiaries receiving MRI is 20.3, the number of beneficiaries receiving CT scans is 26.6, the average number of inpatient days for maternity admissions is 3 days and caesarean sections per 1 000 pregnant females is 707.7; this is a slight increase from the previous year. The cost of Prescribed Minimum Benefits (PMBs) for 2014 was R567 per beneficiary per month. Proportionally 53% of all risk benefits paid out is for the PMB’s and there are still 47% of risk benefits paid on top of the PMBs.

Medical Scheme Inflation included tariff inflation plus the utilisation. The tariff inflation is approximately 5-7% and the utilisation is approximately 2-4%. The utilisation increases are in prevalence, ageing, member movement, patient and provider behaviour, delivery mode and benefit design. The challenge for the industry and the Competition Commission is to measure the utilisation component of Medical Scheme Inflation. The process indicators are what any good disease management program should demonstrate is quality care given to patients. These are minimum and universal interventions that a care provider should do and apply to all patients being treated for specific conditions. The outcome indicators are to assist to conclude if a patient has been well looked after or not they are also disease specific. The growth in membership a concern as it is a protection of risk pools. Medical Scheme Inflation is a concern and still a significant proportion of risk benefits offered by schemes on top of the PMBs.

Ms Julindi Scheepers, Chief Financial Analyst, said the gross contributions and claim were recorded as follows for the year: Gross contributions were R140.2 billion, Risk contributions were R126.9 billion, Gross claims were R124.3 billion and Risk claims were R112.0 billion. The administrator market share of the medical schemes is dominated by Discovery Health and Medscheme Holdings with both owning 27.2% of the market. This is followed by Metropolitan Health Corporate with a share of 25.3% and Momentum Medical Scheme with a share of 2.9%. The National Health Expenditure for 2014 included administration fees of R10.1 billion, management services was R3.4 billion and broker fees were R1.7 billion.

Mr Craig Burton-Durham, General Manager of Legal Services, highlighted the successful litigation challenges and interventions during 2014/15.

Bonitas Medical Scheme appealed against the Registrar’s decision to institute an inspection after receipt of a complaint pertaining to the fraudulent election of Board of Trustees, conflict of interests and irregular procurement processes. The outcome was that the North Gauteng High Court ruled that a decision by the Registrar to institute an inspection is not a decision which can be appealed against. Spectramed sent an application for Order to compel the Registrar to consider amalgamation of Spectramed and Resolution Health Medical Schemes. The application for the interdict to prevent an inspection into Spectramed was as a result of a complaint regarding financial irregularities and conflict of interests. The Court found no basis on which to compel the Registrar to consider the amalgamation and dismissed the application with costs and it also found the decision to inspect reasonable, bona fide, rational and lawful and relevant to the amalgamation. An inspection into Sizwe, Hosmed and Medshield revealed glaring governance contraventions and irregularities including material conflicts of interest and mismanagement of scheme resources. The outcome was that the North-Gauteng High Court granted CMS application for provisional curatorship and subsequently confirmed the Order on the return day. All three schemes were restored to proper management and governance and the interest of members was ensured. The Genesis scheme refused to fund prosthesis obtained outside of a public hospital setting. The outcome was that the Cape High Court in the view of the CMS erred in ruling that the Rules of the scheme once registered take precedence over the Act and Regulations.

All decisions concerning potential regulatory interventions are carefully researched and considered prior to implementation. Regulatory interventions by CMS are consistently upheld by independent tribunals and the High Court. The increasing trend by certain regulated entities is to challenge clearly legislated regulatory interventions.

Discussion
Mr Mosala said the Auditor-General gave CMS an unqualified audit with the following problems: managerial controls, slow responses to the audit outcomes, there was no intervention to the procurement faults as there were no attempts to solve the matter. He asked if there is a possibility that there will be only one medical scheme in the country given the increase in medical fees, why has CMS decided to continue leasing the buildings instead of buying them, is the increase in medical costs a result of the increase in the number of people who fall ill or is it the entrants of the new markets. He asked if the schemes have established any measures which could help with fighting non-communicable diseases. He enquired about the registrar who was fired from the organisation and asked for an update on the matter. He was concerned as to whether the issues will result in medical schemes giving themselves the powers to decide where patients should go to receive medical treatment.

Mr Volmink asked if the clients know about the current benefits/rights which they can receive from medical schemes. The numbers of medical schemes have fallen off in the past years and it seems that a decrease in medical schemes will lead to an increase in cost. What will happen to medical schemes if everyone is covered by the National Health Insurance. He commented that the number of caesarean sections is unfavourable because according to the World Health Organisation (WHO) the caesarean rate should be between 10-15%.

Dr H Chewane (EFF) asked what the role of medical schemes in men’s health is; do the medical schemes cover circumcision? He suggested that medical schemes should operate like insurance companies who often choose the panel beaters which their clients should use.

Dr Maesela asked what the role of the Council is when there are people who cannot afford the increased prices of medical fees and what is the Council doing to deal with their fruitless expenditure referred to by the Auditor-General. What is the Council doing about the increase in medical costs in private hospitals?

The Chairperson asked if the medical schemes invest in the future of the country through youth development initiatives. When CMS previously came before the Committee, the Committee was emphatic about issues of transformation; how is CMS addressing transformation?

Mr Lehutjo replied that internal controls are being looked into, although they have not been implemented yet. The controls relate to the Supply Chain Management (SCM) processes and they are trying to build capacity in that area. Their interpretation of internal controls has in the past differed from that of the Auditor-General. The irregular expenditure is related to the R1 million contract which was awarded to a BBBEE company. The Auditor-General argued that this contract was not reflected in their advertisement; hence it is part of their weaknesses in the internal controls. The poor response to address the Auditor-General findings is all related to capacity – they do not have enough HR management in the supply management unit. The R7 million was related to the forensic investigation which was undertaken; initially they did not know how much the investigation would cost. They took quotations from many companies and the investigation took longer than they had expected. A disciplinary hearing was conducted this year as the contract of the Registrar would come to an end in June. Thereafter CMS was advised that it would cost them a lot of money to continue with the disciplinary hearing. It is important to note that the investigation is being handled by the Hawks.

Their desire is to buy buildings but they are constrained in terms of finances. They cannot go to the bank and borrow money since they are a public entity. For now they are relying on National Treasury and the Department of Public Works for finances. CMS has a dedicated complaints and adjudication unit and is capacitated by about 100 legal persons. At this point they can say that they have enough capacity but they are looking at improving the unit.

Mr de Villiers replied saying he is aware of the medical scheme inflation problem is a complex one. He said that he has been aware of the problem since 2003 before he joined the Council – at the time he was doing consulting with within the industry. They will only be in a position to measure medical scheme inflation in the next financial year. He added that medical scheme inflation is not isolated only to South Africa, it is an international problem. The models which contribute to the high costs are pre-eminence – if there is an increase in pre-eminence there will be an increase in utilisation. They have developed a good management care programme as a way to keep patients out of hospital, in other solutions they can approach the Pricing Commission to revise the prices of PMBs which will contribute significantly to medical fees.

Mr Burton-Durham said decreasing non-communicable diseases is a challenge. Most diseases such as hypertension and diabetes are diseases which are caused by one’s lifestyle. What we can do is to bring about a preventative component but that will not always work because most people who use medical aids are already affected by a non-communicable disease. It is not only a medical aid scheme problem but a universal one - the role of the medical schemes is that they can introduce preventative measures. One of the purposes of having a network is it is a way of decreasing costs – the network of providers have agreed to payments which are not always acceptable. The areas which mostly need network doctors are in the rural areas and CMS has communicated this issue to the medical schemes. This is a problem to both the private and public sector.

Mr Lehutjo replied saying medical aid scheme revenues are protected so that they can ensure that there will be enough funds for its members if there is an outbreak. On the issue of schemes investing back into the communities; Bonitas is sponsoring a football club in the Free State and Discovery Health is involved in many charities. Transformation is an issue that often comes out in the Council meetings; CMS does not have legislation to enforce transformation. CMS is doing a medical schemes legislation amendment and the amendment will address governance structures of medical aid schemes.

Prof Yosuf Veriava, CMS Board Chairperson, said if you look at all the schemes and all the managed care organisations; you will find only two organisation where the shareholders are predominantly people from disadvantaged backgrounds. This is a problem in our country because when they looked at the top companies in the country they found that instead of the numbers black professionals increasing in these companies they have decreased. This has recently come up and the challenge is not only one that CMS can solve but it is a national problem that needs a national approach.

Ms Loyiso Mpuntsha, CMS Deputy Board Chairperson, said that they agree with the Committee that the rates are too high but what they find mostly to be a challenge is that service providers do not want to be challenged on their ethical decisions. CMS can try and intervene at the level of controlling the pre-authorisation – this links with the Prescribed Minimum Benefits (PMBs); there is a project to review PMBs. As the CMS reviews the PMBs they are focusing on preventative care and primary health care but people look at that as interventions. For example, circumcision is also seen as plastic surgery. They are trying to put arguments forward for circumcision being seen as a form of primary health care.

Mr Burton-Durham said the medical care proximity arrangements are there to help save costs. Where a facilty is not within a reasonable proximity the member is regulated to go to any other payment services, especially if there is an emergency. If the service which they seek is not available within the system they can go to any other service provider.

The Chairperson said the issues of medical aids are always interesting. When she dislocated her ankle she was taken to a private hospital. The nurse came to wake her up at 4am even though the nurse knew that she was supposed to go to theatre only at 8am. The discussion about which is better between private and public hospitals will remain a political debate. The NHI is the way to go.

Professor Veriava thanked the Committee and asked that the Committee should forward any further questions if they have any.

The meeting was adjourned.

 

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