National Health Laboratory Services & Council for Medical Schemes on their 2015/16 Annual Reports

Meeting report

National Health Laboratory Service (NHLS): Annual Report

Ms Joyce Mogale, Chief Executive Officer: NHLS, said the NHLS Board served as the accounting authority in terms of section 49 of the Public Finance Management Act (PFMA). It was responsible for providing strategic direction and leadership, ensuring good corporate governance and ethics, determining policy, agreeing on performance criteria and delegating the detailed planning and implementation of policy to the executive committee (EXCO). The Board was supported by 7 sub-committees which helped it to meet its mandate, without abdicating its own responsibilities.

The NHLS head office was in Johannesburg. It was a public health laboratory service with approximately 288 laboratories across nine provinces of South Africa, excluding depots, and served approximately 80% of the South African population.

The National Health Laboratory Service Act of 2000 mandates the NHLS to provide cost effective and efficient health laboratory services to all public sector health care providers and other government institutions inside and outside of South Africa that may require such services, and any private health care provider that requires such services. It also mandates the NHLS to support health research and provide training for health science education.

The Act was currently being amended to strengthen the governance and funding mechanism of the NHLS. All the proposed changes were contained in the National Health Service Amendment Bill.

Ms Mogale said the National Public Health Institute of South Africa (NAPHISA) was part of the amendment, and was in the process of being set up in order to meet the needs of the National Health Insurance (NHI) scheme. The core functions of NAPHISA focused on communicable diseases, the national cancer registry, occupational health, on-going communicable diseases and injury, as well as violence prevention.

The strategic outcome-oriented goals of the organisation, which would be met through sound governance and financial practices, included having adequate, competent and motivated human capital, improved stakeholder relations, creating and having an accessible pathology service footprint, academic excellence, state of the art laboratories, performance driven purpose and systems, as well as international best practice laboratory medicine.

Ms Mogale said she had been very happy to be appointed as the permanent CEO in September 2015, and the new board had been appointed during the 2015/16 financial year by the Minister. There was no one active in key positions at the executive and senior management levels anymore, but there were six area managers for six areas in the country. The staff complement had grown by 4.2 % -- from 6 693 to 6 987 -- and the growth reflected a replacement of the staff lost in 2013/14, when people had left in large numbers. The number of pathologists had grown by 10.3 %, from 194 to 214, and the number of medical technologists had grown by 2.63%, from 1 329 to 1 364. The number of medical technicians and medical scientists had increased by 13%, and a total of 103 biomedical scholarships had been awarded to students to increase the pool of talent. A total of 90 bursaries had been awarded to NHLS employees so that they could further their studies.

Mr Sikhumbuzo Zulu, Chief Financial Officer (CFO): NHLS, said the entity had recorded a surplus, after the loss in 2014/15. Revenue had grown from R5.7 billion to R6.4 billion, with revenue from the provincial departments amounting to 13% of the total revenue generated. The cost of production, which included direct labour and material, had increased from R4.2 billion to R4.8 billion (14%). This had been mainly due to volume increases, price increases and exchange rate fluctuations. In general expenses had increased marginally by 0.75%, which was lower than the rate of inflation. Assets had increased by 12%, and the closing bank balance had ended at R739 million, compared to R651 million in the previous year.

The NHLS had been awarded the prestigious 2015 International European Quality award in the healthcare sphere, hosted by the Swiss Institute for Quality Standards (SIQS) and the Socrates Committee at Montreux, Switzerland. It had hosted the first Pathology Research and Development (PathReD) conference aimed at showcasing on-going research within the NHLS and partnering institutions. South African Vaccine Producers (SAVP), an entity of the NHLS, continued to deliver excellent results as Africa’s sole producer of anti-venom. There had been a 38% increase in HIV load tests compared to the previous year, which had led to a total of 3.7 million HIV viral tests being conducted in 2015/2016. Five laboratories ha been up-scaled to achieve a higher throughput with the  Cobas 6800/8800 analyser systems, which increased HIV viral load tests. The TrackCare laboratory information system had been rolled out in NHLS laboratories.

Discussion

Mr D Khosa (ANC) congratulated the NHLS on winning the prestigious award, but asked what the benefits of winning such an award were. Why had the staff left NHLS in the financial year 2013/14 -- had they investigated the reason for leaving, and had they put measures in place to prevent that happening again? Was there an internal audit in the department and if so, how effective was it, and did it take their advice seriously? He also asked for clarity on what the closing balance was and if the organisation was profit driven.

Mr H Volmink (DA) applauded the work of the NHLS, saying there had been significant achievements. His concern was with regard to the work involving NAPHISA, saying it represented a huge shift in the sector and involved a very difficult management process. What processes had the organisation put in place internally to help people cope with the uncertainty regarding their futures? He also asked for an update with regard to the money owed by the NHLS to the province of Gauteng.

Ms C Ndaba (ANC) said she was also worried about the money that the NHLS owed to the provinces. She was concerned about the under-performances in Programmes 3 and 4. She also asked what the NHLS had planned to attract students from high schools so that they could have an interest in studying in this field.

Dr P Maesela (ANC) commented on the rate of registered scientist interns, saying that the number of trainees had fallen drastically. It was really worrisome and was going to jeopardise the future of the NHLS programme. The demographics were also skewed, as there had been a shift in the number of blacks employed in this field, and he asked why this was so. He commended the entity for avoiding irregular expenditure, and said he would rate them at 95%, which was good.

The Chairperson commented on the issue of interest in health among learners, and said that because everything was now open and learners could enter into any field, health was not very fashionable. She endorsed Ms Ndaba’s proposal of the NHLS going out to the schools and meeting the learners to tell them more about the entity and its importance to them and the world. She urged the Committee to understand that it was also addressing a historical problem, where learners deprived of maths and science education did not think about careers in areas such as the NHLS.

Ms Ndaba spoke about the examination board, saying that students were passing internal exams but not the board examinations. The transformation agenda would cease to exist until the boards accounted for this situation.

Professor Gregory Hussey, Deputy Chairperson: NHLS board, clarified that the NHLS covering 80% of the population did not mean that the other 20% was uncovered, but rather served by private services. The NHLS had a wide coverage, and nobody in the public sector was denied access to a laboratory test at either a small clinic or a district hospital. The issue of the number of scientists dropping was worrisome, and he was also not quite sure why the number had gone down, but there had been a slight increase in the last two years, and they would give feedback in the next two weeks. The NHLS would have to adopt the previous activity of going to schools and educating the students in high schools on what the advantages of becoming research scientists were, so that the number could increase. There was a trust that had been supporting research students in the less advantaged universities.

Mr Zulu said the NHLS was not a profit making organisation, as it only had one share holder, which was the government of South Africa. The surplus reflected in the financial statements was due mainly to a timing difference. He said irregular expenses could be due to changes of staff,  documents being lost or a change in suppliers.

Ms Mogale said one of the benefits of the Swiss award was the right to utilise the European logo, which gave the entity increased status. Another was that they could now have access to international forums. She said staff had left at a period when NHLS funds were actually dwindling, so people had left due to the fear of insecurity, because in some cases they would not receive their salaries. The Programme 4 saying targets had not been achieved because they had been unrealistic, but now the environment had changed and the very same targets could now be achieved.

Council for Medical Schemes (CMS): Annual Report

Professor Yusuf Veriava, Chairperson: Council of Medical Schemes (CMS), said he would like to make some comments just before his presentation. As a regulatory entity, the CMS faced many challenges. There were 83 medical schemes with a combined annual income of around R150 billion which the CMS had to regulate with an income of around R150 million. The entity’s prime responsibility was to act in the best interest of its members, as they owned the organisation. At times, it was hard to apply the regulatory system, with the regulator having only R150 million compared to their R150 billion. He was concerned with the rate at which contributions had increased. Another issue was the National Health Insurance (NHI) and the increased need for universal access to health care. With the help of experts, the CMS was trying to find out a way in which some of the services that were accessible in the private sector could also be available to the public sector.

Over the past 18 months, Mr Daniel Lehutjo had acted as registrar, and had done a tremendous job despite the many challenges. The CMS had gone through a vigorous process to appoint a new registrar who would be commencing on the 1st of November.

Mr Lehutjo said the CMS had four strategic goals: access to good quality health care, ensure medical aid schemes were properly governed and beneficiaries were protected, protection of the environment, and to provide influential strategic advice and support. He said the position of the registrar had been awarded to Dr Humphrey Zokufa from 1 November.

He described the various programmes of the Council, which covered administration, strategy office, accreditation, research and monitoring, stakeholder relations, compliance investigation, benefits management, legal services, financial supervision and complaints adjudication. Budget targets had not been achieved by 31 March 2016, and there had been a deviation with regards to recruitment processes. Staff turnover was supposed to be 5%, but had ended up being 9%. The CMS had been unable to make a meaningful contribution before the end of the financial year towards the NHI.

Dr Anton de Villers, Head: Research and Monitoring, CMS, said the number of medical schemes had decreased, and there had been an increase in the number of beneficiaries.  At the end of 2015, there had been 4.94 million beneficiaries on open schemes, compared to 3.87 in restricted schemes. Affordability and slow economic growth had become issues. In 2015 there had been a negative growth of -1.1% for the restricted medical schemes, compared to positive growth for open medical schemes of 0.79%. Looking at the trends in membership, there were schemes were there had been a growth in membership -- for example, Discovery with a 2.2% increased – but a small scheme like Shaw-Med had seen a 74% decline.

There had been a small increase in the average age of beneficiaries from year to year. In 2005 it had been 31.7 years, compared to 32.3 years in 2015. In 2015, R14 billion had been paid from the savings accounts of members. Hospitals constituted 37.1% of the R138.6 billion disbursed, with medicines of 16.1%, specialists at 23.5%, other specialist categories at 3.1%, pathology at 5.3% and radiology at 4.3%. The prevalence of disease was also a cost driver in the industry, and there had been an increase in prevalence of all chronic diseases, which included hypertension followed by hyperlipidemia, diabetes part 2, asthma and HIV. 20% of the 8.8 million beneficiaries were registered on at least one chronic programme in 2015.

If one went to a general practitioner (GP) in 2015, the average cost per visit would have been R345.53, and blood tests R697.55. Looking at the in-patient admission on a medical basis, the average length of stay had been 4.89 days in 2015, compared to 3.96 on a surgical basis. There had been an increase in the use of technology. Computerised tomography (CT) scans were 42 per 1 000 beneficiaries in 2015, compared to 39.74/1 000 in 2014. Magnetic resonance imaging (MRI) scans were 24.28 per 1 000 in 2015, compared to the 22.49 in 2014. The cost of the prescribed minimum benefits (PMBs) in 2015 per beneficiary per month was R608, compared to a cost of R556 in 2014 -- an increase of 9.4%. Proportionally, around 52% of all risk benefits were paid out for the PMBs, and there was also a significant difference in the number of PMBs covered by different schemes.

Ms Tebogo Maziya, General Manager: Financial Supervision, CMS provided information on how much medical aids schemes contributed, and how much they were paid out. In 2015, the total contributions had been R151.6 billion, representing an increase of 8.1% over the previous year. Total claims incurred were R128.9 billion. She also gave details of the increases in the cost of life cover, and the factors related to the increases.

One of the factors keeping expenditures high was the remuneration of trusts. There were certain areas in which trustees were paid more, and about a year ago the CMS had undertaken research to try to establish what would be an appropriate level of remuneration. The recommendation that had come out was that there needed to be more explicit power in the regulations to empower the registrar to determine on what the appropriate level should be. From the results of the medical schemes, it could be seen that in 2015, they had experienced a deficit of R1.2 billion in total, and one of the reasons had been the higher number of claims. Discovery had made the largest profit, of just over R500 million, while Bonita had made the biggest loss in terms of operational income.

Regarding the overall solvency of medical schemes, the regulations prescribed 25% of contributions, and the overall average for open schemes was currently sitting at 29.2%, with the restricted schemes at 37.5%. Overall, the schemes were at 32%. In supervising the schemes, the CMS had to balance the issues of access and the growth of medical schemes and how to ensure that medical schemes remained affordable. In 2015 there were seven schemes which were in close monitoring, three of which were restricted.

She went on to shed more light the issue of the James Medical Aid scheme, as it had been in the media. James was the largest restricted scheme, with over 1.5 million lives covered. There were a couple of factors that had impacted on its performance. Firstly, James had grown exponentially since it started operating in 2006 and as new members had joined the scheme, they had come from different schemes. Some of them had not been previously covered and were not bringing resources with them, and that had immediately had a negative effect on how solvency was calculated. The second issue was that James had no underwriting, so it had no waiting or joining period for new members, and that again was facilitating access for members of the public. Over the last couple of years, James had been able to absorb the cost of not having underwriting, but this had cost the scheme about R300-R500 million a year. James implemented some measures to deal with the situation. From 1 October, the scheme had introduced underwriting on different categories of members, and was also introducing stricter managed care intervention in areas like hospital authorisation measures, with more frequent tracking and claims reviews. The scheme had also appointed case managers to have a look at what was actually guiding admissions, what people had been admitted for. It had also made a definition of dependents, which was different from other schemes. With all these measure implemented, James should have an improved performance. James was a going concern and was under strict monitoring, and they also had to submit progress reports to the office of the registrar.

Ms Thembekile Phaswane, Senior Manager:Complaints and Adjudication, CMS, touched on the typical complaints that they had received -- what members of the medical schemes had been complaining mostly about -- and also provided a comparative analysis between the performance of both open schemes as well as restricted medical schemes. She said 5 089complaints that had been received in 2015, which was above the previous year’s 3 876. The issues raised by the members had been of concern, as they related a lot to administration. For instance, some accounts were paid from incorrect categories, which meant members had to be refunded, and the CMS had monitored this process. Another issue was where schemes were funding minimal portions and leaving the balance for the members. Genesis was an example of medical schemes which were not paying as they were supposed to, according to medical legislation. All members of Genesis needed to go to public hospitals for Prescribed Minimal Benefit (PMB) treatments. Generally there had been an increase in customer service complaints over how the schemes treated their members. Lastly, she referred to the conduct of medical doctors who did not disclose what medical schemes covered, and did not cover.

Mr Craig Burton-Durham, Legal Services, CMS, referred to the issue of price fixing, which had been referred to the tribunal. Another issue was the replacement of an expensive drug. There had also been a pharmacist who was a member at the Government Employees’ Medical Scheme (GEMS), who had submitted fraudulent claims, and GEMS had terminated him as a member. This decision had been ruled against, as his conduct as a pharmacist was separate to his conduct as a member. The right of the registrar to inspect a scheme was a pending case with regard to Bonita; the SCA had ruled the registrar was allowed, if questions were raised on the matter.

Discussion

Mr Khosa commented that this had been a highly technical presentation, and asked who determined the validity of complaints and how one could categorise a complaint as valid or invalid. He also asked why the CMS had cut its staff and how it managed to classify one as a non-performer.

Mr Volmink commented on the collapse of medical schemes. With the escalation of premiums, the CMS had to protect people. Could the Council say it was protecting the people with regard to these escalations? In some countries, it was compulsory for employers to put their employees on medical aid -- was this something the CMS had considered?

Dr Maesela said a reason why Members sat on the Committee was to see that the medical schemes complied, because the medical schemes took money and then moved on, so they really had a lot of work to do. He asked if the CMS had managed to buy a building or were still renting, because it looked like they were paying an exorbitant amount in rent. Why had there been a delay in getting approval on the condonation of R983 million?

Ms Ndaba asked if the organisation had any plan for improving its performance, since the performance measures proved that it had been underperforming. She was worried why Dr Zokufa was still the managing director of the Board of Healthcare Funders, while on the other hand he was fighting for the minimum benefits of clients. He was going to be the registrar, so it seemed like there would be a conflict a conflict of interests. She also asked if there had been a review of the rates at which the medical aid schemes were charging people.

Ms Phaswane began by apologising for the difficult technical language, and went on to answer questions about complaints. She was aware of the services that were being rendered by Angela, who was acting on behalf of members of a medical scheme. She was on social media platforms were she was inviting everybody who had a complaint to contact her, and then took those complaints on their behalf to the CMS. She had received some complaints alleging that the scheme had acted in contravention of the Act, but the issues had been resolved.

Mr Lehutjo said the CMS did have a performance management and performance improvement system in place. The dismissal of an employee had been due to an absence of about 104 days. With regard to the irregular expenditure, the Council had awarded a tender to the highest bidding tender, Deloitte, but due to black economic empowerment (BEE), it had then awarded the tender to some other organisation. The CMS was still renting its building, because the purchase price had been too high. It was currently looking at a lower priced option.

On the issue of performance indicators and whether they had put plans in place so that they could improve their performance, he said the results were not as a result of non-performance. One of the reasons had been that their budget had not been approved in time due to a delay between the national Department of Health and the National Treasury. Another was due to them making an input to the NHI process with an indicator while they were still awaiting the publication of the White Paper,  and it had come out only in December. By then they had concluded their budgeting and had not made any input in that regard. With regard to the contribution increases by schemes, the CMS normally issued a guideline for the schemes to say that they should make their increases within an indicated target, but they did not have a mandate to prescribe.

Mr Burton-Durham referred to the Polmed matter, and said it had originated from the inspection conducted by the compliance and the investigations unit of the CMS and that had uncovered a range of very unfortunate issues, most of which related to the principal officer of the scheme. Action had been taken as a result of that particular inspection, which had uncovered a number of aspects related to travel and other matters not properly authorised, and a number of issues related to gifts. The moment this had been identified, it immediately reflected on the board, and of the six trustees on the board, four were leaving at the end of November and the others by the end of February. The principal officer had also parted ways with the scheme and there were ongoing matters with regard to the scheme. However, the office was now stable, there was very close monitoring, and a new board would come into place. He also said that the scheme was not dysfunctional.

Mr De Villers said that medical schemes did not compete at the same level. There were significant differences in terms of the amounts paid, due to the differences in risk profiles. They were still continuing to collect data, as it was very important to monitor the risk profiles of the medical schemes.  The majority of the members of the private medical schemes were older, because they were employed and mostly received a decent salary, whereas the most of the youth, despite being strong and healthy, were not employed therefore could not afford the private medical schemes. It was therefore important that employment was created for the youth. If one wanted to see growth in the industry, there would have to be growth in a number of aspects, otherwise the costs would go up.

He went on to say that only a small proportion of the 37.1%, which was for all hospitals, went to public hospitals. This should be of concern to the government because of the recovery rate of beneficiaries utilising the services in the public environment. There was a problem with claims, and administrators were rejecting them on the grounds of them not being a valid ICD-code claim, which was another example of unfairness in the system.

Ms Maziya responded on the high remuneration paid to principals and trustees, but said there was no way that the CMS could determine their pay scales.

Professor Veriava said another question that had been brought up concerned conflicts of interests, and he asked Dr Zokufa to kindly excuse himself, saying that it could be a sensitive issue. The Chairperson consulted the Members on their views about the request for Dr Zokufa to excuse himself. The Members agreed, and Dr Zokufa was excused.

Professor Veriava said he had mentioned in his introductory remarks that the CMS had gone through a very vigorous process when they came to the appointment. They had started with a short list of about 21 people, and they come down to ten, and they had had to make presentations. They had taken four of the top presenters, and Dr Zokufa had been one of them. He had asked specific questions, and there had been two areas where there was a conflict of interests. One of them was related to the controversy on the prescribed minimum benefits, and the other was related to the practice coding numbers. There had been a conflict with the Council in this regard, and he had answered that he was going forward with the policies of the Council and whatever view they had, they could not conflict against that. The next issue was that would he be resigning from the Board of Healthcare Funders, and he had agreed that would resign at the end of October to commence work on 1 November. The issue that had arisen was that some of his views were to the detriment of the CMS, and that was the concern.

Professor Veriava said that one of the advantages of the Council function was that it acted on policies and the Act itself, and any person who went against that could be found guilty of going against the statutary requirements. He hoped that no individual could make all the final decisions by himself, because all matters were discussed at the management committee at its regular meetings and the Council would take responsibility for any deviation.

Ms Ndaba, in response, advised that sometimes it was wise to avoid appointing people that were questionable, since that could lead to a public uproar, where people would not have confidence and trust in terms of ethics and so on.

Professor Veriava assured the Committee that the CMS would be doubly vigilant on the matter. He added that the appointment had gone through different offices, including those of the Minister and the Director General, who had received a full outline of the whole process.

The Chairperson made a suggestion that the Committee to raise their concerns to the Minister and the Director General, as the entity present had not made the final decision. She went on to say the Minister and the Director General had to account.

Mr Volmink agreed with the Chairperson, and added that the Committee was already wary, so the new appointment would require a lot of trust building.

The meeting was adjourned.