NHLS, Office of Health Standards Compliance + Council for Medical Schemes 2016/17 Annual Report

Meeting report

National Health Laboratory Services (NHLS) 2016/17 Annual Report
Prof Eric Buch, NHLS board chairperson, said the Chief Executive Officer (CEO) and the Chief Finance Officer (CFO) were not present because they were suspended and disciplinary hearings will commence later in October. They were suspended alongside the Internal Audit Manager, Supply Chain Manager and the facilities managers. The matter had been handled by the board and reported to the Office of the Chief Procurement Officer and the South African Police Service.

There are 288 laboratories serving about 80% of the country population, particularly the poor, by providing far cheaper services even in hard to reach areas. NHLS had carried out 91 million laboratory tests, most of which are from the Department of Health. He summarised the key achievements: the improvement in customer service and turnaround time, improved stakeholder relations evidenced by the customer service index. This includes providing services in deep rural areas of the country. The NHLS in collaboration with its academic partners published 618 journals in 2016/17. NHLS attracted above R257m grant funding in the year. NHLS struggled with cash flow coverage. The efficiency of NHLS is dependent on timely payment by the provinces.

One of the key achievements is the improvement in ICT which gives doctors the ability to directly access their patient records and laboratory test results from NHLS. There is a need for the provinces to drive their doctors to use the facility. Also the targeted response time to deal with IT problems was achieved with 83% success which is good considering that some of the laboratories are in inaccessible areas. Although NHLS did not achieve its target for the performance review system, it is evolving. NHLS continued to perform excellently on surveillance of communicable diseases. NHLS did not achieve the goal of having epidemiologists in all the provinces but it already has them in seven of the nine provinces. There was 89% achievement against the 83% target in employment equity. Percentage of employees trained was 91% against the 85% planned target.

He said the problems with Research and Quality Assurance is accreditation which is a laborious and time consuming process, although internal quality controls are already in use in the laboratories. The achievement of this goal for research and quality assurance requires collaboration with universities of technology and academics to improve the pass rate. The research output of NHLS always informs policies that strengthen the healthcare system.

Laboratory service is the core of the NHLS and it was able to increase the number of districts with NLHS services on site from 70% to 74% of public hospitals. NHLS is in the hospitals every day to collect samples. The most common laboratory tests performed within the stipulated time frame increased from 80% to 86%. 78% of all tests were automated; the achievement was remarkable because not all tests can be automated.

Organised labour continued to show improvement. There is ongoing training and staffing had been stable.

In 2016/17, NHLS has a deficit of R1.9m. compared to a R273m surplus in the previous year. This is due to the historic debt of KZN and Gauteng and it can no longer be written as an accounting deficit but must be written as a doubtful debt. NHLS did not spend more than it earned. It earned more than it anticipated because provinces ordered more laboratory tests than the previous year. The revenue grew from R6.4m to R7.1m. Production costs also grow as a result of increase in labour, test volumes, price increases and fluctuation in the exchange rate. Operational costs increased by 19% due to an increase in the provision for doubtful debts. Assets decreased from R3.9b to R2.9b in provision for the doubtful debt and due to the lower bank balance of R391m. There are challenges in improving IT services due to aging infrastructure.

NHLS is a going concern, if provinces pay in full for the services incurred in 2017/18. The NHLS does not need a bailout and it is not insolvent as long as provinces pay up their debts. There is a need for NHLS to pay suppliers. Though NHLS has identified some billing errors during the deliberations on the payment of historic debt, there are ongoing engagements to ensure that KZN and Gauteng pay up their historic debt. If provinces do not pay, NHLS would be under threat. He looks forward to good payment this year to save the life of NHLS.

NHLS received a qualified audit for 2016/17. Irregular expenditure increased from R28m to R1b in 2016/17. He said the NHLS board uncovered the problem of irregular expenditure and pointed it out to the auditors. The expenditure was irregular but not fruitless or wasteful expenditure. He said it was possible that the previous executive of the NHLS had collaborated with the auditors to cover the issue which should have been picked up by the auditors in the last financial year. He explained that R575m was issued against expired contracts. The CEO and CFO signed a contract of about R210m without the consent of the board which was contrary to regulations that stipulated that payments above R10m must be approved by the board. This resulted in their suspension. Another reason for the irregular expenditure was R194m was paid to suppliers without contracts. One reason for the increase in irregular expenditure was that there was previously no database to regularise expired contracts. NHLS is putting a system in place to regularise all contracts using the proper procurement process.

Discussion
The Acting Chairperson asked for Dr Pillay’s opinion of the Annual Report of the NHLS.

Dr Anban Pillay, Deputy Director General for Health Regulation and Compliance, National Department of Health (NdoH), said the key challenge of the NHLS is the difficulty of payment of debt by provinces which put pressure on NHLS in delivering its services. It is hoped that the situation would be controlled through the NHLS Amendment Bill. Also, there are the lapses in internal control. It would be important for the board to have systems in place to arrest the situation without relying on whistleblowers as is the case in the current situation.

Mr T Nkonzo (ANC) said it was clear that there are challenges in the NHLS beyond what the DDG had said. There is a problem with staff morale as shown by several resignations and warnings in NHLS. He asked what staff morale meant to it and the implication of the resignations on service delivery. He asked why 241 staff left NHLS. He asked what retention strategies were in place during the reported financial year. He asked why R12.2m was unspent. He asked why 348 employments were terminated. How many properties are owned by NHLS that are not in its register? Though the report indicated that transfer of properties are in process, he asked when it would be finalised

Ms L Julius (DA) said the Committee was worried about the NHLS finances, especially because the preceding year was better. She asked how many provinces are still problematic in paying NHLS. Staff turnover would impact on service delivery. Though NHLS had reported consequences they must put systems in place to ensure that the situation is not repeated in the coming year. The deliberations with Gauteng and KwaZulu Natal (KZN) had been going on for a long time, she asked when this debt would be paid.

Dr P Maesela (ANC) asked why NHLS said it serves poor people when it should be serving everyone. He asked what the problem was with KZN and Gauteng. He asked why the irregular expenditure was allowed to grow and not curbed before.

Dr S Thembekwayo (EFF) said the reason for deviation was given as being due to labour related issues in management. She asked if the environment in NHLS was conducive for employees and if it is doing everything to support its staff. Another reason given for not meeting targets was due to lack of quality assurance staff. It was reported that the provinces which owed NHLS, had make a commitment to pay their debt. When did the provinces intend to do this?

Mr R Hugo (DA) asked if the NHLS finances are able to take it forward given the historical debt challenge.

The Acting Chairperson said he did not get a sense that the irregular expenditure is a problem from the presentation but rather it was reported as if it was not a big deal. It was not right for the board to claim it had discovered the irregular expenditure, rather it should have prevented it. The irregular expenditure happened because bid procurement processes were not followed and irregular expenditure of R28m had increased to R1b. How would NHLS ensure that this irregular expenditure does not happen again? How would the problem of debt payment be resolved as about R6b is owed, and all the provinces owe NHLS? He asked if the current payment method was working and what NHLS recommendations are for resolving the problem.

Mr A Mahlalela (ANC) continued that the purpose of the BRRR is to make recommendations that would be responded to. He asked what the Committee should tell Treasury about the NHLS challenges. The Committee was told during its oversight visit that without an intervention, NHLS would find it difficult to pay staff salaries after November 2017. He asked what has happened since the visit because NHLS delegates are not talking about the budget problems. He would like to know the extent to which the system is working or not working and what needs to be done to ensure NHLS remains liquid.

He asked what the expiration of the 280 staff contracts means to NHLS in practice and to what extent would it affect service delivery. He observed that Programme 5: Laboratory Services reflect staff constraints. He asked how the constraints are being resolved. NHLS had overspent in the area without achieving the targets. When the Committee met with Gauteng Department of Health last year; it insisted that it does not owe NHLS, but rather NHLS owes Gauteng. He asked for comment on Gauteng’s declaration and if NHLS is sure that the money will be recovered. If it can be concluded that the money is not recoverable, the debt should be written off and taken off the books. This debt is not with the private sector but from the state and it should be possible to resolve the problem. The Auditor General South Africa (AGSA) said the NHLS liabilities exceed its assets by more than R19m which makes it non viable financially. To what extent is Treasury involved in the recovery process? There is a need to know how to deal with the problem so that the Committee can compel Treasury to intervene in resolving the problem.

Prof Buch replied about his reference to serving the poor, saying the job of the NHLS is to ensure that access to health for all citizens is made possible and NHLS had been working hand to hand with the community. On the debt of the provinces, it had worked with the National Department of Health; it had gone to 10 out of 10 meetings of Treasury and meetings with heads of departments. He had personally met with the Treasury Chief Director dealing with the Health portfolio. A lot of support had been received from Treasury.

In terms of debt, he said seven out of the nine provinces have a modest amount of arrear payments. It is a historic pattern that provinces do not pay NHLS towards the end of the year when the budgets are tight. KZN had paid for all new services but had not paid any of its historic debt. Gauteng paid 80% of grant and 36% of equitable share which makes Gauteng the highest NHLS debtor. NHLS had met with KZN Health MEC and Head of Departments (HODs). NHLS had proposed that it would write off some of the debt. This was agreed to but no payment had been made. There had been an agreement between NHLS and the Gauteng Health MEC and HODs to write off some of the debt so that the province can work on paying the remainder of the debt. He is aware that Gauteng is deliberating on the payment but he is not sure when and on what terms it would pay. He wishes that it could be resolved without resorting to litigation. The debts should not and cannot be written off; a settlement amount should be reached so that NHLS can pay the R800m owing to its creditors, be able to recapitalise and pay its staff.

After deducting the written off amount and the adjusted billing error total, the remaining debt would be about R4b. As from next year, there will be a system that will ensure prepayment. Any support in reaching payment of the debt would be appreciated. The Gauteng MEC for Health and the Acting HOD had agreed and informed Treasury that the Province owes NHLS. The challenge is ensuring that the provinces make 100% payment. The NHLS may have to increase its tariffs in order to settle the suppliers of NHLS, because it had charged lower than inflation rates in the past.

Prof Buch replied about the irregular expenditure, saying the intention was not to trivialise irregular expenditure. The board had reviewed its governance and taken measures to deal with this. The measures put in place are that no payment should be made without a valid contract, NHLS now has a detailed contract database and an audit of contracts, especially from R10m upwards. The new systems are strong enough to pick up deviations earlier. He apologised for giving the wrong impression to the Committee. As long as payment continues to flow from the provinces, NHLS owes about R1.9m. It may not be able to pay the debt owed, but it is able to pay for what is ordered and can pay its staff.

On the status of the suspensions, Prof Buch said that although the speed of the matter cannot be determined, NHLS had charged them within two months of finding out about the matter. The suspended members cannot be replaced immediately. The CEO took NHLS to the Commission for Conciliation, Mediation and Arbitration (CCMA) but there was an arbitration award in favour of the NHLS and he remains suspended.

Mr Ben Wickner, NHLS Acting Chief Financial Officer, said NHLS had an action plan to ensure that irregular expenditure and challenges with the procurement approval process does not reoccur in future. The implementation of the automated system automation would warn staff of impending contract dates. NHLS had looked at the delegation of authority document to address the loopholes in the process of reviewing existing policy. NHLS is in the process of implementing a seven point plan to deal with all the root causes of irregular expenditure.

Ms Nelisiwe Mkhize, NHLS Human Resources, said the morale of the staff was affected by the financial constraints and inability to adequately reward staff which resulted in inequities. An agreement was reached in 2014/15 to implement the reward and remuneration project; this resulted in the increase in staff expenditure which was budgeted for. The expired project has to do with students and learners. The system had been changed; they are no longer employed but admitted as learners. Students are absorbed when they complete their learnerships.

Prof Buch said the NHLS board is not satisfied with performance review and would ask the incoming CEO to ensure that performance review and accreditations are done. NHLS would do some reengineering to ensure that performances improve.

Adv Mpho Mphelo (Company Secretary and Acting CEO) said the CCMA ruled in favor of NHLS. The chairperson of the hearing had been asked to expedite disciplinary processes and the suspended people would no longer be able to further negotiate their availability. NHLS has identified many properties that should be on its records but the process of registration is taking long but NHLS is in the process.

Dr Tim Tucker, NHLS board member, said NHLS has over R500m in grants and for some valid reasons NHLS might not spend all the money. It requested a rollover to the following financial year which was granted.
 
The Acting Chairperson asked if NHLS is sure that it can pay salaries from November.

Prof Buch replied that if this year’s bills are fully paid, then NHLS will continue to be financially viable; otherwise, it will not. The NHLS board is obliged to report to the Health Minister and the Minister of Finance on any risk and not wait for the risk to happen. NHLS is in the process of submitting the letter stating that NHLS is a going concern but if provinces do not fully pay for the current year, NHLS would not be a going concern.

The Acting Chairperson said the NHLS should respond to the Committee in writing on what needed to be done so that the Committee can include it as part of its recommendations as an intervention.

Prof Buch said that NHLS is not asking for a bailout but the request of the NHLS is for National Treasury to impress and its financial counterparts in the provinces and the provincial health departments to make full payment of the bills that are not in contention.

The Acting Chairperson said the written response should also include the amount owed. There is a need to give special attention to this issue.

Dr Anban Pillay said it should not be about National Treasury impacting on the provinces but about it taking a drastic measure to ensure that the debts are paid.

The Acting Chairperson said it would be important to meet NHLS frequently and not annually to increase its oversight over the entity. He thanked the delegation.

Office of Health Standards Compliance (OHSC) 2016/17 Annual Report
Prof Lizo Mazwai, OHSC board chairperson, said OHSC has a new board from the beginning of 2017 and three of the board members were retained as part of the nine member board.

Mr Julius Mapatha, OHSC CFO, reported on the five programmes. OHSC did not achieve the objective of inspecting and enforcing compliance in health establishments within prescribed norms and standards because it is awaiting the promulgation of the norms, standards and regulations which must precede the inspection and enforcement. OHSC exceeded targets in the number of media and communication events and campaigns aimed at increasing awareness of OHSC among the public, providers and stakeholders. There were road shows in the rural areas to address the concerns of the Committee about meeting the needs of people there. Two memoranda of agreement (MoA) were signed with regulators to protect and promote quality and safety of care. Last week a letter was received that allows an MoA with the Nursing Council, but it is still struggling with the Pharmaceutical Council.

Dr Siphiwe Mndaweni, the new OHSC CEO, said despite OHSC not being able to achieve its objectives due to challenges beyond its control, the Office of the CEO developed both the Enforcement Policy and the Certification and Enforcement Framework during 2016/17. The OHSC is mandated to certify and enforce compliance of health establishments according to regulated norms and standards; however, the norms and standards have not been promulgated yet, limiting OHSC in the objectives it was meant to achieve. Not only is OHSC unable to certify health establishments and enforce measures against non-compliant health establishments until promulgation of the norms and standards, but it is also unable to implement the enforcement policy.

The Information Technology system is moving to more sophisticated systems, which had been procured to help process data. The Portfolio Committee for Health had previously been concerned about OHSC’s communication. OHSC had included a detailed report on what it was doing on communication. It has developed a communication strategy which involved stakeholders, staff and general public. This was achieved through public engagements using digital media and pamphlets designed in eleven official languages. OHSC had employed the use of digital, through the use of its website and Facebook. There were no challenges in terms of communication because Treasury allowed OHSC to keep last year’s surplus which had been utilised to improve communication. OHSC was able to recruit four interns against the three interns that were targeted. A fully functional Office was set-up and suitably staffed in accordance with the mandate and goals of OHSC. She discussed the achievement of targets. The indicator for putting the IT system in place was partially achieved. It achieved 95% against the 80% planned target in maintaining system uptime.

Mr Julius Mapatha, OHSC Chief Financial Officer, said that the entity benefited from the advanced infrastructure of the South African Medical Research Council (SAMRC) with which OHSC currently shares a building. There were 34 vacant posts in 2016 which had been filled. The recruitment policy was overhauled to ensure that it allows the positions to be filled. OHSC was struggling with the recruitment of healthcare professionals but at the beginning of the New Year the positions had been filled.

OHSC received an unqualified audit with findings. The internal audit was outsourced. It had developed a strategic register where the risk facing organisation would be recorded. The past financial year, OHSC struggled to recruit staff and to put system in place. OHSC would continue to engage the National government to increase funding. Currently, OHSC is only able to inspect public facilities now but after the promulgation of the norms and standards the office would need capacity for larger coverage which would include private facilities. The OHSC is migrating away from paper based inspections to a system that has capacity to monitor the operations of the inspectors. The organisation is growing very fast, though the processes are slow but they cannot be bypassed. The office will have to take full responsibility for ICT infrastructure when it moves to its new building. Inspectorate is a co function and consumes a lot of budget within the office. The OHSC is developing the early warning systems; it was presented in the board and would be piloted in Gauteng Province. A call center was launched and it is presently working. OHSC received more complains from the public and private sector but mostly from the Private sector. Some complains are also dealt with within the office and some cannot be dealt because of the absence of the norms, standards and regulations. Therefore, some complains are escalated to the professional bodies. OHSC received R100 195 453 from the Buch which was R339 547 short of the full transfer for the 2016/17 financial year. An additional amount of R1 486 402 was received as interest on investment together with, R18 226 as fees charged in terms of the Promotion of Access to Information. The complaint inspectorate accounted for 46% of expenditure. The core functions took about 63% of the

Discussion
The Acting Chairperson appreciated the delegates and congratulated OHSC for receiving an unqualified audit and for the new board constituted.

Ms L Julius (DA) appreciated that OHSC had attended to the previous concerns of the Committee. She asked for the status of the recommendations on Life Esidimeni. She hoped that the difficulty to penalise offenders had been resolved so that the corresponding impact of the services of OHSC could be seen. She expressed happiness that women were given the opportunity to serve at OHSC.

Dr S Thembekwayo (EFF) asked why the provinces were non-compliant. She asked for an update on OHSC equity targets, equity status, people living with disabilities and executive management. She remarked that the 43% resignation of staff to pursue other careers could be due to a working environment that was not conducive and asked about its retention strategy.

Dr P Maesela (ANC) spoke of the critical need of OHSC's role to enforce norms and standards but if the regulations were not yet in place, how could it achieve its mandate. He asked why compliance took most of the budget.

Mr T Nkonzo (ANC) asked why only 331 out of 750 complaints had been resolved.

Dr Thembekwayo asked for the performance index against strategic objectives. He asked why it had not changed its editors when the professional editors had delayed.

The Acting Chairperson asked Dr Pillay for his interpretation of the report presented by OHSC. The Ombudsman ought to present reports annually to the Parliament. He welcomed the OHSC report and asked for the criteria used to select facilities for routine inspection. He asked for updates to follow-up on hospitals that were reported as unfit. He asked for clarity on the 45 day target set by the Ombudsman to complete work in March which was not met. He asked why it had not resolved its human resource challenges. He asked OHSC to state the reason for the fruitless and wasteful expenditure due to late payment to the South African Revenue Service. He asked if there was consequence management about this fruitless expenditure. He asked for indications on how far the agency had gone in resolving the irregular expenditure of over R4 million.

Mr Bafana Msibi, then Acting Chief Executive Officer and Executive Manager: Compliance Inspectorate for OHSC, replied that the function of the complaint inspectorate is core and it has the largest staff numbers. Complaints management is expected to grow and the budget reflects this. Three people had resigned, one came from Durban and decided to return home the other two left because due to higher remuneration elsewhere. OHSC carries out an exit interview for staff that resign from its services.

On the fruitless expenditure, the segregation of duties made it impossible for one person to complete a transaction process. The payroll inspector was pregnant and hospitalised so she was not able to initiate the SARS payment when due. More people had been trained to avoid a future occurrence. The vacancies at the end of the year had been addressed. There was no improvement in the disability target. OHSC would change its strategy and head hunt to get disabled people on board.

Mr Mapatha, OHSC CFO, said sometimes health facilities were randomly selected, sometimes by looking at the indicators about what is happening in the facility. Media reports and whistleblowers were also used as well as random sampling. On the professional editing, OHSC had requested if National Treasury has any RT contract in place that focuses on professional editing and legal drafting because most of its contracts are RT contracts. OHSC had requested to know why complaints were not resolved, some are from the private sector and the numbers were given in the report. All the provinces except Western Cape agreed to discuss these. On the recommendations of the Ombudsman, OHSC frequently submitted reports per recommendation on what it is doing, though some had not been fully implemented. It starts with monitoring before implementation.

Mr Mapatha said staff members that were transferred to OHSC but opted to return to NDoH, especially the staff in the complaints department in OHSC, were accommodated. Inspectors were sent to the hospital in QwaQwa, issues identified were escalated to the investigation unit and the investigation is still ongoing. The process of resolving complaints is still ongoing. Inspectors picked matters that were escalated to the complaints department. The time frames set for resolving a complaint is set at 60 days. When the 60 days is exceeded for any complaint, it is reported as a target not achieved. OHSC continually engages with the provinces to resolve the cases and engages with Netcare from the private sector but due to delays, the 60 day timeline is mostly not met.

Prof Mazwai, OHSC board chairperson, added that in selecting the facilities to inspect, there was an indication to start with academic institutions and all the academic hospitals were inspected, being the bases for training. OHSC also inspected all Primary Health Care facilities in preparation for the National Health Insurance (NHI). The inspections had been based on several criteria. He agreed with the criticism that the report made it look as if the Life Esidimeni issue had been resolved. It would be right to say the implementation had been initiated and once initiated it exceeds the power of OHSC.

Prof Mazwai replied about the delay in the promulgation of norms and standard, saying that during engagement with the National Department there was disagreement on the terminologies used. The World Health Organisation (WHO) was invited to facilitate a workshop between OHSC and the Department of Health and there was an agreement that OHSC would participate, but it was not invited. There had been some issues on that and OHSC would be meeting with the Health Minister to discuss this further.

Prof Mazwai remarked that the Ombudsman had made it clear in their working relationship that he does not report to OHSC but to the Minister. Meanwhile OHSC supports the Ombudsman with staff and other resources. OHSC had just paid R1.4m as lawyers’ fees for an investigation that was initiated by the Minister. There is a draft of Memorandum of Agreement on how the working relationship between the Ombudsman and OHSC should be. OHSC did not anticipate that some of the provinces would not cooperate and it was currently informed to include measures that deal with such in the regulations. OHSC had been able to roll over money for its use but appreciates the advice to have a budget review because when it moves into its new office and employs more staff it will not be able to meet its financial obligations. OHSC would look into the budget review.

Ms Oaitse Montshiwa, OHSC deputy board chairperson, said there is a conflict in the Ombudsman reporting directly to the Minister while he is dependent on resources from OHSC. In the drafting the Memorandum of Agreement, the Ombudsman took it to the Minister. These would be part of the deliberations with the Minister on 17 October when they meet with him.

The Acting Chairperson said he wished OHSC luck with the discussion because he does not understand how the relationship between the Ombudsman and OHSC would work in practice. The resources are not with the Ombudsman; he depends on the resources in OHSC but he does not report to it but rather to the Minister.

Dr Pillay, NDoH DDG, said there is a complicated relationship between the OHSC and the Ombudsman. The interpretation of the Ministry was that the Ombudsman would report through the OHSC report. The Ombudsman does not have resources but relies on the resources from OHSC.

The Acting Chairperson said the Act requires that the Ombudsman prepares reports which should be tabled to the Minister and then tabled to the Parliament which is different from the report of OHSC.

Ms Oaitse Montshiwa said OHSC had told the Ombudsman that he has to table a report to Parliament although the MoA did not stipulate that the report should be done within one month.

The Acting Chairperson said the Ombudsman is to present a report on the affairs and the function of the ombudsman within a month of the end of the financial year and must submit the report to the Minister for tabling in Parliament.

Dr Pillay said NDoH will inform the Ombudsman to prepare the report in question. He said there is a different approach to how norms and standards should be structured.

The Acting Chairperson said OHSC and NDoH must resolve some of the challenges and he advised the OHSC to submit a budget review, or if it relies on the Department for budget, it should talk to government. If OHSC is fine with the budget, it is not compelled to do a budget review.

Council for Medical Schemes 2016/17 Annual Report
Dr Sipho Kabane, CMS Acting CEO/Registrar, said that overall performance on set objectives for 2016/17 was 94.4% which is above the 80% benchmark set by Auditor General South Africa (AGSA). Furthermore, no material findings were raised in the audit report while one material misstatement was corrected.

There were five out of fourteen vacancies that took longer than 90 days to fill because they required critical and scarce skills which were more difficult. In attempt to overcome this challenge, a strategy was developed to employ recruitment agencies and head hunting agencies to assist in finding suitably qualified individuals

One security incident occurred due to unauthorised access of the Executive’s mailbox but the offender was subjected to disciplinary action. However, it must be highlighted that CMS strives to keep abreast with the latest security measures and it was through these measures that the offender and offence was identified.

The appeals process had been strengthened and there had been improvement in the resolution of complaints in 2016/17. The area in want of improvement is, however, the area of ICT and technology. There was also a struggle in the strategy office because of the complexity of problems that arose which was exacerbated by the inadequacy of human resources. By the end of 2016/17, however, these difficulties had fortunately been resolved through the appointment of the necessary human resources.

Dr Kabane went through the CMS nine programmes and reported on their performance (see document).
                       
Financial Performance
Mr Daniel Lehutjo, CMS CFO, said that in comparison to the scheme contributions of R163 billion, the CMS budget is minute. The main area of expenditure is salaries which are about 65% of total expenditure.

He emphasised that the irregular expenditure of R1 064 915 was identified and it was as a result of a calculation error on the application of the 80/20 preferential point system on procurement for transactions above R30 000 but below R500 000, where bids were awarded to the cheapest quotation but not the highest scoring bidder. This resulted in non-compliance with the Preferential Procurement Policy Framework Act (PPPFA) which showed as an indicator of irregular expenditure.

Ms Tebogo Maziya, CMS General Manager: Financial Supervision, reported that R163.9 billion was calculated as gross medical scheme contributions and of that R151.2 billion was spent on claims. She explained that the difference between gross contribution and risk contribution is that the former refers to the exclusion of savings. Of the R147.8 billion collected as risk contributions, R136 billion was spent which represents 92.1% and 9.6% was spent on non-healthcare expenditure. It is evident that this exceeds the risk contributions collected which means that medical aid schemes have to tap into investment income.

Members typically claim earlier in the year and that the frequency decreases toward the end of the year due to medical funds being depleted.

Complaints Adjudication
Ms Thembekile Phaswane, CMS General Manager: Complaints Adjudication, reported that the key indicator was for effective adjudication of a complaint within 120 days. The planned target was 76% but this was exceeded by an achievement of 84%. This achievement comes as a result of the involvement of the Complaints Administrator’s assistance in less complex complaints. The CMS received 4 823 new complaints during 2016, this signifies a decrease of 266 complaints compared to the 5 089 complaints received in 2015.

The complaints resolved were 1058 for benefits being paid incorrectly, 341 for pre-authorisation, 328 for general customer services, 162 for medical savings accounts and 139 for contribution increases. Many of these arise as a result of members not reading the contents of their medical scheme agreements and also belonging to schemes which do not suit their medical needs.

The CMS collected data on internal dispute resolution processes applied by the various schemes, with a view to determine whether the dispute resolution procedures stated in the registered rules of the schemes are being implemented. The analysis revealed a worrisome trend that alternative dispute resolution mechanisms are not being implemented by most medical schemes. The implication is that some of the schemes are not escalating members’ complaints to their internal dispute committees and members are also not being afforded the opportunity to refer disputes to the schemes’ dispute resolution committees. This resulted in some members approaching the CMS for the resolution of their complaints.

The Clinical Unit provided a total of 410 clinical opinions out of 404 cases referred by the Complaints Adjudication Unit. The six additional cases were carried over from the previous financial year. An overall completion rate of 100% of all referred clinical opinions was achieved in 2016/17.

The Legal Services Unit was involved in a number of High Court applications and tribunal hearings to ensure that the interests of beneficiaries are protected at all times and that medical schemes complied with the principles of fiduciary responsibility and good corporate governance enshrined in the Medical Schemes Act. The unit exceeded the targets set in achieving its key objectives during 2016/17. There were no areas of under performance in the unit and no changes to planned targets.

Medical Schemes Industry Overview
Dr Anton de Villiers, CMS General Manager: Research and Monitoring, reported that at the end of 2016, there were 82 medical schemes, consisting of 22 open schemes and 60 restricted schemes.

In 2016, open medical schemes had on average 6.5 benefit options per scheme, compared to approximately two benefit options for the restricted schemes. Over time, there has been a slight increase in the average number of benefit options for open schemes. The difference in the average number of benefit options between open and restricted schemes is due to differences in competition dynamics. Open medical schemes generally use benefit design as a mechanisms to achieve any one of the following objectives:
i) marketability and competitiveness of benefit options;
ii) effective risk-pooling; and
ii) the mechanism through which healthcare benefits are rationed and delivered.

There was positive growth from 2015 in membership of medical schemes. There was a year-on-year increase of 0.78% in the total number of medical scheme beneficiaries, from 8.809 million in December 2015 to 8.879 million in December 2016.

Looking at the average age of members, there were proportionally more beneficiaries in the ages between 10 and 24 years, as well as between 35 and 49 years, for 2006 compared to 2016. In 2006, there were proportionally fewer beneficiaries under 9 years as well as over 50 years. The increase of members in the age bands over 50 years has greater cost implications as beneficiaries in the older age bands have higher average costs. This trend is more prominent in the open schemes and a negative change in the age distribution can have a significant impact on the cost of healthcare. Beneficiaries of restricted medical schemes were older than those of open schemes until 2006. This changed in 2007, primarily due to the introduction of GEMS, when the average age of beneficiaries in restricted schemes became lower than that of open schemes. On the other hand, open schemes have shown a gradual increase in the average age.

The dependant ratio for the industry decreased slightly from 1.23 in 2015 to 1.22 in 2016. The dependant ratio changed slightly for open medical scheme from 1.12 to 1.11 and restricted medical schemes from 1.38 to 1.39.

Coverage per province showed approximately 39% of beneficiaries were located in Gauteng. The Western Cape and KwaZulu-Natal accounted collectively for 29%.

On healthcare benefits paid, expenditure on healthcare benefits increased (in nominal terms) by 8.87% from R138.89 billion in 2015 to R151.21 billion in 2016. The average amount spent per beneficiary per annum (pabpa) went up by 8.30% in 2016, from R15 843.35 to R17 157.77. Total hospital expenditure by medical schemes comprised R56.61 billion or 37.44% of the R151.21 billion that medical schemes paid to all healthcare providers in 2016.

Total medical scheme expenditure on private hospitals increased by 9.80% to R56.32 billion in 2016 from R51.29 billion in 2015. Inpatient admissions constituted about 87.75% of the R56.32 billion paid to private hospitals in 2016 (same-day inpatient admissions constituted 12.25%). The average amount pabpa paid to private hospitals increased by 9.22%, from R5 850.85 in 2015 to R6 390.53 in 2016.

Medicines (and consumables) dispensed by pharmacists and providers other than hospitals, amounted to R23.95 billion or 15.84% of total healthcare benefits paid. This represents an increase of 4.65% compared to the R22.89 billion spent in 2015.

The amount paid to supplementary and allied health professionals in 2016 increased by 8.01%, from R10.15 billion in 2015 to R10.97 billion in 2016. This accounted for 7.25% of all benefits paid by schemes in 2016.

Expenditure on general practitioners (GPs) amounted to R8.96 billion or 5.93% of healthcare benefits paid, representing an increase of 3.25% on the 2015 figure of R8.68 billion. Only 9.92% of the R8.96 billion paid to general practitioners in 2016 was paid to general practitioners operating in hospitals.

Payments to all specialists (anaesthetists, medical specialists, pathology services, radiology services and surgical specialists) amounted to R36.32 billion or 24.02% of total healthcare benefits paid in 2016. This amount increased by 9.92% from R33.04 billion paid in 2015.

Payments to medical specialists amounted to R10.24 billion or 6.78% of total healthcare benefits paid in 2016. About 51.33% of the R10.16 billion paid to medical specialists in 2016 was paid to medical specialists operating in hospitals. Expenditure on pathology amounted to R8.16 billion or 5.40% of healthcare benefits paid. Expenditure on surgical specialists and radiology services amounted to R8.04 billion and R6.69 billion respectively. In 2016, benefits paid to anaesthetists averaged at R2 935.67 per event (visit). This represented an increase of 7.47% from the 2015 figure of R2 731.53 and was the highest average paid per event in the industry, but in total, anaesthetists consumed less than 3% of all benefits paid. The amount paid to surgical specialists was R2 030.56 per event.

General practitioners (GPs) were paid the lowest amount at an average of R369.20 per event. This represented an increase of 4.42% from the 2015 figure of R353.56. The average amount paid to GPs per event in 2016 for in-hospital consultations was R861.45. This is more than twice the average amount paid for out-of-hospital consultations, the average being R328.00.

Of total healthcare benefits paid, medical schemes paid R15.23 billion (10.07%) from beneficiaries’ personal medical savings accounts in 2016. Medicines absorbed the largest share of savings accounts expenditure in 2016 (36.57%). Supplementary and allied health professionals took up 17.21% paid from savings accounts. General practitioners accounted for 14.11% and dentists for 8.39%, while pathology services absorbed 6.61% and medical specialists took 6.05% of healthcare benefits paid from savings accounts.

Hypertension remains the most prevalent Chronic Conditions List (CDL) condition among medical scheme beneficiaries. In 2016, the prevalence of hypertension was 134,21 per 1 000 beneficiaries compared to 130,05 per 1 000 beneficiaries in 2015. This chronic condition is the most expensive on a per-beneficiary-per-month basis. In 2016, medical schemes spent R23,27 pbpm up from R22,42 pbpm in 2015. The coverage ratios of hypertension are very low. About 71% of hypertensive patients receive hypertension treatment. The coverage for the electrocardiogram test was unchanged at 17.0% for 2015 and 2016. The coverage of the total cholesterol test was higher – 33% in 2015, increasing marginally to 34% in 2016.
Cardiovascular diseases recorded significant increases in prevalence. The prevalence of cardiomyopathy increased by 33%, chronic renal disease by 13% and Diabetes Mellitus Type 2 increased by 12%.

CMS embarked on an industry-wide, ongoing consultative process to establish the best standard of care that is clinically appropriate and cost effective in medical schemes. The process identified appropriate process indicators and outcome indicators for the management of CDL conditions. So far, 14 of the CDL conditions have gone through the process. The CMS has collected data on these 14 CDL conditions and more CDLs will be included in the future.

HIV is the best managed CDL condition with coverage ratios as high as 75%. The coverage ratios are disappointing for other chronic conditions. The proportion of beneficiaries receiving antiretroviral therapy (ART) is 81% in 2016, which is up from 76% in 2015. The coverage of HIV monitoring tests has also increased, with increases for viral load tests from about 71% in 2015 to 74% in 2016 and for CD4 counts from 72% in 2015 to 75% in 2016. Restricted schemes had higher coverage of the CD4 tests and the viral load tests, about 76% for both tests in 2016 compared to 72% for the CD4 test and 71% for viral load test on open scheme beneficiaries.

Dr de Villiers concluded that it is a challenge to manage medical schemes because of the all the variables that need to be considered such as the management of the change in age distribution, burden of disease and membership growth. He added that there will need to be further discussions on alternative reimbursement models.

Discussion
Dr Thembekwayo asked why the position occupied by Dr Kabane is still listed as “acting” even though the report says that the positions had been filled. The term “acting” leaves room for a more free spirited way of administration rather than carrying the weight of responsibility that comes with an official appointment. She raised technical jargon as an impediment to members of the public finding the most suitable medical coverage and also knowing what their medical coverage actually entails. She questioned why medical scheme documentation had not yet been simplified so that it is not too legalistic and unreadable for ordinary consumers.

The Acting Chairperson raised the affordability of medical schemes and questioned how this was being regulated. He repeated the concern about medical scheme documents being in a language which is overly technical for ordinary consumers.

The Chairperson thanked CMS for its comprehensive report and adjourned the meeting.