SAPHRA & Council for Medical Schemes 2021/22 Annual Reports

Meeting report

Dr Boitumelo Semete-Makokotlela, SAHPRA CEO, and her team provided a detailed report on the operations, performance, financials, strategy, and challenges of SAPHRA. Main points included:
• Achievements were made in spite of limited human resource capacity
• Based on the increased number of applications received on a yearly basis, operations were severely constrained, and SAPHRA required funding for optimal business operations
• Attention is being paid to legal challenges on SAHPRA decisions
• SAHPRA has commenced with reviewing the Medicines Act to align with the current environmental context
• Concerted efforts to increase public engagements especially on Covid-19 related matters
• SAHPRA makes science-based decisions
• SAHPRA is a young institution that has many more challenges ahead of it which include:
- The development of appropriate oversight for medical devices, cannabis, complementary medicines, and radiation control
- Emerging issue of ‘One Health’ addressing interface between animal and human health is another priority area for SAHPRA.

Discussion
Ms E Wilson (DA) congratulated SAPHRA on all its achievements including the World Health Organisation recognition on their maturity levels as well as on their audit results. The results demonstrated that they had the bulk of their situation under control which was consoling for the Committee. She noted that there were a few issues that were concerns for the Committee especially the irregular expenditure of R3 million, but she was pleased that they were taking active steps to introduce consequence management and corrective measures to deal with that. One of the reasons attributed to the irregular expenditure was a legal dispute. She asked for more details about the legal dispute and to generally highlight the central issues and background of the legal cases they were involved in.

In the presentation, SAPHRA alluded to certain challenges in their clinical and pharmaceutical programmes that were caused by digital or IT failures as well as the low retention rate of highly skilled professionals. South Africa produces first class scientists and yet SAPHRA was experiencing difficulty in retaining them. Did SAPHRA have a strategy in place to retain their highly skilled personnel? She noted that no budget was associated with their vacancy rate which was a concern.

She requested SAPHRA’s thoughts and stance on the recent controversial claim made by an executive of the pharmaceutical giant, Pfizer. The executive claimed that the Pfizer vaccine had not been tested to demonstrate its ability to effectively prevent against Covid-19 transmissions. Also, codeine abuse has been increasing among South African youth because it is affordable and easily accessible. She wanted to know what SAPHRA was doing to improve the regulations on the sale of codeine to prevent its misuse among youth.

Mr P Van Staden (FF+) also questioned the irregular expenditure of R3 million. It was very alarming, and it required thorough explaining. In the presentation SAPHRA indicated that out of the 3000 backlog applications for medicine registrations, 2 500 applications had been cleared. He asked why this backlog had occurred in the first place. Did they see the establishment of a backlog clearance programme a success not just in the present but also further on in the future should backlogs occur again.

Also, he asked for the reason for the decrease in the issuing of licences for manufacturers for alcohol-based hand rubs and what impact this would have on South African health facilities. SAPHRA spoke about 54 rejected products and he asked why these products had been rejected.

Ms M Clarke (DA) congratulated SAPHRA on the improved audit opinion. She also asked about the controversial claims on the Pfizer vaccine’s lack of effective prevention. She was interested about SAPHRA’s thoughts on the matter because she had received several queries on this from members of the public who wanted answers. She requested that SAPHRA provide clarity on their backlog reduction strategies and generic medicine registrations as well as how they were raising funds to capacitate them in the work they were doing.

On staff members who were migrated from the Department of Health to SAHPRA through the Labour Relations Act, she requested further clarity on this migration including the details on its outcome and the reasons for this happening. On the illegal contraventions of the Medicines and Related Substances Act and the Pharmacy Act, how many arrests and successful prosecutions had been achieved? She asked SAPHRA on their return to provide the Committee with a report detailing who had qualified for licences for the cultivation, manufacturing, and distribution of cannabis for medical purposes. The report should also address the number of ongoing legal disputes and how much was spent on legal costs to address these disputes.

She requested an update on the shortage of yellow fever vaccines and morphine powder. She asked if they were experiencing a shortage of any other medicines and if the policy review pathways could effectively address this shortage. In cases where SAPHRA was using a single supplier for medicines, were they open to reaching out to multiple suppliers instead of just one?

Dr S Thembekwayo (EFF) said that the Committee had received an email from SAPHRA and the contents were of a secretarial nature. She asked that it communicate with their Committee secretary for details about meeting time and venue.

She commented that the Auditor General noted that it did not implement proper record keeping ensuring that the information supporting financial statements was relevant and accurate. She asked them if the lack of proper record keeping had implications on their employee turnover especially because they were severely understaffed, and their most highly skilled members were resigning. She implored them to do some introspection and evaluate how they were treating their employees. She asked them if they had at least taken a survey to review employee satisfaction and if they were working on strategies to retain employees to ensure the sustainability and continuity of SAPHRA’s function.

On inspectorate and regulatory licencing compliance in the provinces, Gauteng submitted 86 licence applications for cannabis licences and only 14 licences were issued. In Limpopo 24 licence applications were submitted and only four were issued. KZN submitted 56 and only 7 were issued. This trend of issuing few licences went throughout all the provinces. She asked why this was the trend.

On irregular expenditure, the methods of intervention were unconvincing and unsatisfactory because there was no mention about ensuring accountability and imposing charges on individuals who are responsible. She requested that substantial interventions be presented.

Lastly, the South African cabinet gave the green light to sign the African Medicine Agency Treaty and the adoption of the African Union Model Law on Medical Products Regulation. South Africa's complementary medicines regulations in 2017 under the Medicines and Related Substances Act have been declared unconstitutional by the Gauteng High Court on October 2020. They were further invalidated and declared unlawful by the Supreme Court of Appeal in 2022. She asked SAPHRA what involvement it had in this matter. Would they be relying on the African Medicines Agency (AMA) treaty and AU Model Law on Medical Products Regulation to usher in harmonised regulations and guidelines to regain full control of the domestic market?

Ms N Chirwa (EFF) asked SAPHRA to list the entities or individuals who fund and sponsor their work and to describe the working relationship, programmes, and the links not overtly stipulated that they share with their sponsors. Why did SAPHRA not pull out from Pfizer following the release of possible adverse effects that Pfizer had hidden from the public? Was SAPHRA aware of the leaked documents prior to them being leaked and how did they respond, knowing about the potential medical implications?

She asked SAPHRA to clarify if it was true that Pfizer had planned to dilute the current Comirnaty vaccine to use on children. If so, what was the process of scientifically verifying this data? Was SAPHRA conducting independent investigation on the matter and how many cases had been reported to SAPHRA of adverse effects and alleged deaths due to vaccines? How many of these reports had been investigated and how many investigations had been concluded to date?

Ms Chirwa noted that on 2 October 2017 Medicure Sustainable Healthcare Solutions Pty Ltd was issued a licence by SAPHRA. In terms of the licence it is permitted to manufacture certain medical devices including reprocessing single use devices (SUDs) and it is permitted to import certain repossessed SUDs. The company provided the independent validations in 2017 to SAPHRA and received its first contract from Netcare. SAPHRA's direct emails to Netcare ended this contract in 2018. In 2019 validation results were sent to SAPHRA for a second time after they requested them via a virtual meeting. The validation process which is FDA-approved to which Medicure submits, was also submitted in 2020 to SAPHRA with no feedback to date. She asked why SAPHRA handled the case in this manner and why it had not responded since 2020.

Mr T Munyai (ANC) congratulated SAPHRA on all its achievements it had accomplished above and beyond the Committee’s expectations. SAPHRA had inherited several challenges including years of backlog, so he was incredibly proud of its hard work. The drugs that SAPHRA approves were not only coming from South Africa alone but most of them from the international market. This means that SAPHRA must collaborate. He appreciated that SAPHRA was collaborating with businesses and multinational corporations to approve the safety and quality of the drugs to ensure citizens are protected and that revenue is generated to sustain its functions. He also appreciated its decisions were scientifically based and uninfluenced by politics. He urged the Committee that it was important to support and encourage SAPHRA to continue towards achieving a clean audit, good accountability and oversight and he cautioned against criticising SAPHRA harshly.

Ms A Gela (ANC) welcomed the SAPHRA report and congratulated their achievements. They had done well in presenting their work transparently especially after highlighting that the institution was still in its infancy stages and was therefore prone to making mistakes along the way. On retaining staff, she implored SAPHRA to work speedily towards remedying this. She was confident that SAPHRA would return in the next financial year having improved on the matters detected in the audit. She agreed with Mr Munyai about the Committee supporting and encouraging SAPHRA .

The Chairperson congratulated SAPHRA on their achievements. He also congratulated Prof Helen Rees in her personal capacity for the National Order of Merit she received from the French government. He asked what SAPHRA was planning to do with the surplus it generated and how it would be used to assist in filling some of the vacant posts. Deciding what is good and what is bad for people health-wise is a major responsibility and it is not an easy task. For this reason, he urged Committee members to continue to encourage the hard work that SAPHRA was doing.

He commended SAPHRA for basing all their decisions on the best scientific evidence demonstrating why they held the gold standard for random clinical trials. He commended their commitment to controlling the market by regulating pharmaceutical products in a manner that would ensure the greatest safety for South Africans. He made an example of the unlawful trading of scheduled medicines in Cape Town where there are street vendors who sell scheduled medicine on street corners. If it was not for an organisation like SAHPRA, South Africa would be having serious market regulation challenges like Canada and the US are experiencing with opioids.

He urged SAPHRA to continue the hard work and to continue to work towards a clean audit. He noted their request for the Committee to assist in engaging National Treasury to discuss the possibility of receiving more funding and to discuss the review of the Medicines and Related Substances Act.

SAHPRA response
Mr Regardt Gouws, Chief Financial Officer of SAHPRA, replied about the irregular expenditure pertaining to the legal disputes. There was an urgent court order application that had to be addressed. The court order application dealt with the compounding of medicines from various court applicants. SAPHRA had to respond in quite a fastidious manner because of the specific timeframe they were working under. Legal costs for the legal proceedings against SAPHRA for 2021/22 increased from R2 million to R7.5 million.

On consequence management, there was a reduction in the overall balance. He reminded the Committee that National Treasury would not condone irregular expenditure if consequence management had not been implemented. SAPHRA had established quite a robust loss control function in which they conducted determination reports to identify liable officials. When they implement consequence management, they submit their findings and evidence to National Treasury for it to consider condonation of the process.

They had done a lot of work in controlling irregular expenditure. They had updated Standard Operating Procedures (SOP), filled vacancies in the Supply Chain Management (SCM) team, and they had conducted training workshops early in the year. This was all for the purpose of building a culture of improved governance and controls of the SCM process. Historically, they had over 30 transgressions that they were able to reduce to just three. Management’s intention is to submit the condonation requests to Treasury within the next month to get those condoned.

On the budget for filling vacancies, the growth of cost of employment year on year increased from R147 million to R182 million for 2021/22 and for 2022/23 they budgeted R207 million. All the additional revenue they generate is mainly focused on filling vacancies. They had about 40 vacancies they planned to fill throughout the current financial year which was going to be quite expensive. They had received approval for the surplus from Treasury which cautioned SAPHRA not to use it for filling vacancies because surplus was a short-term profit and it would not be wise to fund permanent vacancies that have a long duration with temporary funds. The allocation of funds for vacancies was a big priority for management and the board and they were planning to request additional assistance for filling 95 vacancies which would require a big amount which was a long-term commitment.

The vision they had for the utilisation of the surplus would be to focus on capital projects and the digitalisation of systems to get away from manual processes that result in potential audit adjustments and short-term contracts. On the effects of record keeping on staff turnover, this specific record keeping dealt with audited adjustments made on commitment notes and classification of services.

Prof Helen Rees, SAHPRA Board Chairperson, clarified that the issue in the article on the efficacy of the Pfizer vaccine in preventing Covid-19 transmission, was about the lack of data. It was well known that there was no data of this nature for any of the vaccines. When the clinical trials were done for all the vaccines, the priority was to establish if the vaccine worked in preventing severe disease and death and if it was safe.

More work is currently being done on the efficacy of the vaccines in preventing transmission because the first prize is not only preventing disease but also preventing transmission. What can be said about the vaccines that are now registered in South Africa is that all of them have demonstrated the ability to prevent severe disease, hospitalisation and death. All the vaccines were monitored for safety and they were all regarded as safe.

On serious adverse effects, she explained that for many vaccines, when you begin to roll them out, instead of having clinical trials on thousands of people, you are suddenly rolling them out to millions of people and that is where one can see if there are going to be rare adverse effects. If there are adverse effects, they are very rare, and we can only see them once the vaccine is introduced into a much larger population.

The very rare side effect that was seen for the Pfizer vaccine was what it caused myocarditis, which is an inflammation of the heart muscle. On the other hand, Covid-19 also causes myocarditis at a much higher rate. So the benefit of the vaccine far exceeds the risks attached to Covid. There have been two serious side effects with the Johnson & Johnson vaccine. One was called TTS which is a clotting disorder and the second has been referred to as the Guillain-Barre syndrome, which is a disorder of the nervous system broadly speaking. In both cases these are extremely rare side effects of the vaccine. What happens with rare side effects is that one must ask if the benefit exceeds the risk and in all cases the benefits of these vaccines exceed the risks associated with Covid.

On the backlogs, she explained that the Medicines Control Council (MCC) was transformed into SAHPRA through legislation. There were several aims but one of them was to make SAHPRA a much more autonomous organisation in being able to do a lot of the work in-house instead of outsourcing it to other academic experts. The old way of reviewing registration dossiers by the Medicines Control Council was designed for building a backlog. Firstly, the old way was completely paper based. So for any one of the applications you could have between sixteen and twenty huge boxes of paper that had to be dealt with by different experts. Secondly, a lot of the reviewing was done by external academic experts but there were no standard operating procedures or agreements with those experts about timelines. One expert could be very good, very fast and very efficient and another expert could sit with evaluations for a really long period of time because nothing in their contract provided them with a specific timeline to deliver.

This approach to evaluation was appropriate for a Medicine Controls Council of 20 years ago but it was not an approach appropriate and fit for new generations of drugs and tons of data to review. This approach was never going to be able to keep up and this would explain why the 16 000 application backlog occurred. SAPHRA recognised that a key priority was for this to be remedied.

If you have a backlog like this and you are inefficient as the regulator, then what you do is stop products from getting out into the market, into the public domain for community benefit. You stop benefits to public health which is problem number one. Problem number two is you have local manufacturers who want to register their product then you are preventing the development of local industry. These were critical problems caused by backlog and SAPHRA was focused on this in its first year. To solve this, they could not have done it using the business-as-usual MCC model.

They had to go through an entire evaluation of the way that they were reviewing dossiers, how they would streamline this and looking at current state of the art regulatory methods they could adopt. All of this was done by SAPHRA not only for the backlog but also for new applications on review.

Dr Boitumelo Semete, SAHPRA Chief Executive Officer, replied about adverse effects following immunisation, that SAPHRA had issued a statement a few months ago in response to this. The statement indicated that Pfizer reports to SAPHRA for their periodic safety reports. She assured the Committee that Pfizer is accountable for ensuring that reporting on adverse effects post immunisation is done and communicated to the regulator.

On the ready-to-use (RTU) formulations in the paediatric populations, she explained that they had received submissions for these formulations but as a regulator they do not conduct the tests themselves. They review the data made available to them and this applies across board. They were not a research institution so all they could do was review the data that Pfizer made available to them.

Dr Semete replied that the figures are available on the SAPHRA website on the number of adverse effects following Covid immunisation where they make regular updates and they are transparent about the number of reports they receive. Out of 37 million vaccines administered in South Africa, they had received 6 900 adverse effects following immunisation. They do provide details on the adverse effects which include painful arms, fever et cetera, and most of them resolve within a few days. This represented a reporting level of 0.02% for both the Johnson and the Pfizer vaccine.

There have been cases of death reported which was available on the website. They indicate the number that had been evaluated to date, and of the 217 deaths, 192 had been evaluated to have been coincidental. There is a lot more detail on this on the website, so the information is available. They have reported on two deaths related to the Guillain-Barre syndrome (GBS) that were causally linked to the vaccine. Ultimately, they could confidently state that two deaths were related to the vaccine. The other deaths were coincidental, or the individuals had co-morbidities. There are currently 25 that are being investigated.

On the African Medicines Agency (AMA), she expressed how thrilled they were with the developments in this area. SAPHRA participates all over the continent on numerous platforms, it really gives impetus to the work they do. While AMA was an African platform that supports harmonisation and in the short-term would focus on advanced therapies, every member state of AMA still had autonomy. So SAPHRA was still governed by the Medicines Act in South Africa that guides how they should function. There would be instances where once a decision has been made through AMA; all regulators would discuss how that decision should be implemented at country level.

On the legal dispute on complementary medicines, they had issued a statement about the case. They were reviewing the regulations. At the core of the dispute what was being challenged was the definition of complementary medicine. The outcome of the case was that the definition of complementary medicine was too broad since it may even include products that are not necessarily medicines as per the definition in the Medicines Act. Over and above, there was a clear acknowledgement in the court decision that complementary medicines had to be regulated but SAPHRA had to ensure that the definition was within the scope of what medicine is. They had been given 12 months to amend the regulations and the amendment process was currently underway.

On the low number of cannabis licences issued, Dr Semete explained that they had seen a surge in applications but since they were under capacitated this meant that they were unable to increase the number of licences they issue. She indicated that prior to issuing a licence that had to inspect the applicants’ facilities. They sent two inspectors to assess the facility. The inspectors looked at the submitted information and made a recommendation based on their assessments. The process required quite a bit of back and forth which required a lot of effort and personnel which they did not have since they were under capacitated to deal with the number of applications submitted.

On the Medicure matter, Dr Semete replied that the accusation that SAPHRA had not engaged with Medicure since 2021 was false. The most recent communication they sent to Medicure was at the beginning of October 2022. They had had numerous meetings with them where they had asked for data confirming that the quality of the products that they repurpose still meet the requirements. Medicure had not been able to give them the data and in the absence of that data they could not authorise the products because authorising the products would put the lives of the public at risk. Medicure had products such as catheters that they had repurposed, but they had to make sure that these products were compliant because these products would be inserted in a person’s body.

Ms Portia Nkambule, Chief Regulatory Officer: SAHPRA, replied the regulation of codeine was certainly an issue they had been attempting to control as a regulator since September 2019, which is when they started to conduct a review on whether to up-schedule codeine due to concerns of its misuse and abuse. What they did was request a sales update for domestic import and export of all codeine-containing preparations for the period January 2018 to January 2019. They made this request in December 2019. There was not a large increase in manufacturer reports on volumes in this period. Although there was a high proportion of sales volumes attributed to a small number of manufacturers of codeine-containing medicines. The manufacturer sales were predominantly to wholesalers and final purchases classified as community pharmacists and hospitals with a small proportion to authorised prescribers and the state.

There are concerning signals pointing to the fact that community pharmacists could be responsible for producing disproportionate volumes of purchase. Since Gauteng had 90% of codeine consumption rates, SAPHRA started investigations in Gauteng. Their goal was to ascertain if there were leaks in the supply chain to elicit the market and to collect information that would guide SAPHRA in taking appropriate action. Their investigators were placed throughout the supply chain sector, including manufacturers, wholesalers, community pharmacists, clinics and prescribing doctors.

They had numerous meetings with manufacturers where they reviewed the consumption data and requested the control of production quantities. They also filtered the top twenty consumers flagging them for investigations. Investigations entailed unannounced inspections which have taken place since December 2021. They had meetings with the producers of active pharmaceuticals. From follow up meetings in June 2022 they found that there had been a significant decline in the 2022 production demand compared to the past two years. This was attributed to SAPHRA interventions. There were meetings and webinars with wholesalers, pharmaceutical communities, pharmacy councils, several societies, and recovering addicts to discuss abuse. From the investigations, those who were found guilty by the Pharmacy Council were handed over to SAPS for further investigation.

On priority reviews, she explained that as regulator they put together a mechanism to assist them to respond to public health needs. The mechanism assisted in making great improvements in the registration of medical products. It took less time to review applications and grant them for priority review status.

Dr Semete replied about SAPHRA funding for the purpose of capacitation saying that the bulk of their funding came from the National Department of Health and the Global Fund. The Global Fund funds a lot of programmes in the country through the National Department of Health.

Mr Gordon Mtakati, SAPHRA Executive Manager: Human Resources, explained about the retention strategy that firstly employees must always be engaged so the CEO has regular engagements with employees. Employees know where SAPHRA comes from, what it needs to achieve and where it is currently, but they also need to have an idea about where SAPHRA is going as well. As part of their retention strategy they ensured that the employee value proposition was well understood and so activities like hybrid working arrangements had also to be part of the retention strategy. The strategy includes promoting employees within SAPHRA when there are opportunities ensuring that first preference is given to qualified employees within SAPHRA before looking for external candidates.

On the transferred employees from the National Department of Health to SAHPRA, 196 employees were transferred under section 197 of the Labour Relations Act. Those employees were made up of individuals who had 40 years of experience in the public service to individuals with around five years' experience. Of the 196 employees, 180 are working in SAPHRA as the others went on to retire. It was important for the new employees to understand the working culture of SAPHRA. They were transferred from the public service pay roll to a Sage payroll system which was not a smooth transition but ultimately they managed to transition. There were concerns the employees had about their government benefits. According to the Labour Relations Act transferred employees cannot be worse off and based on this they were taking the required steps to ensure this.

SAPHRA had an employee satisfaction survey in 2020 and 2021. From the survey 60% of the employees participated and the recommendations from the survey were implemented. As part of job satisfaction, when employees have been working on a desktop computer for more than 20 years it is important to provide them with laptops and train them on how to use the laptop. This changed their lives because it meant their skills improved and would give them access to better opportunities.

Everyone at SAPHRA at any level knew about the pillars of SAPHRA which included safety, efficacy, and quality performance. After listening to employees, it has acknowledged that there are challenges that need to be addressed. SAPHRA always attempts to respond to employee concerns and where they cannot they do explain their limitations to employees.

Dr Semete replied on the legal court cases. There was the Ivermectin case that was before the court. They had already issued a statement on their position on the matter which was aligned with the court decision. Once they had received all the data they would communicate with the public.

They had two court cases on vaccines, mainly the Pfizer vaccine. The applicant had withdrawn the case on one of the matters and the other matter would be continuing. She would be happy to provide a detailed report to the Committee on the legal matters with an extensive list of what those issues are. She could only reveal how many arrests had been made when the South African Police Service had finalised the arrests on their side.

On the protests against SAPHRA, the public had a constitutional right to protest if they were unhappy. However, it was unlikely that the protests were linked to their functioning and how they fare at a global level. They had good review practices within the Medicines Act that stipulated that aggrieved individuals who were not in support of decisions made by the regulator had a right to appeal those decisions.

On medicine shortages, they have been aware for a few weeks now about the yellow fever vaccine shortage which is imported into the country. When it arrives, SAPHRA must scrutinise it and take it through a rigorous quality assessment but due to the shortage of the vaccine they had to review it quicker than usual. By fast-tracking its release, the intention is to continue monitoring it. There have been no new applications for yellow fever vaccine submitted to SAPHRA. She told the Committee that they were aware of the morphine issue and that there was only a single supplier of morphine in the country. She clarified that as the regulator they were unable to get involved in the market dynamics of the supply chain. They only dealt with what they were being provided.

SAPHRA is a schedule three public entity which explains why they have to report to Parliament. It was established by the Medicine Act. They were very transparent in their annual reports about their funding. The annual report detailed what they received from National Treasury, the Global Fund through the Department of Health, the Clinton Health Access Initiative that funded the backlog, the Gates Foundation, what fees they charged which were gazetted and they also declared any funding that was directly coming to SAPHRA.

To prevent any conflict of interest that may arise due to sponsorship and funding they had a policy that stipulated that any funding they received had to comply with that policy. With such funding, they review the contracts in detailsand ensure that they are compliant with the policy. They report this to their board through the board committee on risk, audit and governance.

Prof Rees thanked the Committee for their questions and hoped that they had sufficiently answered them. They would be happy to provide the Committee with additional information should they require this. The questions they had received were very probing which firstly reflected the Committee’s interest in the field and secondly it reflected the importance of medicine regulation in its entirety.

She reinforced the idea that medicine regulation had to be independent and based on evidence which is why it was important that SAPHRA exclude its involvement from the commercial market. They do not get involved in pricing matters because that is an area belonging to the Department of Health. SAPHRA's role as regulator is to ask applicants if they had done all they can to ensure safety and thereafter regulator is responsible for reviewing the safety of the products. She stated that they had come a long way.

The Chairperson encouraged SAPHRA to stay steadfast and he wished them well on all their endeavours.

Council on Medical Schemes 2021/22 Annual Report
Dr Memela Makiwane, Council Chairperson and his Council members provided a detailed report on the operations, performance, financials, strategy, and challenges of CMS. CMS exists to protect members of medical health schemes and to regulate the medical schemes industry. Dr Makiwane gave an overview of the general performance of CMS. They had obtained an unqualified audit report. The organisation had also managed to reduce the complaints backlog that has burdened them over the years. This consequently eased the financial hardship that would have otherwise been imposed on scheme members especially by deferring the contributions for thousands of members who would have been prejudiced.

The organisation has performed very well, both operationally and financially. Also, irregular expenditure was significantly reduced in comparison to previous years. It continues to reduce the risk pool fragmentation which is in line with keeping up with their strategy of consolidating the risk pool at the option and schemes levels to enhance the coverage of healthcare. CMS appreciated the executive authority’s support for their proposed new funding model and they would appreciate having more engagement with the National Department of Health for continued positive outcomes.

1. Annual Performance Information Per Programme:
Dr Sipho Kabane, CMS Chief Executive and Registrar, presented:
Sub-programmes generally achieved most of intended outputs except the following: Under ICT and Knowledge Management, the targets for network and server and uptime were not achieved as CMS was migrating to a new service provider which caused network and connection instability, consequently performance dropped from the planned 99% to 98%. Under Human Resources Management, the targets not achieved included the appointment turnaround time of 120 days and the talent and policy framework which could not be approved in time. Under Council Secretariat, the appeal board and their meetings were areas that did not achieve their targets because the Secretariat is understaffed.

Programmes generally achieved most intended outputs except for the following: Under Compliance and Investigations, one of the five targets was unachieved. The inspections target was not achieved because of delays in the process of finalising the commissions. Under Financial Supervision, one of the five targets was unachieved which one scheme submitted their financial report for audit right at the end which resulted in achieving 99% instead of 100%. Under Complaints Adjudication, only three of the six outputs were achieved. The main reason is that when targets were set, they did not consider the dependencies.

2. Annual Financial Performance and Audit Outcomes
Ms Andisa Zinja, CMS Chief Financial Officer, stated how in the previous year CMS was in a dire financial position where it had a significant amount of debt, was struggling to pay creditors and had serious cash flow challenges. During the current year they had seen a remarkable improvement in the financial situation. There was a decline in fruitless and irregular expenditure and this was an issue that they had committed themselves to continuously work on. Expenses had declined by 13% since the previous year.

In the previous year CMS liabilities were sitting at 62% with just 38% accounting for assets. In the space of 12 months, they have been able to grow assets to 52% and liabilities now constitute 48% which came about through rigorous oversight by the Council. Revenue mainly comes from levies collected from schemes. The CMS revenue is governed by the Act and the funding model in the Act has never been reviewed which is something that they are working on. The Council has put together a Committee through the Registrar for the purpose of reviewing the funding model used by CMS to see if there are any areas where they can raise additional revenue to guarantee financial sustainability.

3. Industry Trends
Mr Michael Willie, CMS Policy, Research and Monitoring Executive presented:

Number of Schemes
There was a decline of medical schemes between 2020 and 2021 from 76 to 75 medical schemes. The reason for this decline is because there was a merger between Sizwe and Hosmed medical schemes as well as between Quantum Medical Aid Society (QMAS) and Discovery Health.

Membership Post Covid-19 pandemic (2021)
• Slight increase in membership
• Slight decline in dependency ratio as fewer dependants were covered
• Notable overall increase in benefits paid
• Increase in utilisation of health services
• Progress on current initiatives and the way forward

4. Sustainability of Schemes
Ms Julindi Scheepers, CMS Chief Financial Analyst, noted:
• The medical scheme industry remains financially sound.
• The long-term effects of the pandemic on scheme reserves are still unclear.

Discussion
Ms H Ismail (DA) requested an update on the CMS restructuring process. How would it be impacted by the resource constraints envisioned by CMS? She wanted to know how they were addressing the retention of staff given the high turnover rate of previous years. CMS had appointed an independent investigation panel, constituted by three advocates, in terms of section 59 of the Medical Schemes Act to investigate complaints and allegations received by CMS. She asked for an update from CMS on the section 59 investigation panel.

Mr P van Staden (FF+) asked why CMS did not act quicker to intervene in the Health Squared Medical Aid situation to avoid the fatal consequences suffered by members of the scheme. Health Squared left over 23 000 of its members in limbo when it announced that cover would end on 31 August 2022 due to its liquidation. How many other medical schemes are in danger of collapsing and when would the Committee get a detailed report on this matter from CMS in their capacity as regulator in the industry? Also, there appeared to be a lack of complaints and appeals being adjudicated in terms of section 50 of the Medical Schemes Act. What would CMS do to ensure that complaints are adjudicated within at least 90 days?

Annexure A of the regulations promulgated in terms of the Medical Schemes Act states that the prescribed minimum benefits (PMBs) must be amended every two years to keep up with the pace of changing treatment practices. He noted that the PMBs had not been amended since January 2000. The payment of PMBs had also been a major category of the complaints received by CMS. When would the statutory obligation to amend PMBs take effect?

Ms M Clarke (DA) agreed with Mr van Staden about PMBs emphasising that she could personally attest to PMBs being one of the biggest issues in the industry as she had worked in the industry. The legal requirements set out in the legislation on PMBs had to be made clear so that people know exactly what their rights are. She wanted to know what the preventative and primary healthcare PMB packages were. On the macro and microstructure, when would it be approved and how long would it take to fill the outstanding posts? Had CMS investigated the potential impact of the National Health Insurance (NHI) on medical schemes? If so, what were the findings, what were the industry’s concerns and feedback on the NHI? What were the strategic vacancies within CMS?

On the R64.1 million fruitless and wasteful expenditure, she requested details on this and if any consequence management had been put in place. If there was some form of consequence management, what were its outcomes and was disciplinary action taken against officials involved in wasteful expenditure? She asked CMS to clarify if they played a role in ensuring that medical aids have certain plans in place that are affordable to the end user and how they were generally addressing the issue on affordability.

Dr S Thembekwayo (EFF) noted that one of the CMS strategies to address underperformance, was to fill vacant funded posts. When were the posts advertised and filled and what did that process entail? On industry statistics, how did CMS account for the slight decrease in medical aid users due to the high costs of medical aid? On medical aid affordability, how could CMS influence medical aid costs? She was curious if they have investigated client service satisfaction on medical aid costs. If they had, she requested CMS share the findings with the Committee.

She advised the Council that in future when presenting diagrams illustrating figures like the table on page 40, it would be best to have a written statement to explain the contents of the diagram.

She commented that the explanation given by CMS on irregular expenditure was unsatisfactory. She requested that CMS revisit this on their return and provide detail and concrete reasons for irregular expenditure.

Ms N Chirwa (EFF) explained that according to the legislation, medical insurance was not within CMS jurisdiction. In light of this, why had they gone over and above the limitations of the legislation to regulate medical insurance whereas there were already existing insurance bodies legislated to oversee insurance? Also, what was the CMS plan in terms of phasing out medical insurance and medical aid schemes in preparation for the NHI? What were they doing to ensure that CMS strengthens compliance with procurement laws? On CMS finances, did they have any sponsors, and would they be willing to disclose their sponsors if indeed they had sponsors supporting their financial sustainability?

On the irregular expenditure, she suggested that they categorise and diagnose wasteful and irregular expenditure properly. In most cases one would find that these offences would be criminal offences. She agreed with Dr Thembekwayo that the CMS explanation did not suffice because it did not detail what exactly they wasted the money on. It appeared as though they were in fact enabling these crimes especially by limiting investigations to be solely internal investigations handled by CMS. How were they going to effectively deal with irregular expenditure? The nature of these crimes deserve suitable consequences such as jail time and not merely suspensions.

Ms E Wilson (DA) stated that she was covered by other Members but there was one outstanding issue she wanted to raise. On the section 59 investigation specifically dealing with the racial profiling, she requested that CMS provide more feedback and give some indication on when the report would be finalised and ready to be presented to the Committee.

Mr T Munyai (ANC) said that although there were weaknesses, it was important that the Committee encourages CMS in their attempt to transform the organisation. The comparisons made in the presentation of past and current performance demonstrated that CMS was improving and redirecting the course of their ship. He asked what caused CMS to incur SARS penalty. He noted the telecommunication bills were alarmingly high.

The Chairperson thanked CMS for their presentation and congratulated them on their achievements. On the CMS litigation challenges, he requested further clarity on these challenges, what the litigation cases were about and the costs they had incurred from the litigation. On irregular expenditure, he acknowledged the CMS commitment to eliminate noncompliance as per section 55(1)(b) of the PFMA. On financial performance, he appreciated their ability to turn their deficit into a surplus. He noted their request for ongoing support for their revised funding model. On the section 59 investigation, he requested clarification about the material facts on the investigation. He was happy that they had been able to improve their ICT systems and their employment targets.

CMS response
Dr Memela Makiwane, CMS Chairperson, stated that CMS would compile the various reports that were requested and present them to the Committee for feedback. The process of restructuring in CMS was practically accomplished. Of the 130+ posts that exist, almost 90% of personnel had been placed in those posts and positions had been filled.

Due to the restructuring, additional posts had been created and these were the posts that CMS was currently filling. They decided to fill the current posts using a phased in approach. They started by filling the leadership posts because if the lower category posts did not have leadership this would create challenges going forward. There was only one position within leadership structures that had not been filled and this was because the recommended candidate was not interested in the amount that CMS was prepared to pay. The post was readvertised and they were in the process of finalising the shortlist and the interviews. Their plan is to ensure that the post is filled before December. Fortunately they had been to be able to recruit internally for most of the senior manager posts.

On the high staff turnover, he explained that during Covid-19 there was a phenomenon that occurred called the Great Resignation. This phenomenon is an economic trend in which employees voluntarily resign from their jobs in their masses even though they have no other job alternatives. This occurs mainly because their values are no longer respected by their employees. He stated that this phenomenon did not only affect CMS but many organisations across the country were also affected by the phenomenon.

CMS has put various strategies in place to try and retain staff members. He admitted that they were struggling to put together financial incentives because the current state of the economy simply did not allow for overly generous bonuses and salary increases. They introduced a hybrid model as part of their working strategy where their employees were permitted to work from home two days of the work week and three days had to be in the office. They believed that this hybrid model would assist them in retaining their staff.

On the Section 59 investigation, CMS would put together a written report so that the Committee would have the benefit of understanding the context and the specific actions that were taken. The Committee was aware that there had been an interim report released by the Section 59 panel and because of that report the Portfolio Committee invited CMS to Parliament with GEMS and other key stakeholders.

At that meeting they had informed Parliament that the people responsible for finalising the report were the ones holding up the process. After the panel had released the interim report, they requested additional comments and once the deadline for additional comments had expired, CMS had been persistently knocking on the panel members doors asking them to produce and circulate the final report. CMS was not sure what the reasons were for the panel’s delay.

CMS has a contract with the briefing attorneys who constitute the Section 59 panel. To hold them accountable they have reported the attorneys to the Legal Practice Council who are now investigating this. The case against the attorneys is based on the attorneys’ failure to act in line with the terms of the contract which constitutes a breach on the part of the attorneys. Ultimately CMS believes that they are left with no other avenue despite having consulted with the Committee and other stakeholders. The industry and affected parties signed a petition which CMS had lodged with the panel but still without any response from the panel. The only avenue left for CMS is to take the panel to court and apply for an order that will force the panel to release the report and explain the reasons for their delay.

The current legislation states that CMS must review and revise the prescribed minimum benefits (PMBs) every two years to ensure they are in line with technology developments and best practice. But, on a practical level, the PMBs were a contested issue between Council members on the one hand who want to extend these PMBs to cover as many people as possible and schemes and administrators who are against the increase benefits the other hand who do not want the financial health of the schemes compromised as this would affect the level of claims. Anytime CMS attempted to expand the PMBs they have been met with challenges by the affected stakeholders. They have made significant progressing in reviewing the PMBs.

On what preventative and promotive PMBs are, he explained that if one looked at the current PMBs they are called disease and treatment pairs and there are 270 of them in total. There is an additional 30 under the chronic disease list but most relate to conditions that are treated in hospital. There are a lot of disease prevention and health promotion measures that are not included in the PMBs. An example of this includes contraceptives. These are not covered but you find that some schemes are in fact happy to pay for this instead of facing birth complications that might arise. A lot of child immunisations are not covered by the PMBs and those are the health promotion and disease prevention services that CMS is working on including.

On the PMB review progress, they have looked at the health promotion and disease prevention package that they wish to include in the existing PMBs but they are also in the process of preparing final documentation that will include the cost of those additional PMBs they want to include. They had also done some studies on the affordability and the willingness to pay for such benefits. By the end of March 2023, they intend to present the Minister with a set of recommendations on the phasing in of disease prevention and health promotion additions into the PMBs in a manner that will not render the whole package too expensive and unaffordable.

On strategic posts, the executive manager member protection is currently in the process of being filled. There is an additional key post that they want to fill as soon as possible which is the public health specialist post which would drive some of the projects such as low-cost benefit option as well as PMBs. On irregular expenditure, he noted that they would give a clearer and more precise detailed breakdown unpacking what it related to, the laws of procurement and the policies that were not complied with, and the actions and steps that they were going to take to address the issues.

On affordability, CMS as regulator is concerned that several options in the schemes are unaffordable, but they believe that part of the reason these options are unaffordable is due to fraud, waste and abuse taking place within the industry. They believe that once they can solve this and prevent wasteful expenditure some of these options will be affordable and the schemes will be able to attract more members.

They are wary about introducing and supporting options that exclude PMBs because it will make it difficult for them to regulate the industry and complaints will increase. On advising which is the best option to choose, he remarked that as regulators they cannot be industry players and referee at the same time, so while they can provide broad guidelines in what to look out for when choosing an option, they cannot play the role of a broker by recommending that one take one option over another.

On whether they conduct research on service satisfaction and affordability of schemes, he replied that they would provide the Committee with a list of all the research and the journals that they have published. Also, on the controversies in the industry such as the liquidation of Health Squared. They were happy to avail themselves to the Committee when they wanted to engage on any kind of issue like Squared Health. The Squared Health case was a long and complicated issue that they were prepared to detail in a report for the Committee. On the processing of complaints, there have been delays in processing complaints, but they are trying to speed up the process and appoint enough personnel to attend to the complaints.

On why the CMS jurisdiction has exceeded beyond medical schemes to the regulation of medical insurance, he explained that since the advent of schemes there are cases where there are primary insurance products that fall within the business of medical schemes while at the same time occupying space within the insurance area. This has created regulatory confusion for CMS and insurance regulators. There were long discussions and consultative processes where all stakeholders were called including Treasury, FSB, CMS, and other key stakeholders to clear the regulatory confusion.

The outcome of the consultative processes was that a piece of legislation called Demarcation Regulations was drafted. These are regulations that assigned certain products to CMS because those products were doing business around medical schemes. The proviso was that a framework had to be created that would allow these products to migrate into the medical schemes space completely. The products are sitting with CMS, they are non-compliant with the Act and regulations, but CMS is exempting them and regulating them through an exemption process. The organisation is finalising the process for creating the framework that will allow the products to either migrate fully into the medical schemes area or to determine an alternative fate for these products and the framework will be presented to the Minister.

On whether CMS has outside sponsors, he commented that 90% of their funding comes from levies that are collected from the principal members of schemes and there are approximately 4.1 million of them. The rest of the revenue is interest accrued and what they charge for accreditation. They do have a grant from the National Department of Health but that is the start and end of where they get funding. They do not have any external affiliations apart from ZaZiBoNa initiative which is a SADC body they belong to with fellow regulators.

On litigation costs, the costs are being reduced and CMS has committed itself to creating a list of all the cases for the Committee, detailing what the issues are and what they are paying in legal fees for the year. He acknowledged the positive comments and encouragement and support from the Committee members.

Mr Michael Willie, CMS Policy, Research and Monitoring Executive, replied that the platforms where CMS publishes its research papers, are a combination of peer reviewed journals, academic being the main platform and publications that share their information such as the World Medical Journal. On an annual basis they publish a maximum of two articles in the World Medical Journal. They have also contributed a chapter in a book called ‘Healthcare Book’ by a UK based editor.

On whether they conduct research on service satisfaction, his response was that they had done a survey on patients’ experience of care. The survey is available in the public domain on the CMS website. They would be happy to make the report available to the Committee. The survey report was based on patients who were diagnosed with diabetes and it was trying to understand what the gaps were in the management programmes for the disease. The lack of family integration in the disease management programme was one of the interesting limitations of the programme revealed through the survey report. This would be addressed through the accreditation process and monitoring and evaluation of the disease management programme.

They had conducted another study looking at the extent to which members of medical schemes run out of benefits. The report on the study would also be made available in the public domain for the Committee’s perusal. One of the main findings of the report was that 44% medical scheme members surveyed indicated that they ran out of benefits during the year and almost 50% of those members had to pay out of pocket. The recommendations of the report would filter through informing the benefit approval process within CMS.

Mr Ephraim Letlhogonolo Tlhako, CMS Chief Information Officer, explained that the high telecommunications costs were mostly for data cards and devices because CMS had to equip and enable staff members to work remotely due to Covid-19 lockdown regulations. Every employee was provided with a laptop and data to make this possible. Costs were beginning to decline because of the hybrid working model where staff were working three days from the office and two days from home.

Ms Andisa Zinja, CMS CFO, explained that the SARS penalties relate to VAT for imported services. A while back SARS had requested documentation from CMS dating back 10 years. The documents showed imported items such as the purchase of subscriptions from overseas. A mini audit was conducted by SARS and it stated that CMS had been using non-VAT vendors and had not been paying VAT. The VAT Act details that if there is a non-VAT vendor from abroad one had to pay the VAT on behalf of the vendor.

The penalties and interest were due to the VAT backlog incurred by using overseas vendors. On receiving the communication from SARS, they paid the principal amount. When it came to the penalties and interest, they made a request that SARS pardon them and those amounts. Currently, if CMS makes use of international suppliers who are non-VAT vendors, they ensure that that portion of VAT is paid over to SARS.

She explained that the irregular expenditure comes from years back and it is related to a panel of lawyers and investigators who were not properly constituted in terms of the process as legislated by Treasury. They had been making use of the panel in the past but have since stopped as soon as the panel was identified as irregular. They do have a proper panel now. The issue is that the cases that were being investigated by the previous panel are still ongoing investigations and as consequence they still incur expenditure based on those cases. They have consulted with Treasury asking them if they can transfer the cases to the properly constituted panel, but Treasury was against the suggestion and rejected their proposal. The steps going forward would be for CMS to wait until the cases have been resolved and the work is finished, after that they will close off the contract and apply for condonation or a recovery.

On the comment raised that CMS was investigating itself, she responded that that was not necessarily the case and that there was no wrongdoing that they were intentionally hiding. The Loss Control Committee was looking at the cases of fruitless and wasteful and irregular expenditure. Where there were cases that needed to be reported to the police, CMS had reported them to the police. They did have case numbers and they also made Treasury aware of such situations. When it comes to wrongdoing, they do not pardon any wrongdoing being investigated.

Dr Sipho Kabane expressed his appreciation for all the comments and advice from the Committee. The Council would return to engage the Committee on the sustainable financial model so the Committee would assist the Council in achieving the sustainable model.

The Chairperson thanked the Council for the presentation and closed the meeting.