Council for Medical Schemes 2009/10 Annual Report

Meeting report

Chairperson’s opening remarks
The Chairperson said the biggest challenge in South Africa was how to solve the inequalities inherited from the past. Around 8 million people, and their employers, contributed to medical aid for private health services, but everyone else depended on the public health system. It was important that medical aid schemes be regulated. The gap between healthy and not healthy was also widening and must be bridged.

Council for Medical Schemes (CMS) Annual Report 2009/10 presentation
Mr William Pick, Chairperson, Council for Medical Schemes, introduced new members of CMS for Medical Schemes (CMS)

Dr Monwabisi Gantsho, Registrar and Chief Executive, CMS, said that his briefing would cover not only the Annual Report for 2009/10 but also the trends over the last ten years. During this financial year, CMS had two Acting Registrars and Dr Gantsho had joined CMS on 1 June 2010.

He said that the medical schemes industry in South Africa was very complex and dynamic, with 8.1 million members who contributed R84.9 billion. During 2009/10 there were 110 medical aid schemes but there were now 105, and this was likely to drop soon to 103. CMS was mandated under the Medical Schemes Act to protect beneficiaries of the medical schemes and the public, and also the long-term sustainability of the industry. CMS monitored, controlled and supervised the industry.

The Medical Schemes Act was concerned with the principle of open enrolment and community rating as opposed to risk rating. Important tools were the prescribed minimum benefits (PMBs) as regulated in the Act, and the Risk Equalisation Fund (REF) for age differentiation, because older people tended to have more or more complex medical conditions. Many medical schemes were found wanting in terms of proper governance structures and so CMS had systems in place to ensure that the public and beneficiaries were well protected. Affordability of private health care had to be maintained, and CMS also had to ensure fairness in treatment of beneficiaries.

The majority of complaints received from the general public were that medical schemes were not paying their accounts, and that there was refusal by schemes to issue authorisation. There were problems relating to PMBs and Designated Service Providers (DSPs). Other complaints related to reversal and short payment of accounts, administrative inefficiencies, non-payment of refunds, misunderstanding with the schemes, termination of membership, exclusion of conditions and/or benefits, and unauthorised deductions.

Dr Gantsho maintained that CMS had skill, experience and capacity to participate in any health care system in the country, and would contribute in any way that it was asked.

Mr Daniel Lehutjo, Chief Financial Officer, CMS, noted that CMS had received a clean audit from the Auditor-General. CMS had, over the years, put in good internal controls and had complied with the Public Finance Management Act (PFMA). He tabled the financial details (see attached presentation).

The Chairperson congratulated CMS on its clean audit, which indicated that financial matter were properly attended to, as well as its service, and asked what particular achievements could be highlighted.

Mr Lehutjo replied that the Performance Information Report indicated the objectives CMS had set for the financial year, and what had been achieved against those objectives.

The Chairperson asked whether, if wished to join a medical aid, he would be assessed only against the risk, or as a human being.

Mr Lehutjo responded that this question showed why CMS was enforcing open enrolment and best utilisation of resources. Money was spent on court cases, there had been legal challenges and CMS had been taken to court. CMS investigated governance of schemes and was pointing to expenditure in that regard.

Mr Lehutjo continued with his presentation. Revenue of R52 million was mainly from levies from schemes, while other revenue was from accreditation fees from brokers. A broker had to be accredited for two years, at R8 000. Money was also received from government in respect of the Risk Equalisation Fund. The REF was previously funded by medical schemes, CMS had taken that over, and it was inbuilt into the levy on medical aids.

He noted that most of CMS expenditure was on staff (65%), whilst other related to audit fees, rental and telecommunication expenses. He also noted expenditure on consumer education and on HR/organisational strategy. Trustees were trained as to how schemes should be managed in terms of good corporate governance principles. He confirmed that all the requirements of the PFMA were complied with, and the Auditor-General was satisfied that finance was managed in terms of recognised accounting practices, and all other legislation applicable to the financial management in terms of the public sector.

Mr Burton-Durham stressed that the prime role of CMS was the protection of members. Members were central to the regulatory framework and according to statute rights and obligations that were clearly defined in the Medical Schemes Act.

Mr Craig Burton-Durham, Head: Legal Services, CMS, gave a short presentation on the first ten years of CMS’s operations. He noted that medical schemes were traditionally governed by boards of trustees and had fiduciary responsibilities towards the members of those schemes. Ten years ago, when the Act came into effect, trustees of some schemes that were under performing were surprised when the Regulator took them to task. In the intervening ten years, CMS had enforced good governance through legislative reform, introducing amendments to the Act, and through trustee training programmes, to make trustees aware of their fiduciary responsibilities and the consequences of not governing medical schemes in the interests of their members.

There was massive reinsurance in a number of areas, which meant that the solvency levels prescribed by the Medical Schemes Act were not in place. Reinsurance had been a problem at the time, which the Regulator tackled and reduced, and legislative reform then introduced a provision that strictly controlled the use of reinsurance. In order to meet the solvency requirements, medical schemes must manage the funds in the scheme and not through vehicle outside the scheme.

He pointed out that solvency was linked to the use and abuse of reinsurance. The strict focus on solvency meant that most medical schemes had achieved their solvency targets, and, where they had not, then measures were introduced, including close monitoring by the Financial Supervision unit, and reporting requirements on plans to ensure the requisite solvency. Medical schemes required solvency in order to serve the interests of those members and to ensure that their health care needs were met.

A Risk Assessment Framework (RAF) was put in place, to assess what risks were posed to the environment by schemes, in light of problems and difficulties in those schemes.

He explained that Prescribed Minimum Benefits (PMBs) were benefits that all medical schemes were required to provide to their members, without co-payments. The Registrar played an active role in ensuring that those benefits were properly rendered. The CMS also played an active role with regard to the Reference Price List (RPL) since costs charged were a critical part of health insurance. The Risk Equalisation Fund (REF) was a project undertaken during the ten-year period, funded by the National Department of Health (NDOH) on a project basis. The purpose of the REF was to equalise the risk because the Medical Schemes Amendment Bill had not yet come into effect.

The International Classification of Diseases (ICD-10) was closely followed for claims lodged with medical schemes, and the CMS Research and Monitoring Unit played an integral role in exploring these specific aspects, in order to ensure that the codes rendered contained the correct international classification.

CMS was also responsible for the accreditation of brokers. In addition to the accreditation of the administrative and managed care, organisation brokers were required to demonstrate to the Regulator that they were financially stable and capable of rendering the required services, as well as satisfying CMS as to their value-add component.

Dr Gantsho moved to the financial and non-financial trends over the ten years. The data and statistics would be helpful in planning solutions to the challenges. The trends were linked to the number of medical schemes, the beneficiaries and members, the financial costs observed, and non-health care expenditure.

Ms Tebogo Maziya, Head: Financial Supervision, CMS, set out the industry trends and the non-financial information for the various schemes. She repeated that by the end of the 2009/10 financial year, there were 109 schemes, a drop from the previous 114, because of some voluntary liquidations due to unsustainability of small schemes and consolidation. Of the 8.1 million lives covered then, 3.5 million were principal members. The largest increase of cover was in the restricted market, where there was a decline of 1.5% due to the impact of Government Employees Medical Scheme (GEMS), which held the largest groups. From 2006, when GEMS began operating, government employees left other schemes to join GEMS.

Overall, the industry remained the same, but the number of pensioners was higher for open schemes, and lower for restricted schemes. The increase in pensioner ratios was in part due to change of systems, which resulted in dramatic impact on the ageing members, and some were affected by poor marketing.

The largest component of the benefit paid in 2009/10 went to hospitals, followed by specialists and medicines. There was an increase in utilisation of services, but the increase was affected more by tariff and pricing issues. Contributions increased by 14.8%, and claims increased by 17.6%. Members received more value for their money because more was paid in benefits.

From about 2004 there was a downward trend in the claims ratio, which was a reserve-building period, because medical schemes had to build up to the required 25%. 2004 also marked the introduction of PMBs and PDLs and the chronic disease list, as well as price naming by the Competitions Commission, which accounted for the increase in the claims ratio. In 2006 there was a trend of co-payments and self-payments, which meant that members paid more out of pocket. This year also marked an upward surge in claims due to utilisation, aging of the industry, and cost pressures.

The biggest component of non-healthcare expenditure (NHE) was gross administration expenditure. Open schemes increased by 9.1% and restricted schemes increased by 10.3%, the latter because of higher volumes through growth in GEMS. Broker fees increased, and reinsurance decreased, due to the amendments to the Act. Managed care (pre authorisation) increased by 15.5%. CMS introduced a value add standard before an entity could be accredited, to ensure that the board of trustees was responsible for ensuring that medical scheme monies were spent on the appropriate interventions. Broker costs increased by 1.7%. There was almost no relationship between the rate at which medical schemes were growing and broker fees were being paid.

Bad debts came down over time, but over the last two years there was an increase in bad debts written off by medical schemes. That reflected non payment of contributions by some members, possibly linked to the economic conditions, but medical schemes were generally collecting contributions faster, in order to minimise the risk of having to pay before contributions were received.  

Medical schemes continued to rely on investment income. In 2009 overall operating results were in deficit, by R2.6 billion, but if the investments were included in the calculations, then that would show a positive R1 billion. That figure declined from 2000 to 2003 when schemes needed to build reserves, and in that time most schemes were above 25% and therefore possibly funding contributions and providing relief to members. In 2009, two large medical schemes incurred huge losses, which together accounted for about 30% of the deficit incurred. 2009 was a difficult year in terms of claims.

From the promulgation of the Medical Schemes Act in 2000, and until 2004, schemes had about five years to build their reserve and get to 25%. Any new scheme registered needed to show the 25% requirement immediately. From about 2006 there was a general decline, partly due to the shift to GEMS, but generally medical schemes were above the required 25%.

Dr Gantsho then moved to discuss the future and how CMS intended dealing with some of the challenges. National Health Insurance (NHI) was an important issue, which CMS supported. The Chairperson of CMS served on the Ministerial Advisory Committee, and one of the senior executives served on a subcommittee on purchasing. Dr Gantsho himself served on a subcommittee dealing with quality improvement and accreditation. CMS wished to be part of the solution to challenges, and believed it had expertise, capacity and skills, honed over the past ten years, to assist in that process.

He said that any draft legislation should talk to the Medical Schemes Act. CMS could make contributions in the day-to-day work that needed to be done and stressed that amendments to the Act were definitely needed. In the meantime, however, it proposed changes that would lead to the definition of the business of the medical scheme that talked to demarcation. Demarcation currently designated the responsibilities of medical aid schemes regulated by CMS, and health products that flooded the market would currently be regulated by the Financial Services Board (FSB) under the Department of Finance. CMS had engaged with the Minister of Health, who understood that demarcation needed to take place, and he also hoped that the Portfolio Committee so that demarcation between the NDOH and Department of Finance could be dealt with.
Dr Gantsho had engaged with the Registrar of the FSB, so that he would understand that many members of the public were at risk of being promised healthcare cover, by a body that did not specialise in healthcare. It was possible that a court ruling may be sought to protect the public.

The Risk Equalisation Fund (REF) was an issue on which CMS still needed to get agreement, as it concerned CMS operational aspects as well as policy. REF was a useful tool, in the interim, in the absence of any other health system. If it were implemented it would stabilise the industry and protect the aged members of the schemes, and CMS could balance affordability of healthcare services against sustainability of the healthcare fund. Again, he noted that support from the Portfolio Committee would be appreciated to ensure that REF was addressed. A register had been established to note all the benefits and all the costs that would be attracted by old and young, and sick and healthy, which would also be useful for NHI.

Reference Price Listing (RPL) was struck down in July this year by the court, and, a process was under way to find alternative negotiated medical scheme tariffs. There was currently a void, which could backfire negatively on members of the public and medical schemes. He hoped that the multilateral tariff negotiations could fill the gap to avoid free market forces making a mockery of the regulatory framework.

Dr Gantsho urged that the creation of a regulatory body for private hospitals was critical given the trends in medical specialist and hospital costs. Multilateral negotiations should include the healthcare funders themselves. The Minister and Department of Health would shortly meet with CMS to work through possible competition concerns.

Dr Gantsho emphasised that PMBs were prescribed by law, and were critically important to the regulatory framework, in the context of open enrolment and in dealing with the issue of risk. PMBs were guaranteed to every beneficiary of a medical scheme, regardless of the benefit option. The medical schemes must cover the PMB conditions in full and were not allowed to use medical savings accounts for PMB conditions. This would ensure that catastrophic and very expensive medical conditions were covered in every medical aid scheme, so individuals had to be covered without co-payment or deductibles.

Discussion
The Chairperson appreciated this presentation, and stressed that it was clear that policy making must be based on clear information. Private hospitals and specialists were receiving substantial sums and this must be addressed. CMS concerns would be considered by the Committee.

The Chairperson noted the comments on trustees, who must appreciate that they were elected to look after members and had a responsibility to them. He asked how CMS would get trustees and hospital committees to understand their position.

The Chairperson said that perhaps private hospitals should be regulated. Not much primary health care was happening in those hospitals, perhaps because this did not make business sense for the hospitals. Healthcare in South Africa was very expensive. He asked how much went to General Practitioners (GPs), noting that in every small town there was at least one GP offering primary healthcare, and wondered how expensive this was for a person needing those services, and how much it cost them to run their practice.

Ms M Segale-Diswai appreciated the report, but said she found it complicated to understand, and the bars and graphs in the hard copy were hard to read in black and white.

The Chairperson replied that the documents were copied by Parliament, who did not have a colour copier.

Ms Segale-Diswai said that she would not yet congratulate CMS on its clean audit as she also wanted to hear about service delivery.

Dr Gantsho responded that the clean audit must be linked to the mandate of the CMS, which was to control, coordinate, and supervise the activities of medical aid schemes and all their boards, financial and non-financial. The 8.1 million people covered need to have the best access to healthcare, and CMS must ensure that the medical schemes offered that, and that any new member was joining a fund was assured of a safe healthcare environment. CMS had tools in place to ensure monitoring of the financial sustainability of funds, and to ensure that there were no fly-by-night schemes. Its Benefits Management Unit examined the rules that the schemes submitted, and would accept, reject, amend and adjudicate on them. All this was service delivery to 1.8 million people. CMS also advised the Minister, who could confer other duties on CMS to deal with private healthcare matters.

Ms Segale-Diswai asked what had happened to reduce the numbers of medical schemes.

Dr Gantsho responded that some of the schemes had merged and consolidated, while some had liquidated. There was some anxiety as to the future of medical aids. The number of schemes did not relate directly to the number of beneficiaries covered, as the number of people covered rose from 7 million to 8.1 million in the last year.

Ms Segale-Diswai referred to the complaints received, and said that non-payment of accounts was the most serious. People would expect that their medical schemes would pay, only to find that they themselves had been sued and possibly blacklisted. She also noted that people who needed medication could be told, at the pharmacy counter, that the medical schemes would not authorise it. Communication between schemes and members was very important.

Dr Gantsho responded that CMS engaged on the most frequent complaints, hoping eventually to reach a “name and shame” situation where medical schemes could be rated, on the basis of complaints received against them, and even possibly blacklisted. The CMS unit dealing with complaints had increased in capacity, to be more responsive. CMS encouraged communication from schemes and the public alike.  One of CMS’s strategic objectives was to assess and disseminate information, so that people would know what the medical scheme stood for and what entitlement was given by its rules. Although CMS spent much on communication, he conceded that this was not enough, but would also never be enough to educate everybody. The increase in levies, which itself had caused complaint, had come about through the need to ensure education and training. CMS itself had an ethos of training its people to be qualified and skilled.

Ms Segale-Diswai said that when she was in Rustenburg she had to pay a levy on chronic medication, whilst the same did not apply in Johannesburg or Cape Town. The poorest of the poor in rural areas were paying a lot of levies.

Dr Gantsho thought that the co-payment differentiation between cities and towns and rural areas was an important point. This should not occur.

Ms Segale-Diswai noted that she had received no consumer education when belonging to three medical aid schemes, and thought that promises of education were purely advertising-linked.

Dr Gantsho responded that the rules that were designed and submitted to the CMS were interrogated vigorously.

Ms Segale-Diswai asked why public servants were not allowed to choose which medical aid they wished to join. She also asked what CMS was doing to get private and public hospitals on par, so that money from the medical aids could help public facilities, which were not receiving enough revenue, to grow.  

The Chairperson thought that Members should go to public institutions to experience and report on service. The ten-point plan spoke of improving leadership and improving management. Public institutions were very lax in targeting medical aids. He noted that his son, when attempting to use a public hospital, was told that because he had medical aid, he must attend a private hospital. The management of institutions must be examined by the Department, because they were, perhaps deliberately, not collecting from medical aid schemes. NDOH had no incentive to collect revenue, because it went back to National Treasury and would not necessarily benefit a hospital directly, nor NDOH.

Dr Gantsho responded that administrative systems within the public healthcare sector were currently not in place. CMS had pointed out that medical schemes must pay public hospitals when they claimed, and although there were some complications, these were not serious. The public hospitals billing systems must change.  

Mr M Waters (DA) noted that there were 4 092 complaints, representing 0,05% of the 8.1 million beneficiaries. He asked if that was attributable to efficient schemes, or lack of knowledge about where to direct complaints. Consumer education seemed to be low, at 1%. He noted that Discovery Health sent out a monthly newsletter, and wondered if CMS could promote itself in that or another magazine, to ensure that people knew whom to contact.

Dr Gantsho responded that all medical schemes was regulated and none was treated differently. CMS could not associate itself with any one scheme that it regulated so could not endorse the products of any one scheme. Similarly, it did not want to associate with any branding. It did appreciate the good work done by some schemes in advancing the CMS mandate.

Mr Waters noted that R7.5 billion was spent on administration, and asked how effective that was, if members were getting value for money and if claims were being processed within a set time frame. He noted that there were 1386 unpaid accounts, compared with 8.1 million members.

Dr Gantsho said the Non Healthcare Expenditure, brokers, and administration costs were monitored. Management accounts were submitted to the relevant unit of CMS.

Mr Waters asked within what period GEMS must attain 25% solvency.

Dr Gantsho responded that GEMS only came to existence after 2006. It had raised its solvency levels to 25% in line with the statutory requirements, which then had certain implications for the restricted and non restricted medical aid schemes market. CMS could not comment specifically on GEMS, but observed what trends and what impact it had.

Ms E More (DA) congratulated CMS on the clean financial and performance audit. She noted that many complaints related to unpaid accounts, refusal by the schemes to issue authorisation, and the administrative inefficiencies and unauthorised deductions. She asked about CMS plans to deal with those. She also asked if “unauthorised deductions” implied fraud.

Dr Gantsho said that even one complaint was one too many. CMS expenditure on addressing complaints was still not adequate, although this was a growing area which was fundamental to its mandate as the statutory regulator. A fraud hotline had been introduced via the website, and any report relating to fraud and corruption would be dealt with by an independent body, which had to be paid by CMS. The increase in levies for medical schemes was partially attributable to financing this. He explained that there should not be any unauthorised deductions, and if pre-authorisation was denied then a person should be able to present complaints.

Ms More noted the decline in schemes and asked if those schemes closing were open or restricted medical aid schemes, and whether the cause of the voluntary liquidations had been assessed.

Dr Gantsho explained that voluntary liquidations occurred if the administrators of schemes, or the brokers, found that it was not profitable to continue the business. They would have to notify CMS of a decision to liquidate, and CMS would closely monitor the situation to assess what remedial actions might be necessary. Liquidations were a last resort, and were not taken lightly, but might be needed to protect the schemes.

Dr A Luthuli also asked for clarification on voluntary liquidation by the schemes. Her experience, from her years in private practice, was that doctors claiming from medical aid schemes sometimes had to wait up to four months for payment, and might then find that the scheme no longer existed, but might re-constitute itself later under another name.

Dr Gantsho said that this situation was one that CMS must investigate. He said that CMS would need to look at the names who were driving the schemes, and track the trustees, especially those who were involved in Section 46 matters, to avoid similar situations recurring under other guises.

Dr Luthuli reiterated that delays in paying practitioners severely affected their cash flow, and GPs felt abused by medical aid schemes, and this resulted in a number leaving private practice.

Dr Gantsho explained that CMS was committed to implementing Real Time Monitoring to monitor medical schemes and their performance, and should be able to pick up on issues more easily as a result.

Dr Luthuli enquired what would happen if members of a scheme, who required medical treatment, discovered that the funds were exhausted.

Dr Luthuli was also concerned about the levies on chronic medication, saying that she did not understand why these should be in place, as they often effectively denied treatment to the elderly.

Dr Luthuli asked why brokers were used, as they were not needed by members although the cost was simply passed on to them.

Dr Gantsho responded that questions of labour in this field were to be dealt with by the Department of Labour and Ministry of Health, not by CMS. He said that the increased costs had an impact on the number of new members coming in, which meant that something was not balancing.

Mr E Sulliman (ANC) congratulated CMS on its unqualified audit report and strategic objectives. He commented that the Risk Equalisation Fund seemed to be a legal framework to support and to help finalise the Medical Schemes Amendment Bill, but seemed to show only a 50% success rate.

Dr Gantsho responded that CMS would pursue all its strategic objectives and would improve.
 
Dr Luthuli remarked that private doctors used to be paid a very reasonable fee, yet the initial consultation fees were often far more than the cost of treatment, meaning that medical care was no longer affordable.

Dr Gantsho agreed with her remarks, but noted that doctors now demanded proper payment, rather than being paid by other goods. Service providers were tending to collude, as shown by Competition Commission findings. The landscape was changing, and CMS had cautioned the Minister to be alive to the possibility of collusion. CMS held multilateral negotiations with all the stakeholders, in an attempt to address rising healthcare costs, and most were agreeable to reaching negotiated price tariffs, with guidance from the Competitions Commission and the Minister and NDOH. Private hospitals, however, were reluctant to participate, and that must be addressed, with the possibility of regulation being considered.

The Chairperson agreed that although this presentation was good, it was confusing at times, and commented that perhaps Members needed a better understanding of the principles and working of the medical aid schemes, in order to advise their constituents. It would be useful for CMS, as a neutral body, to address this.

Dr Gantsho responded that that would certainly be useful for the Regulator to give this information. It was important that people be empowered with the knowledge that would enable them to choose between the 105 schemes, and especially not opt for one that was about to go into liquidation. Information must be readily available to the public, at the point of service, specifically on what might or might not be covered. The PMBs, under Regulation 8 of the Medical Schemes Act, attempted to address this, and the stipulation of the 270 medical conditions and the 25 Chronic Diseases List (CDL) attempted to ensure that these conditions, which would otherwise have consequences beyond the ability of a member to pay, must not be subject to deductibles and co-payments.

Mr Pick appealed to the Portfolio Committee to assist CMS to amend the legislation. The complaints raised reflected that the legislative framework was not adequate, and he stressed that CMS needed legislative power to regulate more efficiently and effectively.

The Chairperson appreciated the good work by CMS. He said that the inequalities and inequities must be addressed, and the road for the next ten to twenty years should be mapped out, to decide what amendments were needed. CMS had clearly not abused any powers in the past, which meant that Parliament would be confident to increase its reach.

Other Committee business
The Chairperson noted that the Committee would be meeting in the following week to receive further recommendations on the matters discussed at the last meeting, and the Department would be called in to discuss matters raised by the Department and Auditor-General.

He noted that this Committee must make recommendations how to address illness in Parliament. It must also consider what it needed to cover next year.

Ms Dube pointed out that one of the issues was the food, which was not healthy.

The Chairperson agreed that assistance could be sought from dieticians.

The meeting was adjourned.