Independent pharmacists finally victorious in CMS appeal — Full judgment

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After a seven-year saga, the Appeals Board of the Council for Medical Schemes has found in favour of the Independent Community Pharmacy Association of SA. Daily Maverick. The Council for Medical Schemes has now been ordered to complete the process of declaring certain medical scheme practices as undesirable and the full ruling has now been released.



In the matter between
Hearing: 3 July 2020
1. This matter is a continuation of a seemingly unending saga that has been unfolding
over many years between the Independent Community Pharmacy Association (“the
appellant”) and the Council for Medical Schemes (“respondent”). The appellant is
described as a non-profit organization representing more than 1000 independently
owned community pharmacies across the country; it is acting herein on behalf of its
pharmacy members.
Brief background.
2. On 20 March 2015 the appellant wrote a letter to the respondent asking the
respondent to initiate a process towards declaring certain practices by medical
schemes as undesirable. The practices complained of related to the manner in
which medical schemes applied Regulations 7 and 8 promulgated under the Medical
Schemes Act 131 of 1998 (“the Act”). It is necessary to restate what the appellant
said in the above letter in the appellant’s attempt to clarify as to what conduct
constituted undesirable practices in the course of the application of the two
Regulations by medical schemes.
2.1 “Closed network of DSPs
Regulation 7 does not specify the manner in which DSPs must be ‘selected
by the medical scheme concerned’. Schemes therefore unilaterally and
without restriction determine the criteria to apply when selecting their DSPs.
Some schemes select DSPs, or even a sole DSP, without considering any
application or tenders to join their DSP network from any other service
provider. This practice has created monopolies amongst schemes and their
selected service providers or pharmacies since beneficiaries of schemes
are being channelled to the selected DSPs to service all their healthcare
needs. Beneficiaries are forced by their scheme to only use the selected
DSPs or risk paying exorbitant co-payments. It seems logical to afford any
service provider, including independent community pharmacies, the
opportunity to apply or tender to join a scheme’s DSP network should the
pharmacy be willing and able to service the scheme’s beneficiaries at the
same dispending fee rate as their selected DSPs.
2.2 Penalty Co-Payments
Regulation 8(2)(b) similarly does not restrict or regulate a medical aid
scheme’s discretion when calculating the allowed co-payment that is
payable by a beneficiary should he or she utilise the services of a nonDSP. The regulation merely states that the rules of the scheme may provide for the payment of a co-payment, ‘the quantum of which is
specified in the rules of the medical scheme’. Schemes therefore
unilaterally and without restriction determine how co-payments will be
calculated which has resulted in certain schemes charging so-called
‘penalty’ co-payments, calculated as a percentage of the total amount
claimed by the service provider from the scheme.” The appellant then
proceeded to give some examples to demonstrate the point.
3. The procedure for the declaration of a practice as undesirable is governed by section
61 of the Act, which procedure the appellant was seeking to have initiated by the
4. After a protracted engagement between the appellant on the one hand, and, on the
other hand, the respondents, the Department of Health and the Minister of Health,
and when it became clear to the appellant that there was no progress on the matter,
the appellant wrote a letter on 20 March 2015 to the first respondent in the following
“We respectfully request that you issue the notice in terms of Section 61 or
declare to us in writing with reasons, that you will not issue such a notice. Should
we not hear from you by 20 April 2015, we will appeal the matter to an
appropriate forum in accordance with the Medical Schemes Act. We will
furthermore treat any failure to respond to this letter as a refusal to declare the
practices as undesirable and an exhaustion of all internal remedies available to
ICPA in order to resolve this matter”.
After some further engagement, second respondent’s legal advisor issued an email
on 18 may 2015 telling the appellant that the declaration sought was not the way
forward. Following that, the appellant launched an appeal to the Appeal Board on
17July 2015, asking the Appeal Board to set aside the 18 May 2015 decision and to
order the respondents to seek the concurrence of the Minister of Health to publish
a notice in terms of section 61(1) of the Act, taking into consideration section 61(2)
of the Act; that is, for the respondents to be ordered to initiate the declaration
process to its conclusion. The Board heard the appeal on 15 august 2016. The
three person panel comprised one member of the present panel, the Chair and a
former member.
5. After dismissing a number of non-meritorious points in limine which had been raised
by the respondents, the Appeal Board proceeded to consider the matter on its
merits. The following Orders were made:
“(a) The appeal succeeds
(b) The decision taken by the Registrar of the Council for Medical Schemes
in concurrence with the Council for Medical Schemes as per e-mail of 18
May 2015 not to initiate the process in terms of subsection 61(2) of the
Medical Schemes Act, 98 of 1996 for the purpose of determining whether
a declaration of undesirable business practice should be made in terms
of subsection 61(1) as requested by the Independent Community
Pharmacy Association in its letter of 20 March 2015, is hereby set aside.
(c) The Registrar is hereby ordered to commence the process set out in
paragraph (b) above within a month of this judgment”.
The Decision of the Board was handed down on 6 June 2016.
6. It is important to mention, and emphasize, that the appeal now before us must be
read and considered in conjunction with the 6 June 2016 Decision of the Appeal
Board. We still believe that the Decision, and the Orders made, were correct and
therefore still hold good. The current appeal before us must therefore be considered
in that context.
7. There are at least two points which were made in the 6 June 2016 Decision. Firstly,
that at all material times, the Registrar was acting together with and also on behalf
of the second respondent. Secondly, that the appellant had made at the very least
a prima facie case for the declaration. These two points still hold. In fact, as far as
the declaration is concerned, the respondents, as it will appear below, had already
drafted one pursuant to the 6 June 2016 Appeal Board Decision, before deciding to
indefinitely postpone proceeding further with the process. This brings us to the
present appeal.
The nature of this appeal
8. Following the Board’s Decision of 6 June 2016, steps were taken by the respondents
to set in motion the process in terms of section 61 of the Act towards declaring the
practices complained of as undesirable. The process was slow and the appellant
had to keep on engaging the respondents from time to time in order to give it some
speed. A Government Notice was published in the 9 June 2017 Government Gazette
indicating an intention to make the declaration, and invited comments from
interested persons by a certain date. After that date, and when the declaration was
not forthcoming, the appellant made a follow up. The appellant was told by an email of 26 February 2019, that the second respondent had taken a resolution on 31
May 2018 to postpone the publication of the declaration pending certain
“considerations”. The appellant was not happy with the reasons given for the
resolution. It then launched this appeal, in which it requested the Appeal Board to
set aside the 31 May 2018 decision as per the resolution, and to “order the
respondents to seek the concurrence of the Minister to publish the intended
declaration by means of a notice in terms of s 61(1) of the Act”. No papers were filed
by the respondents to oppose the appeal; indeed, at the hearing of the appeal, we
were informed that the respondents would abide the decision of the Appeal Board.
The 31 May 2018 Resolution
9. It is imperative to restate the resolution as this appeal turns on it:
The Council for Medical Schemes (“the Council”) has duly considered the
representations made by interested persons and the report provided by the
Registrar’s office and hereby resolves as follows:
1. That the publication of the abovementioned notice be stayed pending the
following considerations:
(a) The promulgation of the Medical Schemes Amendment Bill in view
of the Minister of Health having indicated that co-payments and
deductibles will no longer be permitted in terms of the legislation;
(b) Feedback from the Health market Inquiry on the relevant
Competition Law issues; and
(c) Further amendment of the declaration to address the specific issues
raised by the different stakeholder groups in their representations.
2. That the Registrar’s office furnish a report to appraise the Council of the
compliance issues raised in the representations which require further
Dated and signed in Pretoria on the 31st day of May 2018…….”
10. Council for the appellant, Adv Adhikari, submitted that in light of all previous
interactions and exchanges, and looking at the resolution says, it was clear that not
only was there already a decision taken to issue the declaration, but that there was
at the very least a draft of the notice to do so. This submission must be correct,
given the fact that the resolution, in its heading, speaks of the “… INTENDED
DECLARATION …”. It would be nonsensical to speak of an “intended” declaration
if there was no “intention” to make the declaration. Secondly, paragraph 1 of the
resolution speaks of “the publication of the abovementioned notice” being stayed.
Again, it would be nonsensical to think of “staying” the publication of something
unless there was, to start with, an intention to publish it. The implication is therefore
that the only thing that falls to be considered in this appeal is the validity of the
reasons given for staying the publication of the notice – “above mentioned notice” –
referred to in the resolution. Three reasons were given. We deal with them seriatim:
10.1 Pending the “promulgation of the Medical Schemes Amendment Bill …”. This
reason is a non-starter. It is just as good as a flat refusal. Nobody knows
when the Bill will ever be promulgated; no indication is given. It is not the
Minister who passes legislation, but Parliament. The mischief which the
publication of the notice of declaration will address would therefore continue
for an indefinite and undeterminable period of time. Secondly, and very
importantly, it is not indicated or explained how the Bill, when and if it
becomes law, would address the mischief complained of and indeed
recognized in the very wording of the resolution itself. At any rate, implicit in
the reference to the Bill is also recognition of the existence of the problem
and the need to have it addressed.
10.2 Pending feedback “from the Health Market Inquiry on the relevant
Competition Law issues …” There is no apparent nexus between the above
inquiry and the publication of the declaration; in particular no indication given
that the report of the inquiry would permit the mischief sought to be addressed
by the intended declaration, or that it would contradict it. Life cannot come to
a standstill indefinitely in anticipation of a report by an inquiry whose powers,
by its very nature, would be limited to making recommendations; that is the
nature of inquiries. The second point is that, as it is stated in the 6 June 2016,
the Competition Commission has already declined to deal with the issue on
the basis that it is not a competition issue. Secondly, at any rate, it was
submitted by the appellant that the Inquiry had repeatedly postponed the
finalization of its report and had not issued it by the time of the filing of this
appeal in June 2019. There is no evidence before us that it has done so or if
it has done so, whether its report has any bearing on the matter. It was
incumbent on the respondents to provide such information.
10.3 Pending further “amendment of the declaration to address the specific issues
raised by the different stakeholder groups in their representations”. This does
not make sense as reason not to deal with the matter. Why is the “further
amendment” not being made then? By the time the resolution was sent to the
appellant on 26 February 2019 – some nine months after the resolution was
taken – no mention was made of anything that had been done to effect the
amendment. Again, the above wording of the resolution indicates that there
was at least a draft of the declaration in existence, because one could not
“amend” something that did not exist.
10.4 “That the Registrar’s office furnish a report to appraise the Council of the
compliance issues raised in the representations which require further action”.
Again it is not stated what issues were raised or why they should halt the
publication of the declaration already intended to be published. Here too, nine
months had already elapsed by the time a copy of the resolution was sent on
26 February 2019 to the appellant.
11. In its papers, the appellant therefore correctly points to the irrationality of the above
reasons for pending the process, and that they are vague.
The 26 February 2019 e-mail (“Annexure ICP31” to the papers)
12. Apart from attaching the resolution, the following points are apparent from the email:
12.1 It confirms that a decision had indeed been taken to issue the required
declaration and that it was in existence in one form or another. This is clear
from the following sentence: “… the declaration couldn’t be published in its
current form …”. (own emphasis).
12.2 Apart from repeating the issue of a Health Market Inquiry, over which the
respondents have no control nor the Minister, the e-mail repeats the issue of
awaiting the promulgation of a Bill. Importantly, it recognizes the fact that
there are “issues regarding DSP appointments …” something which is the
very core of the appellant’s grief.
Failure by the respondents to file contradicting papers
13. No papers were filed by the respondents to contest the appellant’s attack of its
resolution of 31 May 2018, or the e-mail of 26 February 2019. The respondents
have, indeed, chosen to abide the decision of this Board.
The respondent’s conduct in this matter
14. A reading of the Decision of 6 June 2016 will make it clear that there has always
been a marked reluctance on the part of the respondents to initiate the process
prescribed in section 61 of the Act towards declaring or not declaring the practices
complained of by the appellant as undesirable. That Decision dealt at length with
the tactics employed by the respondents which, in some instances, went against the
view of the Department of Health, as per Dr Pillay the Deputy Director-General,
which was disposed towards initiating the process. In this respect, we refer to
paragraph [20] of that Decision:
“What he (Dr Pillay) was conveying, was that the Department itself found the
practice, as alleged by the appellant, to be unacceptable. But, as it appears from
the response, the respondents, for reasons not clear, again show a persistent
inclination to shy away from the section 61 route. It is incomprehensible why the
respondents resisted, so strenuously, to at least accede to a request for the
setting in motion of an investigation process envisage(d) in subsection 61(2)”.
It will be remembered that at the previous hearing in 2016 the respondents,
consistent with their inexplicable attitude to frustrate the legal process asked for by
the appellant, raised a number of non-meritorious if not frivolous so-called points in
limine. In our view, the respondents still display the same resistance. Because they
are now settled with the Appeal Board’s Decision of 6 June 2016 enjoining them to
prosecute the process, which Decision they elected not to challenge in Court, they
have, as an apparent stratagem to avoid, if not frustrate, the implementation thereof,
come up with the 31 May 2018 resolution. It is a poor stratagem, as we have shown
above. None of the reasons therein stated is sufficient, either singularly or

collectively. The appellant, a representative of more than 1000 pharmacies across
the country, is of the view that there are powerful voices in the industry with vested
interests in the continuation of the practice they have been complaining about since
latest 2013, a complaint which Dr Pillay, Deputy Director-General, viewed as having
some substance. The more than 1000 independently owned community pharmacies
comprising the appellant stand in competition with chain pharmacies whom the
medical schemes have chosen as designated service providers (“DSPs”) to whom
medical schemes have channelled their members, effectively away from the
appellant’s members. These chain pharmacies are typically found at shopping malls
throughout the country. They are beneficiaries of the system complained of by the
appellant. One would not blame the appellant for feeling that the respondents are
deliberately dragging their feet. In fact, upon the appellant’s complaint in the
aftermath of the 6 June 2016, the chair of the Appeals Board, concerned about the
possible disregard of the Decision by the respondents, which would have resulted
in undermining the authority of the Appeal Board, inquired about progress towards
implementing the Decision. Some assurance was given; but we now know where
we are after all: the passing of the resolution of 31 May 2018, which puts everything
back to 6 June 2016, the date of the Decision of the Board of appeal; a period of
some three years back! With no papers filed to explain, justify or support it, or an
appearance before us to defend it, the 31 May 2018 resolution seems to be just a
ruse to again frustrate any effort to initiate and complete the process in terms of
section 61 as had been ordered by the Appeal Board on 6 June 2016. We frown
upon the manner in which the respondents have conducted themselves. The parties
that had appeared before the Appeal Board, such as the medical schemes and their
members, have always respected the Decisions of the Appeal Board and, where
they felt aggrieved and thus unwilling to obliged, taken them on review. It is not, and
cannot be, open to the respondents to undermine the authority of the Board. For this
reason, the Order we make will require a regular update to the Secretariat of the
Appeal Board. For its part, the appellant is also a highly representative body with a
representative voice, and deserves to be treated with respect. Its interest in the
matter is not in dispute. It has over the past eight years worked tirelessly and with
tenacity to drive the process, sometimes with no response at all from the
respondents. The Order we make will therefore also require update to the appellant
by the respondents.
15. In its Notice of Appeal, the appellant sets out in detail various steps taken by the
respondents towards the implementation of the 6 June 2016 Decision of the Appeal
Board, until the process was halted by the 31 May 2018 decision as per the
resolution of that date. The appellant asks that the decision be set aside, and the
process be proceeded with. For the reasons we set out above, the appeal ought to
succeed; the following Order is therefore made:
(a) The appeal is upheld.
(b) The decision of the respondents, as per the resolution of 31 May 2018, is
hereby set aside.
(c) The respondents are hereby ordered to, immediately, proceed with the
implementation of the Decision of the Appeal Board dated 6 June 2016, by
14 | P a g e
continuing with the process in terms of the provisions of section 61(1) and
section 61(2) of the Medical Schemes Act 131 of 1998.
(d) The Registrar must give an update on the developments to the Independent
Community Pharmacy Association, with a copy to the Secretariat of the Appeal

Dated this 13thth day of July 2020
Judge B M Ngoepe, Chair, Appeal Board
Dr N B Jada, Member of the Appeal Board
Dr D A Ramagole, Member of the Appeal Board

For the appellant: No appearance for the Respondents
Adv M Adhikari They abide the Decision of the Appeal Board

Instructed by:
Vanderspuy Attorneys
Cape Town

See also:

Independent pharmacists finally victorious in CMS appeal

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