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HomeMedico-LegalHealth Squared spent millions on non-essentials as membership shrank, court papers show

Health Squared spent millions on non-essentials as membership shrank, court papers show

Health Squared medical scheme’s administrator, Agility Health, is holding discussions with the scheme to try to ensure its most vulnerable members do not face a catastrophic break in healthcare services or unpaid medical bills after 31 August, the date the scheme has given members for the end of their cover.

Health Squared’s beneficiaries are in limbo, because at the time of writing, they had no answers on whether other schemes would cover their bills in full or impose the waiting periods allowed by the Medical Schemes Act, reports Business Day.

Agility Health CEO Tebogo Phaleng said it was vital to protect the most vulnerable members, such as those who were hospitalised or receiving renal dialysis or ambulatory oxygen.

“We are asking the scheme to continue paying for specific scenarios [beyond the 31 August deadline]. There are legal considerations, but there are ethical and compassionate considerations as well,” he said.

Health Squared’s liquidation application has been opposed by the Council of Medical Schemes (CMS), which wants to place the scheme under curatorship, and rejected the regulator’s proposal that it oversee the winding up of the scheme, saying it would cause unnecessary delays and risk a further deterioration of its precarious financial situation.

CMS registrar Sipho Kabane said in court papers that the arrangement placing the scheme under curatorship would be better for Health Squared beneficiaries because there was a lack of governance at the scheme, it was being maladministered and there was uncontrolled spending.

Health Squared principal officer Elias Mabena, in his responding affidavit, said it was too late to appoint a curator because the scheme could not be saved.

The company, which has applied to the Gauteng High Court (Johannesburg) for voluntary liquidation and placed its members in a state of flux, is reported to have spent millions of rands of members’ contributions on marketing campaigns and exorbitant trustee fees in the preceding months, operating in breach of solvency requirements and constantly overspending on non-healthcare items.

TimesLIVE reports that documents attached in the scheme’s court application, as well as further documents from the CMS, show that the company also allegedly overpaid its administration, Agility Health, by about R34.8m.

In 2020, the marketing portion of this expenditure exceeded its budget by R20m, documents show, while non-health expenditure was R15.7m over budget.

Health Squared was formed by a merger between Resolution Health and Spectramed in 2019.

Although the CMS has been in discussions with seven of SA’s biggest medical schemes to absorb Health Squared’s 14,000 members and their 23,000 beneficiaries, they appear to be reluctant to take on its older and ailing members.

Since its formation in 2019, Health Squared has failed to meet the industry’s required 25% solvency ratio – a measure of its ability to pay claims.

The regulator is now accused of acting too softly and ignoring internal advice to investigate the company for possible irregularities. When it did start to act late last year, it moved too slowly, documents show.

The law requires the solvency ratio be ring-fenced to lower the risk of a medical scheme not being able to absorb claims. Those that breach the 25% ratio are closely monitored by the CMS and assisted to get back to safety.

Should a scheme fail to come up with a suitable plan to tackle the deficiency, the CMS can appoint a statutory manager, in consultation with the scheme, or even approach the courts to appoint a curator to investigate reasons for poor performance and recommend further action.

In Health Squared’s case, both parties agreed in December last year to appoint a statutory manager, and a service level agreement was signed in June without any further action. Since then the scheme’s solvency ratio has deteriorated from 6% to 2.15% at the beginning of August.

Last month, the regulator resolved to place Health Squared under curatorship, but it appears to have dragged its feet in implementing the decision until the scheme submitted its own application for liquidation.

“Now the CMS wants to intervene and find a solution to protect the members, but it missed several chances to intervene in the past,” said a source with knowledge of the situation.

The source, an industry insider, cited several internal CMS warnings to registrar Sipho Kabane, as well as occasions when the CMS allowed the scheme to push back when it ought to have acted tougher.

“He was told that the scheme was failing to spend within its budget and there needed to be a line-by-line item check to see what this expenditure was for. (Health Squared was) blowing millions in marketing but no new members were joining,” he said.

“The CMS also opted to go for a statutory manager, which requires permission from the scheme, last December when it was clear the scheme was already in a death spiral, instead of going to curatorship at that time. Now it wants to oppose liquidation to save face,” the source added.

The CMS said it intended to oppose Health Squared’s application for liquidation when it is made on 1 September.

 

TimesLIVE article – How Health Squared blew millions in its death spiral (Open access)

 

Business Day PressReader article – Last-ditch talks to protect Health Squared members (Open access)

 

See more from MedicalBrief archives:

 

Health Squared medical aid scheme applies to be wound up

 

Agility Health: How responsible are medical schemes’ funding models for next year?

 

Medical schemes’ NHI transition will take ‘years to decades’ – Crisp

 

SIU probe into Medical Schemes regulator ‘almost complete’

 

South African medical schemes: the biggest winners and losers in 2020

 

 

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