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Regulator abusing power and hostile towards medical schemes – BHF

In an unprecedented move, the Board of Healthcare Funders (BHF) has sent a legal letter to the Council for Medical Schemes and the Health Minister, accusing the regulator of abusing its power and being hostile towards its members, reports Chris Bateman for MedicalBrief.

In the strongly-worded letter, dated 16 February and drawn up by attorneys Bowman Gilfillan, the BHF has given the CMS and the Minister until 8 March to respond and “urgently engage one another” in terms of the relevant Act to find solutions. The attorneys said in the letter that it would lodge a complaint with the Public Protector should the issues raised not be addressed promptly and adequately.

The letter also calls on the CMS to desist and explain the 'obfuscation, abuse of power and tardiness’ on long outstanding health reforms that stand to provide cheaper patient care and regulatory clarity.

It accuses the CMS Registrar, Dr Sipho Kabane, of being ‘incompetent’ in key aspects of his legislative duties, and accuses the CMS office of "displaying marked hostility" towards medical schemes.

It claims the Registrar ‘abuses and unjustifiably exercises his power in an unfair manner’ by threatening and intimidating several medical schemes with curatorship on flimsy premises. He also allegedly wastes taxpayers’ money on expensive and unnecessary litigation while his council ‘fails or neglects’ to hold him accountable to their own policy directives.

This ‘unjustifiable regulatory action’ was allegedly in pursuance of NHI objectives before the Bill is signed into law – and under instruction of the Department of Health, the letter claims.

Implementation of regulatory frameworks that embrace low-cost benefit options, (LCBOs), and specialist tariff ceilings have been long delayed, denying more affordable care to millions of patients as medical inflation continues to soar. Poorly crafted Prescribed Minimum Benefits (PMBs), enacted to provide continuous free private care for a defined list of conditions, (regardless of plan, but serially abused by healthcare providers), has also not been reviewed bi-annually as required by law, the BHF says.

Urgent reform of most of this was recommended by the Heath Market Inquiry on 30 September 2019.

The CMS also failed to implement a risk-based capital solvency framework, and appeal processes to it were ‘ineffective and delayed,’ says the BHF letter.

It further accuses the CMS of failing to seek or obtain concurrence from the Financial Sector Conduct Authority and the Prudential Authority, as required by law.

The CMS ‘arbitrarily initiated,’ curatorship, litigation, banned the publication of notices on benefit options and contribution increases, and failed to consult the two authorities on such actions, and before submitting its report to Health Minister Dr Joe Phaahla, the letter claims.

“It has become evident, based on BHF members’ common experience, that the Registrar readily reverts to the threat of the appointment of a curator to intimidate boards of trustees of medical schemes when there is an issue that he cannot resolve. His office demonstrates a marked hostility towards medical schemes themselves, even when the medical schemes indicate a willingness to collaborate with him and the Council on the challenges the medical schemes face,’ the letter says.

Kabane ‘misused the remedy of curatorship’ rather than other more reasonable solutions despite the harm it could cause a medical scheme. This ‘baseless’ curatorship application caused reputational damage, put off potential new scheme members, and prompted existing members to cancel their memberships. Medical schemes were forced to spend millions on legal fees, fighting matters that could have been resolved by other means, further aggravating non-health expenditure, and threatening their financial stability.

The letter cites several court battles between the CMS and medical schemes where the schemes won, or the CMS inexplicably withdrew its application for curatorship. In one 2020 case against Hosmed Medical Scheme and others, the High Court found that it was ‘inappropriate and unreasonable’ for the registrar to use curatorship, “as a way of scrutinising the proposed amalgamation agreement.”

The BHF adds, ‘this experience is not uncommon,’ and recently, several other BHF members have experienced the same or similar treatment.

In another punitive cost order for ‘Netcare Plus and another,’ revolving around Netcare and Discovery selling prepaid doctor consultation vouchers to people who could not afford medical aid, the BHF quotes the judge as asking, “Where is Ubuntu when an organ of state puts parties, whose only sin was to comply with the law, through costly legal action? I do not see the reason why the respondent should be out of pocket.”

The BHF says it logically followed that the Registrar, and the CMS were "trying to exhaust smaller schemes into winding-up or consolidation".

The BHF is requesting from the CMS copies of any policy directives on legal proceedings against medical schemes and related legal costs and confirmation as to whether the CMS had tracked the Registrar’s adherence to these. It wants copies of this or any related report for the past three years. It also wants to know if the CMS has tracked its legal expenditure – and its rate of success in the High Courts over the past decade. If this analysis has not been done, the CMS should explain why not.

Kabane previously rejected as false claims that he’s actively undermining medical schemes or that he was deliberately tardy in preparing a report on the Health Market Inquiry recommendations – handed over to the Phaahla in December last year, but yet to be made public. Phaahla told this journalist last month that “some legal detail is being cleared up,” and that he would decide on action, “within months”.

The CMS recently asked medical schemes to canvass their members as to how aware of medical scheme services they are.

A spokesman for the CMS, Stephen Monmodi, said the board was “studying the letter and will comment once they’ve made a resolution.”

The CMS is also under pressure from insurers offering cheap primary healthcare cover who still don’t know if the regulator will grant them another reprieve, or force them to withdraw their products from the market when their exemption expires on 31 March.

Between 800 000 and 1.5m consumers belong to these providers of cover for private sector medical services – like GP and dentist visits. Most are low-income workers subsidised by their employers, who can’t afford the much higher premiums charged by medical schemes, reports BusinessLIVE.

Companies like Discovery, Kaelo and Day1 have partnered with a closed group of insurers that were granted exemptions to the requirements of the Medical Schemes Act, in line with the demarcation regulations initiated in 2017. The regulations aimed to help consumers by drawing a clear distinction between medical schemes and insurance products, which are overseen by different regulators and abide by different rules.

When the demarcation regulations were enforced, 11 companies selling health insurance products were granted a two-year exemption to the provision requiring them to be scrutinised by the CMS, pending the development of a LCBOs framework to govern such products.

But the CMS has not yet finalised this framework and has repeatedly extended the exemption period, while not permitting any new players to enter the market.

After extensive industry consultation, the CMS finalised a report on low-cost benefit options last year, which it has yet to make public.

If the CMS does not extend the exemption period, consumers who are covered by these primary healthcare products will have to fund healthcare expenses out of pocket or rely on the public health sector, further increasing the burden on the state, said Discovery Health CEO Ron Whelan.

“It is disappointing that seven years have now passed and the opportunity to provide lower-cost primary care cover through medical schemes and low-cost benefit options has not been enabled,” he said.

Discovery has partnered with Auto & General Insurance to develop and distribute a primary healthcare product called Flexicare, with 105 000 beneficiaries.

Kaelo CEO John Jutzen said he expected the exemption period would be extended, despite the CMS’ lack of response to requests for guidance on the issue.

“We think they have quite a big challenge on their hands to structure an affordable product (for the low-cost benefit option market),” he said.

Kaelo partnered with Centriq Insurance and has 128 000 lives under cover.

Profmed medical scheme CEO Craig Comrie said the growing number of lives covered by primary healthcare products was eroding the ability of medical schemes to attract younger, healthier members.

“Schemes are disadvantaged by not getting into the market, and it is allowing the insurers to dominate and profit,” he said. The health insurers granted exemptions to the Act were not obliged to disclose their non-healthcare costs to the CMS, and consequently spent a relatively high proportion of their premium income on marketing and distribution, he added.

“I don’t think the exemption will be withdrawn, but there will be pressure on the CMS (from medical schemes) to attach conditions to it,” he said.


Letter to the Chairperson of the Council and Minister of Health_16.02.2024


BusinessLIVE article – Deadline looms for companies that sell primary healthcare cover (Restricted access)


See more from MedicalBrief archives:


Low-cost schemes will soften NHI tax burden, argue medical schemes


CMS anger over claim it’s depriving South Africans of basic private healthcare


Discovery ordered to stop low-cost primary health care products






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