The Sizwe Hosmed Medical Scheme – placed under statutory management by the Council for Medical Schemes (CMS) last week because of its shaky finances – is initiating an investigation into whether fraud was at the centre of its creation three years ago.
The probe, by an independent audit firm, will determine whether Hosmed knowingly failed to disclose around R162m in claims provisions in its financial statements at the time it was folded into Sizwe Medical Scheme.
Because of these losses, Sizwe Hosmed’s solvency ratio deteriorated from 49%, the fourth highest in the top 10 open schemes in the market, at the time of the merger to just under 20% now, reports TimesLIVE.
The solvency ratio is the level of accumulated funds a medical scheme needs to hold as a percentage of gross annualised contributions, and is required by the Medical Schemes Act to always be above 25%.
In a joint statement with Sizwe Hosmed announcing the statutory management, the CMS commended the scheme’s trustees for acceding to its intervention and stressed that the process was not a curatorship.
“By mutual agreement, CMS and Sizwe Hosmed board of trustees has appointed Joe Seoloane as the scheme’s statutory manager with immediate effect. In arriving at this agreement, the CMS registrar took into consideration the fact …he was already appointed by the board of trustees to assist the scheme with a turnaround strategy,” the CMS said.
It urged Sizwe Hosmed members to remain with the scheme, saying the intervention was aimed at ensuring compliance and protecting the interests of all members.
Sizwe Hosmed CEO Nozibele Tshobeni said the investigation was among measures implemented as part of a path back for the medical aid, which will also lodge a claim against its fidelity guarantee insurance.
“The investigation must be concluded in the next two months or so, and will tell us how the scheme should respond, and who to hold accountable, and from whom to recover its losses. Clearly there was understatement of claims, and someone needs to be held accountable for it,” she said.
“We’ve just had a meeting with our brokers – we had about 200 people on a call countrywide … The takeaway is that we have support from them to keep our members with the scheme and see us through this. The scheme is stable now and we are not deteriorating as we were previously,” Tshobeni said.
The company aimed to recover to a solvency ration of 25% within four years.
“Obviously now that we’re working closer with the CMS we have to take their inputs, and they might want us to do it sooner, but that has an impact on contributions. We need to balance recovery but still look after the pockets of our members.”
The medical aid was formed with the merger of Sizwe Medical Fund, with 46 900 members, and Hosmed Medical Scheme, with 21 000 members. The merged entity, which has been a beacon of hope for transformation in the sector, launched with combined reserves of R1.4bn.
See more from MedicalBrief archives:
Sizwe Hosmed in financial trouble as other schemes hike prices
CMS fails to place medical fund under curatorship
Medical aid schemes shrink, but member numbers grow