The areas of conflict between medical schemes and the industry’s regulator have been laid bare in a lawyer’s letter sent to the Council for Medical Schemes (CMS) by the Board of Healthcare Funders (BHF).
The eight-page letter is addressed to the chairperson of the CMS, Dr Thandi Mabeba, and the Minister of Health, Dr Joseph Phaahla.
The letter, dated 16 February 2024, was sent by Bowman Gilfillan, acting for the BHF.
The BHF, a non-profit company, says its membership consists of about 40 schemes and medical scheme administrators that serve some 4.5 million beneficiaries. To put those figures in context, there were 72 schemes and 9.04 million beneficiaries at the end of 2022, according to the CMS’s most recent industry statistics.
In the letter, the BHF takes the Registrar of Medical Schemes, Dr Sipho Kabane, and the CMS to task over 10 issues. They are accused of displaying hostility towards medical schemes and of acting in ways that undermine the industry. Questions are raised about the competence of Kabane and the CMS staff.
The BHF also queries whether any of the CMS’s regulatory actions undertaken since 2017 have been lawful.
“The Council has concurrent jurisdiction with the FSCA and Prudential Authority (PA) until 31 March 2024. Please provide us with evidence of the Council seeking or obtaining concurrence from the FSCA and PA in respect of any conduct matters – for example, curatorship, litigation, banning of publishing notices on benefit options and contribution increases, preparing submission of LCBO report, etc. In the absence of such documentary evidence, our client will assume that all regulatory actions under the Act have been illegal since the inception of the Financial Sector Regulation Act [FRSA] in 2017,” the letter says.
(Comment: Most of the provisions of the FSRA came into effect on 1 April 2018.)
As the above extract indicates, the letter addresses long-running areas of conflict between schemes and the CMS, such as low-cost benefit options (LCBOs), and comparatively recent ones, such as schemes’ publication of their 2024 contribution increases and benefit changes before these changes had been approved by the regulator.
The CMS and the minister were given until 8 March to respond to the issues raised in the letter.
The BHF says it will complain to the Public Protector if its concerns are not addressed “promptly and adequately”.
Asked whether it would like to comment on the letter, the CMS said on 7 March it has asked its legal team for advice on the allegations. The Council said it would be premature to make any pronouncements while it was still looking into the matter.
Apart from the issue of concurrent jurisdiction, the other issues raised by the BHF are:
Is NHI informing CMS policy prematurely?
The BHF asks whether the National Health Insurance (NHI) Bill has been regarded as “unofficial national health policy”, and if so, on what basis.
The letter says the BHF has reason to believe that the NHI Bill has informed the Council’s approach to regulation for the past five years, even though the Bill was approved by the National Council of Provinces only in December 2023 and has not been assented to by the President.
“Please confirm that it is not national health policy nor the substance of any Council directive to force the consolidation of medical schemes that have less than 6 000 members (as the Registrar’s Ministerial Brief of September 2021 seems to suggest), nor to deploy inspection powers in order to render medical schemes unsustainable and to improve the relative perceived value of the proposed NHI Fund,” it says.
‘Unnecessary and expensive litigation’
The BHF alleges that the CMS uses curatorships and lawfare to browbeat medical schemes.
“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 work with the Registrar and the Council on the challenges the medical schemes face. The Registrar misuses the remedy of curatorship rather than other, more reasonable solutions, despite the harm it could cause a medical scheme.”
It says the Registrar’s habit of “unjustifiably” bringing ex parte curatorship applications violates schemes’ constitutional right to be heard and the audi alteram partem rule.
After citing examples of what the BHF regards as unnecessary or unreasonable curatorships, the letter states: “BHF and several of its members have expressed concern that the Registrar, and accordingly the Council, are trying to exhaust smaller schemes into winding-up or consolidation.”
A related complaint is that the Registrar and Council allegedly waste public money on expensive litigation, which results in schemes incurring unnecessary legal costs.
“Our client is concerned that the Registrar appears ill-advised given the pattern of unsuccessful litigation, and whether that arises because the Registrar ignores legal advice; only procures legal advice that suits his or other Council employees’ personal views; bullies independent counsel into inappropriate legal strategies; or has failed to resource the internal legal function appropriately,” the letter says.
The BHF asks the CMS to provide “a 10-year report” of the number of matters that its registrars have instituted against medical schemes, the win rate, and the number and quantum of ordinary and punitive costs orders.
Communication of benefit changes
As was previously reported in October last year, the CMS instructed the five biggest open schemes to retract communication to their members about their proposed contribution and benefit changes for 2024, because the Council had not approved the changes.
“We are instructed that the directive came as a surprise because medical schemes have consistently published their plans in the previous years in order to give employers and beneficiaries an opportunity to consider and plan for the changes which take effect on 1 January. The acting Registrar only targeted the five biggest schemes,” the letter says.
“The [Medical Schemes] Act does not prohibit medical schemes from communicating their intended amendments prior to obtaining formal approval of the changes by the Council. The Act does, however, require medical schemes to ensure that adequate and appropriate information is communicated to the members regarding their rights, benefits, contributions, and duties in terms of the rules of the medical scheme. It appears from our instructions, that the notices in question all included the standard disclaimer that informed members that the changes were subject to the Council’s approval.
“The Council’s behaviour towards medical schemes could not have been in the best interests of beneficiaries, and again, suggests ulterior motives to medical schemes.”
Delays in implementing low-cost options
LCBOs have been a source of conflict between the CMS and medical schemes for the past seven years. LCBOs include cheap, pared-down packages that do not provide all the benefits required by the Medical Schemes Act.
Schemes will require exemptions from the Act’s requirements to offer these slimmed-down benefit options. Since 2016, the CMS has been working on developing a legal framework that will enable medical schemes to offer LCBOs.
Pending the finalisation of the framework, the Council granted 11 companies an exemption allowing them to sell health insurance products. The CMS has renewed the exemption annually. It will expire at the end of this month if it is not renewed again.
The BHF and the CMS are engaged in litigation related to the implementation of the LCBO framework.
In the letter, the BHF alleges that the Council has delayed developing the LCBO guidelines timeously and continues to permit the continuation of an exemption framework that “functions to the detriment of the viability of medical schemes and continues to affect the affordability of medical scheme contributions by members”.
It asks the CMS to provide the BHF with a copy of the Registrar’s report to the Minister of Health that contains recommendations on LCBOs. The report was submitted to the minister in November last year.
It also asks the CMS to confirm that the exemption will not be extended beyond 31 March 2024 and that the industry will have the LCBO guidelines “in good time”.
Final report on discriminatory practices
In 2019, the CMS launched an investigation into claims by members of the National Health Care Professionals Association that black medical professionals were treated unfairly and schemes withheld their claims because of racial profiling. The panel’s interim report was released in January 2021.
“Our client [BHF] still awaits a final report although it has been more than four years since the process started, with no end in sight. The way the investigation is being handled, in particular the ill-informed further information requests, is perceived as an attempt to victimise medical schemes at the expense of their members and for ulterior purposes outside of the Council’s scope,” the letter says.
Review of the PMBs
According to the letter, there is a statutory requirement for the Prescribed Minimum Benefits (PMBs) to be reviewed at least every two years.
The BHF asks why the PMBs have not been reviewed for the past 24 years and whether the CMS has held the Registrar to account for not doing so.
The letter also refers to the Health Market Inquiry (HMI) into the private healthcare market. The Competition Commission released the final HMI report in 2019.
According to the report, the PMBs were being reviewed at the time. Despite this, the letter says, the BHF and its members “have no evidence of any progress or an intention by the Council to implement the recommendations set out in the HMI regarding the review of [the] PMBs”.
Appeal processes
The BHF complains that the CMS’s administrative appeal processes are “ineffective and delayed”.
“The maladministration of [the] secretariat functions of the Appeal Committee and the section 50 Appeal Board materially hinders access to justice for parties who are compelled to exhaust internal remedies before accruing a right to approach the High Court. The Registrar remains unresponsive to the BHF members’ concerns, which effectively renders the appeal process before the Council a waste of time to their minds,” the letter says.
Solvency framework
The BHF takes issue with the Council’s decision not to implement a risk-based capital solvency framework (RBC), saying this is “at odds with global best practice”.
The letter quotes the Council’s 2022/2023 annual report as saying the CMS “continues to explore various risk-based solvency models” and promises an industry impact assessment and further engagement.
“Our client is concerned that this underplays the practical issues affecting medical schemes and their auditors’ need for a relevant and standard audit framework for the current financial year, noting that the IFRS 17 standard took effect from 1 January 2024. Kindly inform our client when its members and health sector auditors will be engaged officially in this regard.”
