Reining in fraud, waste and abuse topped the agenda at the release of the annual report of the Council for Medical Schemes (CMS). Photo: File

Reining in fraud, waste and abuse topped the agenda at the release of the annual report of the Council for Medical Schemes (CMS), which was presented to Parliament on Thursday last week.

It has identified an increase in claims, scheme utilisation and high-cost cases, compounded by modest growth since 2012, and overly generous remuneration for principal officers and trustees.

CMS chief executive Dr Sipho Kabane says fraud, waste and abuse constitute 15 percent of all medical scheme claims.

Some of the issues the council identified relate to “collusion in the appointment of service providers, the irregular placement of schemes under curatorship, irregular spending on service providers, lifestyles not matching salaries, and close and corrupt relationships with entities that the council regulates”.

The Competition Commission’s Health Market Inquiry found similar abuses. Its report, released earlier this month, found the system was being milked due to a lack of controls by the Department of Health, and plagued by the high costs of cover and a significant over-utilisation of services without a demonstrative benefit to health outcomes.

It recommended reforms to stabilise the sector, including that trustee and principal officer remuneration be capped, linked to scheme performance.

Generous payday

The CMS is the regulator of an industry that comprises 78 medical schemes, 26 administrators and 15 managed-care organisations, and which has 8.92 million beneficiaries. The council has raised concern about principal officer and trustee remuneration for years.

It singled out the principal officers of Discovery Health Medical Scheme and the Government Employees Medical Scheme (Gems) as the industry’s highest paid in the past financial year, earning upwards of R7.64 million and R5.82 million, respectively.

While Discovery is the country’s biggest open scheme, with 2.82 million members, Gems, a public sector scheme, is the biggest closed medical scheme, with 1.84 million members. On average, Discovery’s eight trustees were paid more than double that of Gems’ 14 trustees, receiving R1.2 million each last year. The Gems trustees each averaged R519000,

While most medical schemes experienced worse claims experience than the previous year, some of the larger schemes had a good year, the report found. Restricted schemes showed a marked improvement in solvency levels, from 38.06 percent in 2017 to 41.94 percent last year - largely attributable to the turnaround in Gems’ performance. It had seen a 62.55 percent increase in solvency level, from 15.22 percent in 2017 to 24.74 percent last year.

Discovery has said it supported performance-related remuneration for principal officers, but not for trustees. It does not believe in caps on remuneration, because if the levels are too low, it could hinder attracting the right skills. If too high, such caps could lead to abuse.

And Gems has said the scheme regularly benchmarked principal officer and trustee remuneration.

The CMS, which is tasked with protecting consumer interests and ensuring schemes comply with the Medical Schemes Act, said regulating trustee and principal officer remuneration was high on its agenda, and the Medical Schemes Amendment Bill had proposed the introduction of pay structures.

The bill was released for public comment in June last year, but its work was suspended, pending the Competition Commission’s inquiry.

State of play

With membership declining relative to population growth, medical schemes have become unaffordable for an increasing sector of the population.

Last year, there were 8916 million medical scheme members, which reflected modest growth of 2.7 percent since 2012. There were 79 schemes at the end of last year, with 264 benefit options.

In the 2017/18 financial year, R174 billion was collected in risk contributions from members (up from R163 billion last year) and expenditure on relevant healthcare services was R157 billion (up from R145 billion). R16 billion was spent on non-healthcare expenses (which include advertising and marketing, consulting and legal fees, as well as trustee remuneration) that continue to show marked, above-inflation increases that need attention. In 2017, R15 billion was spent on such expenses. Schemes reported a net operating surplus (before investment income) of R1.21 billion.

Risk contribution income excludes contributions many members make to medical savings accounts, which are ring-fenced for their own expenses.

The overall solvency level of the industry, which measures its claims-paying ability, rose to 34.54 percent, up from 33.19 percent in 2017.

Total expenditure on prescribed minimum benefits (PMBs) by medical schemes amounted to R87.8 billion last year and total benefits paid last year was R173.3 billion.

Last year, expenditure on PMBs was R821 per beneficiary per month compared with R738 for the 2017 financial year.

The gross non-healthcare expenditure (not related to claims) for all medical schemes at the end of last year was R15.79 billion, an increase of 5.01 percent from R15.04 billion the previous year. 

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