COUNCIL FOR MEDICAL SCHEMES ANNUAL REPORT

Transcription

1 COUNCIL FOR MEDICAL SCHEMES ANNUAL REPORT COUNCIL FOR MEDICAL SCHEMES

2 COUNCIL FOR MEDICAL SCHEMES STRATEGIC OBJECTIVES Secure an appropriate level of protection for beneficiaries of medical schemes and the public by authorising the conduct of medical schemes business and monitoring the financial performance and soundness of schemes. Provide support and guidance to trustees and promote understanding of the medical schemes environment by trustees, beneficiaries and the public. Foster compliance with the Act by medical schemes, administrators and brokers and initiate enforcement action where required. Investigate and resolve complaints raised by beneficiaries and the public. Monitor the impact of the Act, research developments, and recommend policy options to improve the regulatory environment. Foster the continued development of the CMS as an employer of choice. Develop strategic alliances nationally, regionally and internationally. COUNCIL FOR MEDICAL SCHEMES 1267 Pretorius Street, Hadefields Block E, Hatfield, Pretoria Private Bag X34, Hatfield 0028 Telephone: Telefax: ISBN: Number: RP 135/20040

3 COUNCIL FOR MEDICAL SCHEMES ANNUAL REPORT CONTENTS Chairperson s foreword 3 Registrar s overview 5 Report of the Auditor-General 29 Balance sheet 31 Income statement 32 Statement of Changes in Equity 33 Cash flow statement 33 Notes to the Financial Statements 34 Review of the operations of medical schemes during Annexures 75

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5 3 CHAIRPERSON S FOREWORD Private healthcare in South Africa is a complex environment in which to operate as a funder or as a provider or, for that matter, to receive care as a patient. It is consequently also a challenge to regulate. However, much of the frustration, anxiety, misunderstanding, tension and complaints experienced by people trying to make the system work for them could be avoided if players in the industry consciously applied some basic principles in their day-to-day interactions. And perhaps the most fundamental of such principles is that of fairness. The centrality of the principle of fair treatment of beneficiaries to our understanding of the regulatory mandate of the Council for Medical Schemes is what motivated the fair treatment theme project during The fair treatment seminar, held in Johannesburg in February 2004 and opened by the Minister of Health, Dr Manto Tshabalala-Msimang, was therefore a fitting conclusion to the 2003/4 financial year and a most suitable start to the new year. At a structural level, the Medical Schemes Act has gone a long way towards creating a policy and business environment conducive to fair treatment of beneficiaries of medical schemes. Entrenchment of principles of community rating, open enrolment, protection of chronic-disease benefits and rights of member participation in the governance of their medical schemes are examples of policy interventions that are designed to entrench fairness among medical schemes. The continued improvement in the financial stability of medical schemes, which is apparent from this report, also creates conditions in which beneficiaries should feel more secure about their participation in medical schemes. Yet there are still many shortcomings in the existing policy-environment from a perspective of ensuring fairness and equity in the distribution of healthcare resources. That is why, as a Council for Medical Schemes, we continue to devote resources to working with government towards implementing more farreaching transformation of the health sector, most notably through the implementation of a system of social health insurance in South Africa. We have been very pleased with the commitment and enthusiasm with which these efforts have been embraced by most sectors of the industry, in particular the process of research and consultation leading up to proposals for implementation of a risk equalisation fund, which is one of the policy components intrinsic to social health insurance. On a more-operational level, although there is a strong commitment within the medical schemes industry to ensuring fair treatment of beneficiaries, there is still a long way to go. This was evident from the findings of the fair-treatment project, as well as the number and nature of complaints that continue to keep our complaints division very busy. It is also evident in those few, but significant, instances of governance failure which the Council has had to deal with in the past year and which could have been avoided if considerations of fairness to the beneficiaries of those medical schemes had been paramount in decisionmaking. If discourse in the industry could develop further from the question of whether or not intended conduct can take place without legal infringement to always also asking whether or not it will result in unfairness to beneficiaries, much of the regulatory burden on the Council for Medical Schemes would be removed and consumers would have more confidence that their interests are paramount.

6 4 CHAIRPERSON'S FOREWORD Members of EXCO: (from left) Ms Gando Matyumza, Dr Jakes Jekwa, Mr Patrick Masobe, Dr Siva Pillay, Prof Nicky Padayachee, and Prof Heather McLeod. Of course, the same principles of fair treatment apply to the Council for Medical Schemes in the exercise of our regulatory mandate towards medical schemes, managed-care organisations, brokers, administrators and other stakeholders. We are committed to fairness in regulating and we hope that it is evident in our conduct as a statutory body. To the extent that we ever fall short on this commitment, we welcome feedback so that we can improve our service to you. One of the areas of service to the regulated community and to members of the public, of which we are proud, is the production of our annual report. Again, this year, we are sure that you will not be disappointed. We trust that, on perusal of this report, you will not only have a good sense of what we are doing as a statutory body, but will also have reliable and useful information on industry trends and developments which should assist in strategic decisionmaking. I would like to thank the Registrar and his staff for The continued improvement in the financial stability of medical schemes,... also creates conditions in which beneficiaries should feel more secure about their participation in medical schemes. the hard work and long hours which have gone into preparation of this report, and indeed for their commitment to ensuring a fairer and more-secure environment for beneficiaries of medical schemes. I am also exceedingly grateful to all the staff and officers of medical schemes and administrators who timeously provided us with their statutory returns, which has made production of this report possible. I would also like to thank my fellow Council members for their hard work and commitment to the business of the Council. I am very grateful for having the good fortune to serve with such dedicated members who bring a wealth of experience to the deliberations of Council and to the work of the Registrar. As a Council, we continue to be grateful that Health Minister Dr Manto Tshabalala-Msimang has again taken a very special interest in the work of the Council during this year. The support of the Minister of our efforts on the risk equalisation fund, the seminar on fair treatment of beneficiaries of medical schemes and on the development of the national reference-price list has been very gratifying to us, and we would like to thank the Minister for this. Finally, I wish you all well in the new financial year, and look forward to continuing the strengthening of the working relationship between the Council for Medical Schemes and all stakeholders within the private health industry. Prof. Nicky Padayachee Chairperson Council for Medical Schemes

7 5 REGISTRAR S O VERVIEW Introduction The year 2003/04 presented complex challenges for the Council for Medical Schemes as it regulated a more mature industry. This part of our annual report reviews the activities of the Office of the Registrar through an assessment of five key components. In the first section, we discuss a number of external developments that have had a bearing on our statutory objectives and other key legislative changes that took place during the year under review. We then move on to focus on the regulatory activities undertaken by the Registrar s office. We emphasise in this section those regulatory processes concerning medical schemes, managed healthcare organisations, brokers and administrators under our regulatory purview. The third section centres on work done with consumers, beneficiaries of medical schemes and the public. The spotlight here is on the extent to which we have been able to advance fair-treatment of beneficiaries, to enhance governance of medical schemes and to improve members understanding of medical schemes. In the final section we review our activities in relation to our strategic objectives of learning and growth, and report on the progress that we are making to sustain our ability to change and improve as well as to establish the Council as an employer of choice. We also report on our management of our financial resources and information technology. Developments in the external environment that have affected our work during 2003/04 The environment surrounding the not-for-profit medical schemes industry and the close-to R49bn flowing through it annually, has produced several challenges some unexpected and with profound consequences. Proposed risk equalisation reforms The medical schemes industry began preparing itself for changes to the social security and medicalschemes environments in the years to come with the Office of the Registrar lending its expertise to the process. A Risk Equalisation Fund Task Group was established in July 2003 by the Director-General of Health. The Task Group consisted of experts from the Department of Health, the Council for Medical Schemes, the industry and academia. The team s specific mandate was to finalise a risk equalisation policy proposal for Government and to consult with stakeholders on a range of technical aspects related to such a fund. This included specific requirements for a risk-adjustment formula. A team also investigated the adequacy and appropriateness of the existing taxexpenditure subsidies to medical schemes. The two teams had completed this work by early- January 2004 and a team of international experts was invited to review the proposals. The review panel was made up of six international experts with direct experience and knowledge of related health-reforms in six countries (Australia, United Kingdom, Ireland, Netherlands, Germany and France). The review

8 6 REGISTRAR S OVERVIEW COMPETITION COMMISSION In the news: Competition Commissioner Mr Menzi Simelane (right) with Mr Zackie Achmat and AIDS activists. Dr Kgosi Letlape of the South African Medical Association process assessed the policy framework and the technical aspects of the framework, provided suggestions for improvements and gave advice on best practice alternatives to the South African proposals. The international review panel agreed that the riskequalisation fund was an important requirement for improving fair competition between medical schemes in a community-rated and open-enrolment system as in South Africa. While the panel regarded the current prescribed minimum benefits (PMB) as a reasonable basis for risk equalisation, it nonetheless advised on the need for reviewing the present PMB package so as to ensure inclusion of all essential services. Significant recommendations were made on simplifying the complex benefit-options currently offered by medical schemes. The panel recommended that risk equalisation be implemented as soon as technically possible. Finally, the panel proposed the implementation of a shadow risk equalisation process during 2005 under the auspices of the Council. Proposals on setting up a restricted medical scheme for public servants At the same time, the Department of Public Service and Administration has been reviewing the possible establishment of a single scheme for public servants. Again this process has drawn extensively on the expertise and resources of the Office of the Registrar. This process has, from the perspective of our work, raised a number of issues including the effects on those medical schemes with a large number of public servants and the manner in which reserves in such schemes should be managed. Competition law and the development of a National Health Reference Price List The need for a National Health Reference Price List (NHRPL) emerged as a consequence of the Competition Commission s finding that the previous recommended tariffs or scales of benefit of the Board of Healthcare Funders (BHF), the South African Medical Association (SAMA) and the Hospital Association of South Africa (HASA) were unlawful. This ruling by the Competition Commission resulted in the potential for serious disruption of the entire medical schemes industry and placed unexpected strains on medical schemes in general and on the Office of the Registrar in particular. In the absence of these tariff structures, and from an administrative perspective, it was necessary to have some referencepricing structure (determined by a body free of commercial interest) as a base on which negotiations over

9 7 the setting of reimbursement levels or fees for services could take place between providers and funders. Otherwise, theoretically, an entirely new set of prices would have had to be developed in negotiations between every provider and every funder. This would not have been practicable, given that there are literally thousands of codes spanning some 30-odd disciplines. Intensive discussions between the Council, the Department of Health and the Competition Commission culminated in the Council compiling a reference price list for medical schemes during The whole process was far from ideal, however, and left very little opportunity for substantive improvement. It also gave no clear indication of how the position would continue in future. It has also left several provider groups feeling that their situations had not been adequately addressed. Adding to frustration levels was the fact that the medical practitioners list was not published on the Council s website by agreement with SAMA. Nonetheless, the NHRPL represented a significant departure from prior formulations. It was also intended as an administrative device rather than as a recommended scale of benefits. The reference price list is not a set of tariffs that must be applied by medical schemes and/or providers. Instead it serves as a benchmark against which medical schemes can determine benefit levels and health service providers can determine fees charged to patients. Medical schemes may, for example, state in their rules that their benefit in respect of a particular health service is equivalent to a specified percentage of the NHRPL. Developments in the regulatory framework during 2003/04 Extension of Prescribed Minimum Benefits to include chronic conditions Changes to Prescribed Minimum Benefits introduced in January 2004 added a list of 25 chronic diseases and the management of these conditions was defined in terms of gazetted therapeutic algorithms. At the Significant recommendations were made on simplifying the complex benefit-options currently offered by medical schemes. same time, a regulatory framework was established to support the nomination by medical schemes of Designated Service Providers (DSPs) for the delivery of Prescribed Minimum Benefits. These changes produced a greater impetus for alternative reimbursement systems with contracting between schemes and various providers given added impetus. The introduction of the Chronic Diseases List followed extensive consultations with stakeholders on the development of the algorithms. These were developed for 24 of the 25 conditions. The omission of bipolar mood disorder occured because many practitioners treat the condition with medication not registered by the Medicines Control Council for that purpose. This is one of several issues that will receive attention in the coming year. Another is the development of specific pediatric algorithms for the same reason. The list and the algorithms are not exhaustive and it is Council s intention to review the list and content of algorithms to take account of clinical and technological developments. Dissatisfaction with the bipolar mood disorder algorithm problem was followed by dissatisfaction from people with multiple sclerosis who believed that the algorithm should include beta interferon which had been excluded because of a lack of evidence of long-term cost-effectiveness. A survey has been sent to schemes and more research has been undertaken to ascertain the viability of including this drug in the algorithm. Broader concerns were voiced by members of those schemes that reduced existing chronic benefits in response to the introduction of the chronic disease list. This situation and measures to mitigate the problems are being considered by Council. The extension of the PMBs and a lengthy notice period before they were implemented, failed to prompt many schemes into timeous contractual negotiations with provider networks, resulting in some inconvenience to members. Many schemes

10 8 REGISTRAR S OVERVIEW PRESCRIBED MINIMUM BENEFITS have continued to designate public-sector hospitals as their DSPs, but there appears to have been extensive contracting with private providers in response to the regulations. Much of the contracting has been at primary-care and hospital levels, but less so with specialists. Proposed inclusion of treatment for HIV/AIDS in the prescribed minimum benefits In tandem with developments in government's HIV policy and the provision of anti-retroviral therapy for the treatment of AIDS, the Council made recommendations to the Minister of Health to further-expand the prescribed minimum benefits to contain provision for the payment by schemes of clinically-appropriate treatment with anti-retroviral therapy. This move followed a survey conducted by Council during 2003 of HIV benefits offered by schemes after a complaint by the Treatment Action Campaign that schemes were restricting access to anti-retroviral benefits to dual therapy and in some cases monotherapy (with triple therapy considered optimal). The survey showed that these restrictions tended to occur through financial limits as opposed to deliberately-formulated inappropriate clinical protocols for the management of the disease. The Minister has accepted these recommendations and the regulations were published for comment during May It is expected that they will take effect on 1 January Alternative reimbursement methods In the light of widespread use of managed healthcare interventions and alternative reimbursement models in the medical schemes industry, we conducted a study into the effectiveness of these interventions in terms of their effects on cost and quality of care. Our study found that, on the whole, contributions of schemes using managed healthcare or other alternative reimbursement models were generally higher than those of schemes without such arrangements. Managed healthcare services also appeared to restrict utilisation of services relative to schemes without these tools on offer. Primary-care arrangements appeared to lower the use of chronic medicines, specialist services and private hospital services. This is a preliminary assessment which has nonetheless pro-

11 9 vided some useful baseline information on which to build as alternative reimbursement mechanisms take root in the industry. Contribution increases during January 2004 We carried out a survey into contribution increases during January 2004 which showed that the increases were generally lower than in the year before, but still much higher than general inflation for the same period. Overall the average increase in contributions for members of schemes was 11,5%, while those of adult and child dependants were slightly higher at 12,9% and 13,7% respectively. Contribution increases in open schemes were higher at 13,5% than in restricted schemes at 9,5%. Figure 1 shows the upward trend in contributions per beneficiary per month in real terms, in other words after the effects of consumer inflation have been removed. It confirms that the rate of increase has, in recent years, been approximately double the consumer inflation rate. These increases need to be dealt with firmly by regulators, policy-makers and medical schemes trustees. Figure 1: Rand 600 Real contributions per beneficiary per month in 2003 rand terms. Progress on developing risk assessment frameworks and risk mitigation plans for high impact schemes We have continued to build on and to refine our riskbased regulatory framework. The overall aim of this move is to allocate supervisory resources to schemes effectively, depending on the risk they posed to the environment. In this way, we can focus resources on medical schemes that pose a greater risk to our statutory objectives. We have finalised the allocation of medical schemes into impact bands, with the result that 25 schemes have been identified as high impact. Work has started on the development of risk-assessment frameworks (RAFs) and risk-mitigation plans (RMPs) for the high impact schemes. We have now completed the RAFs and RMPs for 50% of our high impact schemes, and have started discussions with trustees of the affected schemes on these matters. Medical schemes, administrators, managed-care organisations and brokers This section focuses on work done in relation to monitoring and improving the financial soundness of medical schemes, taking enforcement action to foster compliance with the Act where required and securing member protection through authorisation of the activities of medical schemes and other intermediaries Mitigating financial risk in schemes A key mechanism for mitigating financial risk in schemes is to ensure the availability of data and information on which trustees and the Council can take meaningful decisions. We have now fully deployed our early-warning system the quarterly returns. We are starting to witness a marked improvement in the timely submission of the returns by schemes allowing our office more time to analyse the documents and to interpret the results effectively. We were able to publish the quarterly reports for 2003 during the year. The quarterly returns have proved to be a more-

12 10 REGISTRAR S OVERVIEW We are starting to witness a marked improvement in the timely submission of the returns by schemes allowing our office more time to analyse the documents and to interpret the results effectively. immediate and better source of information on the performance of medical schemes during the year. As a result of this early-warning system, certain schemes were more carefully watched than others. These included schemes with solvency problems. This involved considerable time and effort in monthly monitoring of the workings of those schemes conducted by our staff working with the principal officers and trustees of the schemes themselves. Some of the schemes on our monthly monitoring programme have included the following: PATHFINDER was a newly-registered scheme and is currently building up its membership. We have worked with the scheme during the monthly monitoring meetings to ensure that the scheme provided us with budgets and business plans and have agreed solvency levels to be attained by the scheme. NBC medical scheme had finished the 2002 financial year with a solvency of 4,9% and had been requested to submit a new business plan. The scheme has since improved solvency to 15,8% by the end of 2003, but will remain on our monthly monitoring programme. A monthly monitoring programme previously agreed on with DISCOVERY HEALTH medical scheme in terms of which the scheme was directed to raise its solvency levels to the statutory level, to trim administration costs and to minimise use of reinsurance was continued during The scheme had solvency levels of 7,31% in This increased to 15%. Its administration fees and reinsurance have also continued to decline in line with the directive issued to the scheme. It is expected that the scheme will achieve the 25% solvency levels required at the end of BESTMED medical scheme had solvency levels of around 13% that appeared to be due to a large growth in members (some 23%) in A business plan to rectify this has been agreed and the scheme looks set to achieve the 25% required by the end of SIZWE medical scheme had an option which was incurring losses along with high managed-care costs. Work is being carried out with the scheme to address these problems. BONITAS medical scheme appeared to have underpriced its contributions relative to its benefits. The scheme has proposed a business plan that we expect to see implemented during Its management accounts are, in the meanwhile, being closely monitored. A business plan was also sought from PHAROS medical scheme and its management accounts are being monitored. OMNIHEALTH medical scheme had low solvency levels in 2002 (7,92%) which then dropped alarmingly to 1,82% in 2003: Several benefit options were again making losses, the scheme faced problems with the fact

13 11 that it had several administrators, governance problems, problems collecting its debts, money had been spent on reinsurance contracts that were illegal and offered no benefit. After action by Council against some of the trustees, a new, strengthened board was appointed. We also facilitated discussions between the scheme and its previous administrator, Medscheme, to ensure that the move of administration to Metropolitan Health Group was effected in a manner least harmful to members. The scheme has now had to make substantial provision for bad debts, which has again impacted unfavorably on its reserves. We expect that Omnihealth will continue on our monitoring programme until it achieves the required solvency level. MEDCOR medical scheme had previously not charged its members any contributions, relying solely on a subsidy from the employer (government). The consequence of these unique circumstances was a solvency position of -2,7% at end Our work with the scheme has resulted in an improvement to Registrar of Medical Schemes, Patrick Masobe, with Medscheme CEO Andre Meyer and Executive Director Yvonne Motsisi on his left. 5,6% during The scheme is currently required to submit monthly management accounts so as to monitor compliance with agreed solvency targets. We have also placed SUREMED medical scheme on our monthly monitoring schedule in the light of the decline in the scheme s solvency between 2002 and 2003 and the high non-health expenditure. We also spent a considerable amount of time working with HOSMED and its administrator to resolve a myriad of problems between the two parties. Other schemes which have warranted close monitoring included PROTECTOR HEALTH medical scheme, MEDSHIELD, and VULAMED, with the latter ultimately being liquidated. Reinsurance We spent a considerable amount of time on this matter meeting with delegations from schemes and explaining the requirements of the Act, reviewing applications and the independent quantitative assessments, raising concerns in terms of section 20 of the Act where necessary and approving appropriate contracts. A considerable amount of time was also spent communicating our approach on these issues to trustees through training sessions and road shows, to the media, BHF, Actuarial Society of South Africa, the Life Offices Association and others. Twelve reinsurance contracts were approved during 2003, mostly for schemes where the risk profile and financial assessment warranted such approval. These included contracts submitted by the Pulz medical scheme, Meridian, Suremed, Retail, Pathfinder, Thebemed, and Moremed, among others. A number of medical schemes that had entered into reinsurance contracts in contravention of section 20 of the Act were informed that such contracts were illegal and null and void. These schemes, including NBC Medical Scheme, Allcare, Genhealth, and Free State Medical Scheme, were directed to unwind these contracts. We finalised the work of the Financial Soundness Focus Group during this year, and published the final report of the focus group that had looked at understanding the issues that have an effect on the financial soundness of schemes.

14 12 REGISTRAR S OVERVIEW Monitoring financial performance: a snapshot of the 2003 results The processes of improving the annual statutory returns and making them a useful tool for oversight of schemes was further extended in the year under review. Changes were made to the return for submission of the 2003 information. This return formed the basis of the results of medical schemes reported in part two of this report. This section provides a brief summary of the most important results from operations of medical schemes. The number of principal members of medical schemes increased marginally by 1,5% to during However, the number of dependants declined by 1,9%, resulting in a 0,6% decrease in the number of beneficiaries ( in 2003 compared with in 2002). The dependants ratio, which measures the average number of dependants per principal member, dropped from 1,52:1 to 1,47:1. The number of pensioners in schemes (those beneficiaries of 65-years or older) increased from 5,9% to 6,3%. Gross contribution income for all schemes increased by 12,5% to R48,6bn from R43,2bn in 2002, significantly higher than the inflation rate. Risk contributions increased on average by 11,6% while contributions to medical savings accounts increased by 20,4% to R5bn in The financial health of medical schemes was once again evident from the healthy operating surplus of R2,4bn, an increase of 114,4% compared with This figure follows the 547% increase the year before, after a pattern of operating deficits prior to the implementation of the Medical Schemes Act. Net surplus increased by 78% to R4,4bn after income from investments and from other sources was taken into account. Solvency in the industry overall increased to 29,2% in 2003 from 22,8% in This was well in excess of the 22% required for the year. The solvency ratio of open schemes was 20,9% during 2003 compared with 15,5% the year before. Restricted schemes continued to improve solvency, attaining a level of 49,4% in Taking a look at the figures in previous years, it is an inescapable conclusion that the new Medical Schemes Act and closer regulation have radically improved the financial position of the medical-schemes industry. Total expenditure on benefits increased by 8,6% to R38,7bn in Average claims per beneficiary per month were R470, an increase of 10,7%. Risk claims per beneficiary went up to R477 from R437 in 2002, an increase of 9,2%. Hospitals, medicines and specialists accounted for some 76,3% of the amounts paid to beneficiaries. Hospitals accounted for 34,3% of benefits paid (R13,3bn of the R38,7bn paid out). Medicines and specialists accounted for 22,3% and 19,7% of total Figure 2: Industry solvency trends since 2000 for all registered schemes Figure 3: Expenditure on hospitals by medical schemes in real terms 30% 25% 20% 15% 10% 5% 0% 29,2% 22,9% 22% 20,2% 20,4% 17,5% 13,5% 10% Prescribed All Rand Private Hospitals Public Hospitals

15 13 expenditure, respectively. Public hospitals received only 3% of the benefits paid by medical schemes. Figure 3 provides a historical review of medical schemes expenditure to public and private hospitals over the past decade or so. Expenditure on private hospitals is a particular concern, with the country s three large private hospital groups accounting for more than 80% of the private-hospital market and with the strength of their bargaining power considerably outweighing that of medical schemes trying to implement more-rational payments and payment mechanisms. Figure 4 below shows real expenditure on private hospitals by medical schemes on a beneficiary-per-month basis. The expenditure is categorised into a number of hospitalcost items such as ward fees, theatre fees, consumable, etc. Total private hospital benefits paid over the period grew in real terms from R96,88 pbpm in 1997 to R160,60 pbpm in This represents an increase of 65,8% over this period, representing an annual increase of 8,8% above inflation. Private hospital ward fees grew over the period in real terms from R42,44 pbpm in 1997 to R61,60 pbpm in This represents an increase of 45,2% over the period or an annual increase of 6,4% above inflation. Private hospital medicine benefits paid over the Expenditure on hospitals is a particular concern, with the country s three large private hospital groups accounting for more than 80% of the privatehospital market and with the strength of their bargaining power considerably outweighing that of medical schemes period increased in real terms by 84,0% or an annual increase of 10,7% above inflation. Consumables increased in real terms by 74,0% or an annual increase of 9,7% above inflation. Theatre fees showed the largest increase in real terms over the period at 94,3% or an annual increase of 11,7% above inflation. This is illustrated in proportional terms in figure 5 below. A closer scrutiny of expenditure on medicines reveals that whereas expenditure on medicines was increasingly brought under control in real terms by medical schemes, at the same time expenditure on medicines in hospitals increased sharply. This is illustrated in figure 6 below. Medicines dispensed by pharmacists and practitioners grew in real terms from R82,47 pbpm in 1997 to R106,61 pbpm in Figure 4: Real expenditure on private hospitals (per beneficiary per month in 2003 Rand terms) 1 Figure 5: Proportion of expenditure on private hospitals Medicines Consumables Global and Per Diem Theatre Fees Ward Fees Total Private Hospitals excl. Medicines Rand Medicines Consumables 1992 Global and Per Diem Theatre Fees Ward Fees Total Private Hospitals excl. Medicines % FOOTNOTE: 1 In this graph, benefits to hospitals prior to 1997 do not include medicines dispensed in hospital. From 1997, payments were broken down into the areas shown in the graph in the statutory returns submitted to the Registrar of Medical Schemes by medical schemes.

16 14 REGISTRAR S OVERVIEW Figure 6: Real expenditure on medicines (per beneficiary per month in 2003 rand terms) Medicines dispensed by Hospitals Allied and Support Health Professionals Practitioners Pharmacists Total Medicines Rand This represents an increase of 29,3% over the period or an annual increase of 4,4% above inflation. Hospital medicine benefits (both public and private) paid over the period grew in real terms from R15,16 pbpm in 1997 to R27,97 pbpm in This represents an increase of 84,5% over the period or an annual increase of 10,7% above inflation. Expenditure on general practitioners dropped from 8,5% to 7,6% of total medical schemes expenditure in Administration costs increased by 10,4% to R4,5bn compared with Costs attributed to managed care rose by 14,2% in 2003 to R1,1bn. Fees paid to brokers were once again a cause for concern. In a static market with no growth in membership, fees paid to brokers rose by 64,1% to R581m. Expressed as a percentage of non-health expenditure, broker fees increased by about 44% from 6,1% in 2002 to 8,8% last year. A reclassification during 2003 of some co-administration fees to broker fees would have accounted for some of this increase. Bad debts in 2003 amounted to R322m, an increase of 133,8% or almost 5% of non-health expenditure. A significant portion of this increase in bad debts is attributable to two schemes with large bad-debt write-offs and provisions, and does not necessarily reflect industry deterioration in contribution collection. It is hoped that the accreditation of administrators currently in progress will have a beneficial influence on this. In the end, however, trustees remain responsible for ensuring compliance with service-level agreements between their schemes and administrators. It is also trustees fiduciary duty to ensure that adequate control systems are put in place. Reinsurance losses suffered by schemes continued to decrease for the second year running. The net reinsurance loss decreased by 58,5% from R297m in 2002 to R123m in Open schemes made a loss of R128m while restricted schemes made a profit of R4,8m. Fostering compliance and standing firm against threats and legal challenges. While most of the industry settled into providing the Council with the regular information required in order to effectively regulate expenditure of members money, we found ourselves challenged in other areas. Governance We were required to focus significant resources on serious problems in the governance of medical schemes. The activities of several scheme trustees, administrators and brokers resulted in the Registrar initiating investigations, conducting unannounced inspections and using the powers in the Medical Schemes Act to rectify problems. Some of these regulatory actions, however, prompted some in the industry to use the courts to challenge the authority of the Registrar and the scope of the Act in what appears to be an attempt to stop scrutiny of behaviour within an industry based entirely on public money and trust. Early in 2003, members of KwaZulu-Natal Medical Scheme convened a special general meeting to discuss concerns over alleged improprieties by the board of trustees. This scheme had previously been under curatorship, but once again members were accusing the board of trustees of improper behavior which included the lack of proper procedures followed and an accusation of impropriety in moving the administration of the scheme from its then administrators to another. At the special general meeting, members voted to suspend the trustees but that decision was itself successfully challenged in

17 15 the Pietermaritzburg High Court. A new board of trustees took office, but once again stood accused of financial impropriety. The Registrar then ordered an inspection of the scheme a move that was largely undermined by the board. As a consequence, the Registrar applied to the High Court to place the scheme under curatorship. The application was granted in September Among other things, the board had spent R2m on an annual general meeting and lavish amounts of money had been spent on furniture for offices. The events of 2003/04 at this scheme were the latest in a long series of events of governance shortcomings at this scheme. Events at MEDSHIELD medical scheme and its associated intermediary companies (among them MAPP and Medical Aid Administrators) provided a more serious challenge to our attempts to protect members of the scheme. The Registrar ordered an inspection into the affairs of Medshield after becoming concerned about the relationships between the scheme, one of its administrators, the broker organisation and various other entities that appeared to have been detrimental to the interests of members of the scheme. At issue were the relationships between some scheme trustees and the people who run the related entities offering services to the scheme. Concerns had been expressed that the ideal of an arm s length relationship between trustees and service providers was not being properly observed. It had also emerged that official contribution rates lodged at the office of the Registrar differed from those provided to the public and that the difference was used to buy insurance products in a manner inconsistent with the Act. There were also concerns about possible irregular deductions that were made from members savings accounts. Based on these concerns and having received insufficient information by way of explanation from the scheme, an inspection was ordered into the scheme. But MAPP, the scheme s broker, was granted an interdict by the Pretoria High Court stopping the inspection. The applicants requested that the matter be heard on the constitutionality of the use of the Inspection of Financial Institutions Act. This was an interim order and a court date for the full legal hearing has been set for later in All the documentation relating to the inspection has in the meantime been lodged with an auditing firm until legal finality has been reached. The consequences of this matter have a serious effect on the ability of our office to enforce compliance with the Medical Schemes Act, particularly where an inspection would be required to see how members money was being spent. Continuing complaints from the public about OMNIHEALTH medical scheme as well as its worsening financial position prompted an inspection into this once-large scheme. On the basis of the results of several inspections of the scheme s dealings, it was seen that unnecessarily large amounts of money were spent by the scheme on non-healthcare expenses and that some of these expenses appeared to be improper as adequate procurement procedures, for instance, were not being observed. Section 46 of the Medical Schemes Act empowers the Council to remove trustees who are not fit and proper for the task of overseeing scheme funds, and it was to this section to which the Council resorted to suspend or remove trustees that we believed had acted improperly. After a number of legal challenges, the High Court ordered that a representative of Council be present at trustee meetings the first time such a move has been made. Several trustees resigned in the wake of this, solving part of the problem, but highlighting another. The problem lies in the Medical Schemes Act which does not have the power to pursue a trustee who resigns. A new and stronger board has since been put in place at Omnihealth. The new governance arrangements at the scheme are being carefully monitored by our office. The use of the courts was once again threatened in the case of PROSANO medical scheme. The immediate problem at ProSano was an attempt to use members funds to pay the individual tax bills of several trustees and a minuted resolution of the scheme to pay a tax consultant for advice on this tax bill. Once again Council used section 46 of the Act to suspend the trustees concerned and to question the actions of those who had been present at the relevant meetings. This case has focused on the need for trustees to understand that it is insufficient simply to vote against improper behaviour. Proper action has to be taken to ensure that scrutiny of trustees observance of their fiduciary duties can actually be seen. Ten of the eleven suspended trustees finally resigned their

18 16 REGISTRAR S OVERVIEW... Official contribution rates lodged at the office of the Registrar differed from those provided to the public and that the difference was used to buy insurance products in a manner inconsistent with the Act. There were also concerns about possible irregular deductions that were made from members savings accounts. positions before the section 46 hearings could be finalised. The other trustee was ultimately removed by Council in terms of section 46. An appeal to the Appeal Board by this trustee was unsuccessful and he has now taken the decision to the High Court for review. After several delays, the operators of a bogus scheme, known as AFRICA HEALTH were successfully prosecuted for contraventions of the Medical Schemes Act, but they escaped the more serious charge of fraud. The action of the perpetrators of this bogus scheme is seen as particularly serious. Poorer, less-educated people were targeted by the operators who claimed falsely that their scheme was registered in terms of the Medical Schemes Act. When this was challenged, they claimed to have been registered as a co-operative in terms of other legislation. Sadly, the events came to light because poor and sick people who had been placed onto this scheme, were not having their claims met and the only way of dealing with this is to lay charges with the South African Police Service. It was a source of further concern during the case to find that normally reputable brokers from large firms wanted to sell memberships in this scheme for commission and were unwilling to accept that this was illegal and that they could lose their accreditation as brokers with the Council for Medical Schemes. Other inspections conducted during 2003/04 We conducted five routine inspections in respect of payment of commission by Resolution Health Medical Scheme, Discovery Health Medical Scheme, Oxygen, Spectramed and Medshield. These inspections revealed some concerns about compliance by these schemes with the regulations on payment of commission. Some problems (largely historical) were dealt with in the course of the inspections. Four other large-scale inspections were conducted into Medshield, Munimed, and KZN medical scheme based on concerns about governance and other financial considerations. Enforcing the demarcation line Demarcation between medical schemes and insurance products continues to be a contentious issue, and at the end of 2003 the Council instructed the Registrar to take legal action, in the High Court if necessary, to enforce the demarcation requirement. One potential case was settled amicably before reaching court. The Liberty Group opted to stop selling its Medical Lifestyle and Medical Lifestyle Plus policies in order to ensure compliance with the requirements of the Medical Schemes Act. The agreement between Liberty and the Registrar ensured that while these policies will no longer be sold, policy-holders rights would still be respected, and to that end, Liberty applied for exemptions that will allow for the rights of existing policy holders to be secured. This action seems to have prompted the shortterm insurance industry to fill the gaps left by the product by maintaining and designing insurance products which are in breach of the Act. These will be acted upon by the our office. Further securing member protection by registration of rules and accreditation of intermediaries We revised the model rules in line with amendments to the law, and attached a comprehensive explanatory memorandum to these model rules. We also continued to register new rules. These rules, and their observance in the breach by many schemes, became

19 17 the means to address a problem that had developed in the media towards the end of last year when it became obvious that a number of schemes were attempting to implement increases and benefit changes without observing the legal requirement of requesting approval of the Registrar. Some failed entirely to submit applications for rule changes. This caused serious problems among consumers, particularly when the media reported that the schemes were obliged to seek approval for these changes. To address these concerns, procedures have been tidied up so as to minimise these gaps. Using section 7 of the Act, Council has ruled that from 2004 medical schemes will be required to submit any changes affecting benefits and contributions before the end of October in order for such rules to be effective at the beginning of the subsequent year. The Registrar will also be required to assess and approve all rule changes on benefits and contributions before the 1 January of the year they are to take effect. Similar measures will be in place with regard to possible mid-year changes. We assessed and approved the application for registration of four new schemes, and continue to monitor their adherence to their conditions of registration. We also assessed and approved amalgamations between KPMG and CAMAF, Pretmed and Global, Jomed and LAMAF, and Billmed and Samancor. We supervised the liquidation of Da Gama, Saammed, and Mercantile and General. The project on on-line submission of rules has not commenced properly, and we are looking at what is possible within our resources. Our work on accreditation of administrators has proved to be very challenging. We spent a lot of time STRATEGIC MANAGEMENT Strategic Management team in session. From left, clockwise: Patty Sidley, Daniel Lehutjo,Thembi Nkosi; Danie Kolver, Jaap Kugel, Evan Theys, Patrick Masobe, Patrick Matshidze, Lindelwa Ndziba, Craig Burton-Durham, Fikile Mothobi.

20 18 REGISTRAR S OVERVIEW working with the contractors to finalise the standards for accreditation as well as the measurement tools. We then commenced pilot assessment of three administrators (Old Mutual, Definiti and Status), which were finalised during November The standards document was subsequently revised, taking into account the lessons from the first three assessments. Subsequently, five other administrator audits were conducted by the end of March Council has proceeded to provide conditional accreditation to some of these administrators. We intend to conclude this work during the 2004/05 financial year. We also agreed, after a lot of internal debate, to conduct the accreditation of managed-healthcare organisations in a two-phase process. The first phase involved an assessment of the extent to which applicants comply with the basic legal requirements encapsulated in regulation 15. To this end, a policy document was finalised for public consultation, and a questionnaire and measurement tool were also developed. The first set of the applications has been assessed and accredited by Council, in many cases with conditions that the organisations need to pay attention to and resolve. The rest of the managed-care applications will be finalised by August We will then move towards the second phase of the accreditation process, and will focus much more on issues of risk transference and quality of care. With regard to accreditation of brokers, we contributed to the development of subordinate legislation under the Financial Advisory and Intermediary Services (FAIS) Act, having been appointed to the Advisory Committee by the Minister of Finance. We have also worked closely with the Financial Services.Council has ruled that from 2004 medical schemes will be required to submit any changes affecting benefits and contributions before the end of October in order for such rules to be effective at the beginning of the subsequent year. Board to ensure consistency between our accreditation requirements for health brokers and the overarching framework of the FAIS Act. The accreditation database was also remodelled and improved to ensure multiple renewal of accreditation, online renewal, and advanced electronic reminders to brokers. Some broker applications were approved by November 2003, and were turned down. In addition, some 753 organisational accreditations were approved. Consumers, medical schemes beneficiaries and the public This aspect of our work encompasses work that we do in our complaints, consumer education, trustee training and communication units to secure adequate protection for beneficiaries of medical schemes and the public. Several projects of the Council during the year were aimed at greater member protection and at ascertaining where future member needs and concerns could be met by Council. These included work done on fair treatment of members, our continuing work on trustee training and on consumer education and the dissemination of information to the public through the media and other means. Resolution of complaints During the period under review, we received complaints of which were found to be valid complaints against medical schemes. Table 1 shows that we continue to receive a high number of complaints about non-payment of accounts for services rendered. Most accounts sent through to the medical schemes were paid after our intervention, except in the few instances when there were valid reasons for the rejection. Service providers who were frustrated by non-payment of accounts also tended to hand the accounts over to attorneys who would demand payment from members and sometimes members properties would be attached by sheriffs for non-payment of debt. We were successful in settling a number of

21 19 Table 1: Type of complaint received COMPLAINT TYPE RECEIVED PROPORTION Unpaid accounts ,6% Refunds ,1% Exclusion of benefits ,2% Misunderstanding with scheme 157 8,0% Unauthorised deductions 104 5,% Termination of membership 76 3,9% Bureaucratic inefficiences 73 3,7% Problem with governance structures 66 3,4% Refusal to give authorisation 43 2,2% Exorbitant premiums 42 2,1% Concern scheme management 33 1,7% Reversal of payment by scheme 33 1,7% Suspension of membership 18 0,9% Withholding benefit information 15 0,8% Late-joiner penalty 12 0,6% Unethical marketing practice 9 0,5% Rejection of application 8 0,4% Waiting periods 8 0,4% Membership fraudulently assigned 7 0,4% Premium increase without notice 6 0,3% Exclusions pre-existing 4 0,2% Fraudulent assignment 2 0,1% Restriction/provider 2 0,1% Refusal membership certificate 2 0,1% Restriction/option 2 0,1% TOTAL ,.0% disputes in this regard, thereby saving members properties from being sold to recover amounts owed to the service providers. We have also seen an increase in the number of complaints about non-payment of refunds due to members. Concern regarding this type of complaint is that accounts that were paid by members were indeed submitted to medical schemes for a refund but requests for a refund were ignored until we intervened. The trend previously identified, of unauthorized deductions was still a cause for concern as medical schemes would still deduct contributions from the members after the date of termination of membership. This practice affected members a great deal since the continued deduction of premiums made it difficult for new medical schemes to start deducting contributions. The member would be in arrears with contributions to the new medical scheme. Members would also misunderstand the commencement date of membership to the new medical scheme. There would be a double deduction of premiums to cover the period in which the scheme experienced difficulties in getting contributions. This was unfair to members as they would be expected to pay for a period in which they did not enjoy any cover from the new medical scheme. A trend that also developed was about unlawful exclusion of benefits. We provided assistance to members in times of need and succeeded in ensuring that the members affected received benefits that were rightfully theirs. Other complaints have been about refusals by medical schemes to terminate membership on application by members (resulting in the unathourised deductions). We have also seen complaints about benefits excluded on grounds that a third party (such as the Road Accident Fund) may be liable for settling the accounts. Changes to the provision of chronic benefits by schemes, largely through designated serviceproviders, also resulted in an influx of complaints. This was largely due to less-than-optimal information provided to members about the nature and functioning of their newly-designated chronic-care providers. Work done though our consumer education unit is also beginning to show success in helping beneficiaries know their rights and duties and the procedures for resolving complaints with their medical schemes and the Registrar s office. While a lot of work has gone into resolving members complaints, we were not always successful in addressing problems faced by members. There were far too many instances where backlogs were allowed to develop; this has in large part been because medical schemes have failed to address problems referred to them but also due to failure to adhere to critical procedures in our own office. This is a matter that we have identified as an important issue to resolve, and we are working hard to improve our service to beneficiaries who complain to us. We continue to be concerned about the conduct of brokers with an apparent rise in the number of broker-related complaints. A disciplinary body has been constituted by Council to hear complaints about serious infringements in this area that could result in the suspension or withdrawal of accreditation. The broker code of conduct was repealed at the beginning of last year in anticipation of a code in terms of the Financial Advisors and Intermediaries Act that would take precedence over the Council s

22 20 REGISTRAR S OVERVIEW code. However delays in the working of the FAIS Advisory Committee have produced a gap in the operation of a code of conduct that will now only be filled when the code comes into effect at the end of September Adjudication of appeals There are, however, many successful outcomes to the adjudication of disputes and appeals by Council. Occasionally the outcome of complaints resolution at the scheme or by the Registrar does not satisfy either a member or the scheme and an appeals process is set in motion. Some of the more-interesting appeals are recorded here. Appeal decisions are now also available on the Council s website. A case before the Council s Appeal s sub-committee weighed up differences between the insurance industry s approach to non-disclosure of information and underwriting risk as opposed to the medical schemes approach to both issues in the light of the Medical Schemes Act. Mr X, who had been a member of Discovery Health medical scheme since December 2001, had an intramedullary tumour removed a year later. He had disclosed in his application form that he had had rheumatic fever in 1981 and muscle spasm in Discovery had imposed a three-month general waiting period and a 12-month condition-specific waiting period in respect of back pain. Conditions which related to the back pain, but which were prescribed minimum benefits (PMBs) would be covered in terms of the law. After a decision to operate and seek pre-authorisation from Discovery, Mr X was told he had not disclosed what Discovery believed was material information. He had not informed the scheme of numbness in his legs and bladder problems. Discovery then terminated his membership. Despite this, Mr X had a successful operation, which cost him R He believed Discovery would have been liable for R of this in terms of the option he had selected. He challenged Discovery first internally and ultimately through the Council s Appeals sub-committee. In the appeal, Discovery maintained its belief that the member had failed to disclose information and pointed to the fact that the member had had physiotherapy in the period between applying for FAIR TREATMENT of beneficiaries One of the highlights of the year was the Fair Treatment Project which was a collaborative effort between various units within the office of the Registrar. The objective of the project was to understand causes of potential unfairness to consumers in the medical schemes environment and then to formulate strategies to deal with those. Broad consultation took place in the drawing up of a draft report which was then tabled at a conference opened by the Minister of Health, Dr Manto Tshabalala-Msimang. The consultative meeting was attended by representatives of consumer bodies, medical schemes, trade unions and other stakeholders in February This work has placed a focus squarely on the manner in which schemes treat members, and has provided an excellent basis for trustees to review the operations of their own schemes. A final report will be widely disseminated. The initial recommendations made at the February conference have already resulted in a greater emphasis on consumer protection in the operational plans and budget for Council for 2004/05. Among the more-obvious areas to address are inappropriate application forms, unfair contracts, and incomprehensible language and benefit options that are too complex for members to understand.

23 21 membership and signing the letter of acceptance. Discovery said that, had he disclosed the recurrence of these symptoms, the scheme would have asked for a neurological examination to assess its risk in respect of the member. In the judgment, the appeals committee said: In this case the appellant did indeed disclose that he suffered from a musculoskeletal disorder, which he described in general layman s terms as muscle spasm. He assumed that his treatment by the physiotherapist was not important enough to mention and was for a condition he had disclosed and was, in any event, excluded by the imposition of the conditionspecific waiting period. The Appeal panel went further: Even if more information should have been disclosed, the panel said, the law meant Discovery would have had no right to exclude the appellant from the scheme or to qualify his membership in any way. Section 29 of the Act prohibits schemes from denying membership based on the would-be member s state of health. At best, the Appeal panel found, Discovery could have excluded the member from specific benefits according to his health for 12 months, which Discovery had done. But at the time of the dispute, prescribed minimum-benefit conditions had to be paid for without any waiting periods, and Mr X s tumor was a PMB which it would have had to fund. Consequently, the information that the appellant failed to disclose to Discovery cannot be seen as material to its risk. Regardless of whether the applicant disclosed his minor symptoms or not, Discovery was at risk to cover the costs of the surgery and was hence not entitled to terminate the applicant s membership on grounds of non-disclosure, the judgment said. The Appeal panel said the expenses had to be paid with interest from the date at which the accounts had been settled by the member. The termination of membership, the judgment said, was unlawful. In a second judgment of the Appeals sub-committee against Discovery Health medical scheme, the same distinction between good insurance practice and appropriate behaviour by a scheme in terms of the Medical Schemes Act was highlighted. Mr Y became a member of Discovery in April 2001, subject to the general 3-month waiting period, and various 12-month, condition-specific exclusions. He also filled in a chronic-illness benefit form at

24 22 REGISTRAR S OVERVIEW Prescribed minimum benefits and the extension of chronic benefits required a campaign to educate the public, part of which was undertaken together with the Board of Healthcare Funders. Discovery s request and after Discovery had asked him to give more details of his conditions. He needed chronic medication to deal with his heart condition, the funding of which was excluded for the 12- month waiting period. After the waiting periods had expired he sought to get his cardiac treatment paid for but Discovery told him he had to reapply for this benefit at the expiry of his 12-month waiting period. The scheme argued that it needed recent information to assess its risk and the doctor s prescription at the earlier point had only been for six month s worth of medicine. Council s ruling then states: the problem with Discovery s contention is that it relies exclusively on what it believes to be good practice and insurance principles. It takes no account at all of the primary and determining proposition that, in the medical schemes context, a member s entitlement to benefits is determined principally, if not exclusively, with reference to the rules. This trite proposition needs restating because in the sub-committee s experience it often appears to be lost on medical schemes contesting appeals under section 48. Frequently, arguments are made that bear no relation to what the rules provide and indeed the representatives of the scheme will appear before the sub-committee with no knowledge whatsoever of what the rules say or mandate. And in the rules, the judgment states, it does not say ACCREDITATION Council team dealing with accreditation of managed care organizations. From top left, clockwise: Danie Kolver, Belinda van der Walt, Heather McLeod, Reno Morar, Thulani Matsebula, Stephen Harrison, Saadiq Kariem, Jakes Jekwa.

25 23 anywhere that a second application has to be filled in. Discovery was ordered to honour all claims submitted by Mr Y in respect of his chronic-illness medicines for the period 1 April 2002 to 31 March 2004 up to the maximum of the benefit, which was R2 100 a year. Interest was also made payable. Imprecise rules and slack presentation at an appeal hearing formed the basis for a ruling in favour of a member of Meridian Health medical scheme. The dispute was over a hospital bill and Meridian s decision to limit the payment for the hospital stay for a patient recovering from a stroke. At the beginning of the decision, the Appeals subcommittee states: The manner in which the parties, particularly Meridian, have presented their cases in this matter is less than satisfactory. Neither has set out the facts or arguments with any precision. Meridian, in particular and despite repeated requests from the sub-committee to furnish supporting information and formulate its position coherently, has failed to present the case in a format enabling the sub-committee to proceed confident that all pertinent information has been placed before it. Hence, the sub-committee has been unable to interrogate the facts and issues as thoroughly as it would have preferred. In the nature of things, such a lapse must redound to the disadvantage of Meridian. At stake was the length of stay in hospital that the member could expect Meridian to pay for in terms of its rules. The problem was the absence of any clear rule laying this out or any other information that might have helpfully guided the Appeals sub-committee. An industry guideline was insufficient to have formed the legal basis to have refused to fund the full rehabilitation benefit before the member was discharged. This is a matter that should have been dealt with in the scheme s rules. Accordingly the sub-committee ordered Meridian to pay the full amount (R34 651) less any amounts already paid in terms of the particular benefit, with interest. Late-joiner penalties came under the spotlight in a further case involving Discovery Health medical scheme. Mr A decided to join Discovery subject to the waiting periods and to a late-joiner penalty based on the fact that he was over the age of 35 and had not.we identified a number of themes that we ought to address in aligning business goals with a people strategy. previously been a member of a South African medical scheme. Although Mr A knew of the conditions and the law which allowed Discovery to impose this penalty, after he had become a member he decided to contest the imposition of late-joiner penalties on the grounds that he believed his health-insurance arrangements in other countries should have been taken into account. The Council s Appeals sub-committee did not have much sympathy for Mr A s position. Mr. A sees no legal or ethical obstacle in the way of his submission that the penalty should not be imposed because he thinks it is unfair, regardless of the terms of the contract he freely and consciously signed and no matter what the legislature may consider to be desirable policy. He attributes little importance to his conscious acceptance of the terms of the contract. Having initially accepted Discovery s terms he now simply wants a bargain on different terms. Most of his arguments are premised on his belief that fairness permits such an approach, and that the Council should therefore oblige him. But the Medical Schemes Act does not allow a contract to be changed if Council thinks it may be unfair. The Appeals sub-committee also believed that Discovery Health Medical Scheme s discretion in opting to impose the penalty was reasonable and dismissed the appeal. The Council and the public The media and the Council remain on good working terms with a high level of trust placed on what the Council has to say about medical scheme issues in particular. The collection of statistics by the Council has proved a reliable resource for the media and others who may need it. The period under review was

26 24 REGISTRAR S OVERVIEW Prof Heather McLeod (bottom right) lecturing trustees in Midrand on the need for a Risk Equalisation Fund. one which saw a great deal of controversy about health issues, including several that were generated by or which concerned the Council for Medical Schemes. PMBs and the extension of chronic benefits required a campaign to educate the public, part of which was undertaken together with the Board of Healthcare Funders. A comprehensive presentation was made to the Parliamentary Portfolio Committee on Health in May 2003 which focused on the key policy objectives of our Act, on our regulatory approach and mandate and on our performance. A shortcoming in our dissemination of information was the failure to publish a news magazine regularly. Our already-extensive programme of trustee training was developed and extended so that trustees were able to obtain differing levels of information depending on what they needed. Twelve trustee-training workshops were held during the 2003/04 year in several centres around the country. Consumer education, too, was extensively covered. Consumer education, through provincial consumer offices, advice bureaux and requests from trade unions and NGOs, extended through most provinces to dozens of towns and cities. Workshops were held for consumers; radio broadcasts organised through community radio stations as well as commercial stations and included the occasional outside broadcast. Many of these are paid for by Council. We also attended the 17th World International Consumer Conference in Lisbon in Portugal. The country s regulators drawn from many different sectors have developed a forum to discuss the issues and problems they have in common. As an offshoot from this, the education and training officers of the regulators, including the Registrar s office, now meet regularly as well.