MEMORANDUM ON THE 2007/8 ANNUAL REPORT …...Annual Report 2007 Memo NPG 2008-09-25.doc 2 • Submission to the Private Health Indaba called by the Minister of Health regarding ways

Benguela Health (Pty) Ltd Registration: 2005/034117/07 PO Box 11407 Die Hoewes 0163

180 Lenchen Ave Lyttelton

Phone +27 (0)12 667 5263

Fax +27 (0)866 724 949 Mobile +27 (0)83 381 6428

[email protected]

Directors: Dr NG Crisp (Managing), Dr DJM Ncayiyana, EL Prins

MEMORANDUM ON THE 2007/8 ANNUAL REPORT OF THE REGISTRAR FOR MEDICAL SCHEMES

The 2007/8 Annual Report of the Council for Medical Schemes (CMS) was recently released. The full report can be accessed on www.medicalschemes.com. The report contains 2007 scheme data. This memorandum provides an overview of the salient points of the report. Increases are measured against 2006 data.

I. GOAL 1: WE MONITOR THE IMPACT OF THE MEDICAL SCHEMES ACT 131

OF 1998 AND RECOMMEND IMPROVEMENTS

1. REGULATORY AND POLICY DEVELOPMENT

1.1. Medical Schemes Amendment Bill The revised version of the Bill was approved by Cabinet on 5 March 2008 and is awaiting consideration by parliament. It proposes amongst others:

• The introduction of risk-equalisation

• Consequential changes to benefit design of medical schemes

• Provisions to strengthen governance and

• Lay the platform for the introduction of low-income benefit options.

1.2. Developing a greater understanding of and containing medical schemes’ costs The CMS agreed to focus on three strategic priorities during 2008/9 in pursuit of the fair treatment of beneficiaries, namely:

• Containing costs

• Protecting risk-pooling and

• Improving governance. In respect of cost-containment the concerns of the CMS centred on:

• Uncontrolled cost escalation resulting in a devaluation of scheme benefits and increased balance billing of members

• Absence of effective negotiation between providers and funders of health care.

The following activities were undertaken:

Annual Report 2007 Memo NPG 2008-09-25.doc

2

• Submission to the Private Health Indaba called by the Minister of Health regarding ways to control cost escalation, which included a central bargaining framework;

• Intervening in hospital increases implemented by private hospital groups in December 2007; and

• Research into the costs of medical schemes that resulted in a report earlier this year.

1.3. Review of the Prescribed Minimum Benefits (PMBs)

A review of the PMBs commenced in cooperation with the Department of Health (DoH) in February 2008.

2. DEVELOPING SYSTEMS FOR A RISK-EQUALISATION FUND (REF)

The focus has been on the following 3 tasks:

• Complete the commissioning of the Information Technology (IT) and software infrastructure required for managing the risk-equalisation transfers – the IT infrastructure was completed as planned, but there were delays in the completion of the REF software;

• Assist with the readiness of schemes to submit the required risk-assessment data to the Registrar – Considerable progress was made and the quality of data submitted by schemes improved significantly. Approximately 25% of schemes still submit data that requires improvement before financial transfers can commence; and

• Analyse the data and report back to schemes on findings – Meetings with more than 30 schemes occurred to discuss individual scheme submissions, the Risk-Equalisation Technical Advisory Panel (RETAP) was reconstituted, the REF Team was strengthened with statistical and actuarial expertise and 2 revisions of the REF Entry and Verification Criteria were published.

3. MONITORING ICD10

The policy framework for the handling of confidentiality was concluded. An analysis of aggregate ICD10 compliance by providers indicated a high level of provider compliance with submission requirements. A number of circulars were also published on the technical aspects of ICD 10 implementation.

4. TRENDS IN MEDICAL SCHEME CONTRIBUTIONS, BENEFITS AND CLAIMS

A report on the trends in medical scheme contributions, claims and utilisation between 2002 and 2006 was finalised. It showed amongst others high expenditure on private hospitals, a reduction in the utilisation of private hospitals and an increase in utilisation of specialists.

5. CONTRIBUTIONS TO THE HEALTH SYSTEMS TRUST’S ANNUAL REVIEW OF HEALTH CARE IN

SA Three chapters were contributed to this publication by members of staff.

6. PRE-AUTHORISATION AND PAYMENT REVERSALS

A workshop was held with representatives of the Board of Health Care Funders of SA (BHF), schemes, administrators, managed care organisations, the Hospital Association of SA (HASA), the SA Dental Association (SADA) and the SA Medical Association (SAMA) in respect of pre-authorisation and payment reversals by


3

schemes/administrators. BHF is coordinating a task team to develop recommendations in this regard.

7. REVIEWING MANAGED HEALTH CARE

Internal work continues. Aspects covered, include a literature review on managed health care models and alternative approaches to risk-sharing as well as a review of the effectiveness of managed health care models. It is anticipated to complete the report by October 2009.

8. PARTNERSHIPS WITH COUNTERPART REGULATORS

By cooperating with other regulators, it is anticipated to learn from and contribute to international regulatory standards. Interchanges occurred with the Nigerian National Health Insurance Scheme (NHIS), the Nigerian Consumer Protection Council (CPC) and the Financial Services Authority (FSA) in the United Kingdom.

II. GOAL 2: WE SECURE ADEQUATE PROTECTION FOR BENEFICIARIES BY

APPROVING THE MANNER IN WHICH MEDICAL SCHEMES CARRY OUT

BUSINESS AND BY MONITORING FINANCIAL PERFORMANCE

1. APPROVING THE CONDUCT OF MEDICAL SCHEMES, BENEFITS AND CONTRIBUTIONS

The development of the Benefit Analyser was continued that will assist with the assessment of benefit and contribution changes. The development of templates that will allow schemes to submit their contributions and benefits electronically have been completed and tested on Momentum Health, Discovery Health, Bestmed, Medicover and Fedhealth.

2. BENEFIT AND CONTRIBUTION CHANGES FOR JANUARY 2009

312 benefit options were registered for January 2008 (345 in 2007). 169 were for open schemes and 143 for restricted membership schemes. 21 benefit options were not registered due to non-compliance with regulatory requirements. 19 options were discontinued as a result of mergers and consolidations.

3. CONTRIBUTIONS The average gross contribution increase for 2008 was 8.3% (Open schemes: 9.9% and Restricted schemes: 7.5%). The average risk contribution increase for a family of 3 was 8.2%. Average contributions for a principal member were R1 189.50 in open schemes and R1 090.50 in restricted schemes. The minimum monthly contributions per member were R330.10 (Family of 3: R688.10) for open schemes and R161 (Family of 3: R264.90) for restricted schemes. CPIX seems to have risen at an increasing rate relative to the rate of contribution increases. The following schemes applied for mid-year contribution increases: Routine Increases:

• BHP Billiton SA Medical Scheme

• Naspers Medical Fund

• Engen Medical Benefit Fund


4

• Old Mutual Staff Medical Aid Scheme

• Imperial Group Medical Scheme

• Clicks Group Medical Scheme

• Massmart Health Plan • Impala Medical Plan Increases as a result of Financial Performance:

• Hosmed Medical Aid Scheme

• Renaissance Health Medical Scheme

• BPSA Medical Scheme

• Openplan Medical Scheme • Compcare Medical Scheme

New options were approved for the following schemes:

• Discovery Health (Executive Plan Option) • Suremed Health

• Telemed

• Gen-Health Medical Scheme

Bonitas applied for a reduction in contributions on its BonCap option.

4. EVALUATING OTHER SCHEME RULES The following schemes were engaged in this regard:

• Medihelp: Refunding excess late-joiner penalties charged after proof of previous membership

• Telemed: Electing trustees

• ProSano: Introducing dental managed care services

• Engen Medical Benefit Fund: Being eligible for membership

• Global Health: Composition of Board of Trustees (BOT)

• Profmed: Eligibility criteria; restricted membership status

• Spectramed: Appointment of state as designated service provider (DSP) for chronic medication

• Metropolitan Medical Scheme and Pharos: Non-sustainability of options

• Munimed and Pathfinder: International Travel Benefits • Medipos: Satellite conferencing for Annual General Meetings (AGMs)

• KwaZulu-Natal Medical Aid Scheme: Suspension of principal officer, membership losses, solvency declines and governance problems.

5. CONSOLIDATING SCHEMES AND AMALGAMATIONS

•••• Applications for Amalgamations received: � Mutual & Federal Medical Aid Fund and Nedgroup Medical Aid Scheme:

Finalised � Meridian Health and Momentum Health: Finalised � Bestmed and CSIR Medical Scheme: Approved � Munimed and Global Health: Finalised. Formed Keyhealth � CIMAS Wellness Medical Aid Scheme, Lifemed Medical Scheme and

Compcare: Approved. Formed Compcare Medical Scheme. � BHP Billiton and Bonitas: Approved

•••• Liquidations finalised:


5

� Mercantile and General SA � Ellerine Holdings � Highveld Medical Scheme � Relyant Medical Scheme � Bizhealth

•••• New Schemes:

� Motohealth Care Medical Scheme (1/10/2007)

•••• Administrator developments:

� Bestmed sold its administration business to Sanlam

Market consolidation remains desirable in many instances with reference to bigger size and therefore better stability of risk pools in merged entities. The CMS must ensure that the consolidation is effectively managed to protect the interests of affected members adequately and to ensure the enhancement of effective competition.

6. MONITORING THE FINANCIAL PERFORMANCE OF SCHEMES AND PROMOTING THEIR

FINANCIAL SOUNDNESS 6.1 Improving Statutory Returns and Accounting Requirements

•••• A review of the statutory returns was completed

•••• A circular set out the common accounting errors and problems to schemes

•••• A number of meetings with the SA Institute of Chartered Accountants (SAICA) Medical Schemes Project Group were held. Four sub-committees were formed. The work done to date, includes:

� Review of the current accounting guide to align it with the International

Financial Reporting Standards (IFRS) � Prepare comments and examples for the illustrative financial statements,

in particular income statements

•••• Finalisation of the Medical Scheme Accounting Guide with SAICA (November 2007)

•••• Formats of summarised financial statements and income statements were circulated

•••• A Medical Schemes Audit Guide is being prepared in conjunction with the International regulatory Board of Auditors (IRBA)

6.2 Assessing the Financial Performance of Schemes in 2007

Refer to section VIII below.

6.3 Monitoring Compliance with Solvency requirements of Regulation 29

Schemes engaged with solvency levels below the statutory requirements:

• Clicks Group Medical Scheme

• Telemed • Renaissance

• Medcor

• Humanity Medical Scheme


6

• Hosmed

• Oxygen

• Discovery Health

• BEPMED (Reinsurance agreement with Constantia Insurance approved) • Open Plan

• Pharos Medical Plan • Medicover

• GEMS

• Malcor Medical Scheme (Reinsurance approved)

The treatment of prefunding reserves that accumulated in schemes and which employers and schemes would like to move to other vehicles continued to raise difficult issues in relation to claims on these reserves by different interest groups. This matter is being dealt with in relation to Nedgroup, Medipos Medical Scheme, Medisense, Discovery Health and Bonitas.

6.4 Auditor Approvals

•••• A new process was implemented differentiating between:

� Re-appointments of firms/audit partners � Appointment of new audit firm and � Appointment of new audit partner.

•••• IT specifications and a help file was developed for the auditor questionnaire 7. LICENSING AND ACCREDITING ADMINISTRATORS, MANAGED HEALTH CARE

ORGANISATIONS AND BROKERS

7.1 Accrediting Administrators

• The following new administrators were accredited:

� V Medical Aid Administrators (Pty) Ltd � PPS Medical Scheme Administrators (Pty) Ltd

• The following renewals were approved:

� Momentum Medical Scheme Administrators (Pty) Ltd (MMSA) (Sovereign Health transferred to MMSA)

� Multimed Healthcare Administrators (Pty) Ltd (Amanzi Health and Ingwe Med (Pty)Ltd transferred to Multimed)

� Allcare Administrators (Pty) Ltd � Medscheme Holdings (Pty) Ltd � Providence Healthcare Risk Managers (Pty) Ltd � Rowan Angel (Pty) Ltd � Discovery Health (Pty) Ltd � Old Mutual Healthcare (Pty) Ltd � Eternity Private Health Fund Administrators (Pty) Ltd � Thebe Ya Bophelo Healthcare Administrators(Pty) Ltd � Prosperity Health Managers (Pty) Ltd � Sechaba Medical Solutions (Pty) Ltd � Metropolitan Health Group (Pty) Ltd and � Metropolitan Health Corporate.


7

• Sigma Health Fund Managers were accredited on condition that ProSano’s shareholding in the administrator be disposed of.

7.2 Accrediting Managed Care Organisations

• The following 4 new organisations were conditionally approved:

� Uno Healthcare (Pty) Ltd � Dentro (Pty) Ltd � Sharp Move Trading 107 (Pty) Ltd � Healthshare Health Solutions (Pty) Ltd

• The following 2 new organisations were unconditionally approved:

� Knowledge Objects Pharmaceutical Benefit Management (Pty) Ltd (ProPBM)

� Palms Court Medical inc

• Traumalink t/a Netcare 911’s accreditation was reinstated

• Conditions withdrawn � HDS Medical t/a Multimed Healthcare Administrators � Webshelf Investments Nr 10 (Pty) Ltd t/a Dental Risk Company

• Eleven renewal applications were unconditionally approved:

� Prime Cure Health (Pty) Ltd � Triangular Health (Pty) Ltd � Cheiron Health Technologies � Old Mutual Health Care (Pty) Ltd � Calibre Clinical Consultants (Pty) Ltd � MSO SA (Pty) Ltd � National Healthcare Risk Managers (Pty) Ltd � Medicross (Pty) Ltd � Eternity Healthcare (Pty) Ltd � Once Care Health (Pty) Ltd � Intellicare (Pty) Ltd

• Fourteen renewal applications were conditionally approved:

� Centre for Diabetes and Endocrinology � Enablemed (Pty) Ltd � Insight Medicine Management (Pty) Ltd � Managed Health Care Systems � Medscheme Health Risk Solutions (Pty) Ltd � Preferred Provider Negotiators � Scriptpharm Risk Management (Pty) Ltd � KwaZulu-Natal Managed Care Coalition Ltd � Private Health Administrators � UDIPA Holdings � Iso Leso Optics Ltd � Dental Information Systems (Denis) � QA Care Plus (Pty) Ltd � Clinical Partners (Pty) Ltd


8

• The following applications were approved pending further clarity on aspects of their business:

� Mossco Shelfco 2005 (Pty) Ltd t/a Clinical Services Consulting � Access Africa SA � Emerging Market (Pty) Ltd � Zam’Impilo (Pty) Ltd (Previously Ingwe Med)

• Accreditation of the following entities were withdrawn:

� Healthcare Alliances (Pty) Ltd t/a Galactic Deals � Aid for Aids (Pty) Ltd � Aloe Management

• Two complaints were resolved, namely: � Managed care organisation failing to accept the termination of a contract

by a medical scheme � An individual complaining about limited provider networks

7.3 Brokers and Health Care Advisors

• Just over a 1 000 new broker applications and 4 600 renewals were processed.

• At the end of March 2008 there were a total of 8 078 accredited brokers and 1 966 accredited brokerages

• A number of applications for accreditation were not granted and the accreditation of 2 brokerages were withdrawn

• 21 complaints were received relating to unaccredited persons offering broker services, inappropriate advice rendered, allegations of fraud, unauthorised deductions for broker services and alleged conflicts of interest

III. GOAL 3: WE SUPPORT THE WORK OF TRUSTEES AND PROMOTE PUBLIC

UNDERSTAINDING OF THE WAY IN WHICH MEDICAL SCHEMES FUNCTION

1. TRUSTEE TRAINING

Sessions were held in Gauteng, Durban and Cape Town covering amongst others in depth training on issues such as governance, solvency, investments, DSPs, clinical governance and ethics.

2. CONSUMER EDUCATION AND AWARENESS More than 60 workshops were held with amongst others trade unions, consumer affairs departments of provincial governments, staff of the KwaZulu-Natal Department of Health, Bestmed and municipal workers from the Vaal and Vanderbijlpark. An exhibition was also held during the Rand Show.

3. INFORMATION SESSIONS FOR PROVIDERS Provider information sessions on PMBs were held in Port Elizabeth, Durban and Cape Town.


9

4. GREATER COMMUNICATION OF PMBS

Three pamphlets targeted at beneficiaries, health care providers and medical schemes were produced. A dedicated PMB sub-site on the CMS website was developed to advise consumers on their scheme benefits. This was complemented by a blog, CMScript, used to deliver PMB messages to consumers.

5. CMS NEWS AND MEDIA COVERAGE

CMS News appeared 3 times. Participation occurred in various radio and TV interviews and talk shows. Several media enquiries were responded to.

IV. GOAL 4: WE TAKE FAIR AND TIMELY ENFORCEMENT ACTIONS WHEN

REQUIRED

1. OMNIHEALTH

Successful court action was implemented against the liquidators of Omnihealth to reclaim medical savings accounts monies on behalf of members. R25 million has been repaid.

2. GEN-HEALTH

Judgement is still being awaited on the finalisation of the curatorship of this scheme and the unfreezing of certain bank accounts – the latter requested by the parties that ran the scheme prior to its provisional curatorship.

3. RESOLUTION HEALTH

Regulatory processes continued in respect of allegations of a conflict of interest pertaining to the management contracts entered into by Resolution Health and associated concerns. Hearings pertaining to the accreditation status of the administration and managed health care companies have also not been finalised.

4. PROSANO

ProSano was placed under final curatorship during 2007.

5. MEDSHIELD

An investigation into apparent conflicts of interest was launched when the BOT of Medshield awarded an administration contract first to Brevity and then to Old Mutual Healthcare. Subsequently 3 trustees have been removed from the Board as not being fit and proper to act as trustees.

6. GUARDRISK

The Supreme Court of Appeal interpreted the definition of what constituted the business of a medical scheme and resolved that the products sold by Guardrisk did not constitute the business of a medical scheme. The CMS is concerned about the far-reaching implications of the decision for the regulatory environment and the stability and sustainability of medical schemes. It is consequently seeking a legislative amendment to support its viewpoint.


10

7. BONITAS

An investigation was launched into the allegations of irregularities at Bonitas related to the Pharmacy Direct contract worth approximately R100 million per year. The matter has not been resolved as yet.

8. TELEMED

An inspection report and a forensic report revealed several irregularities related to inappropriate and unlawful expenditure. Directives were issued to the trustees to take the necessary action.

9. POLMED

The outcome of a legal dispute between a member of Polmed and the scheme in the High Court is still awaited. It relates to the eligibility criteria of the scheme.

10. OXYGEN AND OLD MUTUAL

Old Mutual SA brought an application against Oxygen seeking an order to set aside a rule amendment that disqualified certain trustees from membership of the Oxygen BOT. The rule amendment was apparently not duly passed by the BOT and the matter was consequently settled in favour of Old Mutual.

11. BAYMED

The registration of Baymed was suspended after many attempts to establish its viability and the feasibility of its purported administrator, Bahlodi.

12. MEDIHELP

The BOT has requested the CMS to institute section 46 proceedings against 2 trustees whom it suspended. The CMS did not agree and the matter was taken to the High Court. The parties have since agreed to refer the matter to trial.

13. OTHER SCHEMES

Compliance-related interactions occurred with the following schemes:

• Medicover: Corporate governance

• Parmed: Composition of BOT

• Bankmed and Anglovaal; Group Medical Scheme/Lonmin Medical Scheme: Fit and proper status of the principal officers

• COMMED: Proposed establishment of a club restricted to Islamic members doing the business of a medical scheme

• Spectramed: Denial of benefits, concerns related to the administration of the scheme, an unaccredited broker collecting contributions, failure to adequately deal with complaints and failure to furnish the requested information

• Barloworld: Handling of reserves in the event of liquidation

• Profmed: Conditions for maintaining restricted membership status Other matters:

• Profmed: An inspection revealed that the scheme was operating in accordance with the Medical Schemes Act


11

• Carenet retirement centres: Investigation of financing model for frail care and medical services being investigated for doing the business of a medical scheme

• U-Med: Dispute between BOT and Solidarity Union for outsourcing the administration to Discovery Health (Pty) Ltd

• Barloworld: Continuation of member transfers within the context of the unbundling of the group being discussed

• Metropolitan Health Corporate: Instructed to repay Bankmed undisclosed profits from monies belonging to the scheme

• Nedgroup: Employee and pensioner groups raised concerns about the handling of the prefunding reserve

• LA Health: Usage of medical savings account balances to offset debt that members owed to the scheme.

V. GOAL 5: WE INVESTIGATE AND RESOLVE COMPLAINTS OF

BENEFICIARIES

1. RESOLVING COMPLAINTS

• 2 891 complaints received (30% increase)

• High volumes of complaints received in respect of � Unlawful membership terminations by Spectramed � Payment of accounts in respect of service providers whose practice code

numbers had lapsed � Administration-related problems in Renaissance, Humanity and Gen-Health � Bonitas, Medshield, Protea Medical Aid Society and LA Health being

monitored in relation to payment for PMBs and � Medcor and Motohealth Care being monitored in relation to administration

problems

• Types of complaints (Highest frequency) � Unpaid accounts (33.5%) � Limitation of benefits/PMBs/Formularies/DSPs (18%) � Misunderstanding with scheme (14%) � Non-payment of refund (10.7%) � Termination of membership (4.8%)

2. ADJUDICATING APPEALS

• Samwumed v PA: Decision = PMB tariffs cannot be limited in terms of the rules in the event of an involuntary use of a DSP. This matter is on appeal.

• Discovery Health v TB: Decision = Certain biologic drugs should be covered in terms of the therapeutic algorithm pertaining to rheumatoid arthritis. This matter is on appeal.

• CGO v Munimed: Decision = Upheld removal of trustee from BOT due to over-claiming of travel expenses between 2002 and 2007

• Hosmed v RJ: Complaint centred on the interpretation of the optical benefits of the scheme.

• Z v Old Mutual Staff Medical Aid Scheme: Decision = Upheld scheme’s criteria to fund a breast reduction.

• Genesis v PARL: Scheme was ordered to reinstate a member whose membership was terminated based on a non-disclosure. The scheme has filed an application for review with the High Court.


12

• Spectramed v DJ and the CMS: Decision = Non-disclosure of hearing problem was not material. Termination of membership on that basis was consequently unlawful.

VI. GOAL 6: WE FOSTER THE DEVLOPMNET OF THE CMS AS AN

ATTRACTIVE WORKPLACE AND AN EMPLOYER OF CHOICE

Due to the internal focus of this objective, this section of the Annual Report is not summarised.

VII. GOAL 7: WE DEVELOP STARTEGIC ALLIANCES WITH COUNTERPART

REGULATORS AND OTHERS

A delegation visited Nigeria at the invitation of the CPC. In addition, NHIS, the National Institute for Pharmaceutical Research and Development, the courts and the Standards Organisation of Nigeria were visited.

VIII. REVIEW OF THE OPERATIONS OF MEDICAL SCHEME: SNAPSHOT OF

2007 RESULTS

1. Submission of Annual Financial Statements

The following schemes submitted their annual financial statements after the deadline incurring statutory penalties:

• Cape Medical Plan

• Clicks Group Medical Scheme*

• Gen-Health*

• Ingwe Health Plan • Medicover*

• Medshield* • Munimed

• Mutual & Federal Medical Aid Fund

• Old Mutual Staff medical Aid Scheme

• ProSano

• Renaissance Health

• Sedmed

• Sizwe*

• Telemed*

* The persons responsible rather than the scheme will be penalised.

2. Number of Schemes • Total number of registered schemes = 122 (124 in 2006) of which 41 were open

and 81 restricted schemes.

• 2 restricted schemes amalgamated and 1 was liquidated

• Motohealth Care (restricted scheme following the amalgamation of 2 bargaining council funds) was registered


13

• Data of Motohealth Care and bargaining council schemes excluded from analysis due to data-related issues

• The consolidation in the medical scheme market is demonstrated in table 1 and figure 1.

• 41 schemes had less than 6 000 members as is demonstrated in table 2.

TABLE 1

OPEN SCHEMES RESTRICTED MEMBERSHIP

SCHEMES TOTAL

1999 47 113 160

2000 47 97 144

2001 49 97 146

2002 49 94 143

2003 49 88 137

2004 48 85 133

2005 47 84 131

2006 41 83 124

2007 41 81 122

FIGURE 1

TABLE 2

TYPE OF SCHEME (2007)

SIZE OF SCHEME OPEN RESTRICTED TOTAL

Small (< 6 000 members) 9 (9) 45 (49) 54 (58) Medium (≥ 6 000 and < 30 000 members) 12 (9) 20 (19) 32 (28) Large (≥ 30 000 members) 20 (23) 16 (15) 36 (38) TOTAL 41 (41) 81 (83) 122 (124)


14

3. Benefit options

• 386 registered (391: 2006) • Open schemes: 219; Restricted schemes: 167

• Average number of options: 5.3 (open schemes) and 2 (restricted schemes)

• 188 benefit options had fewer than 2 500 members per option of which 120 incurred net health care losses

• Options with fewer than 2 500 members generally have higher contributions and attract higher non-health care expenditure

4. Membership

• Number of principal members in registered schemes increased by 6.5% to 3 178 927

• Dependants increased by 3.8% to 4 299 113

• Open scheme members increased by 0.7% and those of restricted schemes by 20.1%. Growth in membership in restricted schemes mainly attributed to GEMS and Renaissance

• Open scheme beneficiaries declined by 2% and those of restricted schemes increased by 21.7%

• Total number of beneficiaries increased by 4.9% to 7 478 040

• Membership distribution is demonstrated in table 3.

TABLE 3

OPEN SCHEMES RESTRICTED SCHEMES TOTAL PRINCIPAL MEMBERS

2 114 986 1 063 941 3 178 927

DEPENDANTS 2 836 331 1 462 782 4 299 113 BENEFICIARIES 4 951 317 2 526 723 7 478 04

• The membership distribution by province1 reflected 36.5% of beneficiaries in Gauteng, 16.2% in the Western Cape and 15.3% in KwaZulu-Natal. Biggest growth occurred in Limpopo, North West, Northern Cape and Gauteng.

• The dependant ratio that measures the number of dependants per principal member remained unchanged at 1.4 (Open schemes: 1.3; Restricted schemes: 1.4)

• Average age of beneficiaries decreased from 31.6 to 31.4 years

• Pensioner (≥ 65 years) ratio decreased to 6.2% (from 6.3% in 2006). Open schemes had a pensioner ratio of 6.3% compared to 6% in restricted schemes

• There were more female beneficiaries with a slightly older age profile (32.1 yrs) compared to males (30.7 yrs)

5. Gross Contribution Income (GCI)

• Total increase in GCI was 12.3% to R64.7b (2006: R57.6b)

• Total gross relevant health care expenditure incurred increased by 10.2% to R56.3b (2006: R51.1b)

1 Collected on the basis of the location of principal members


15

• Gross contributions increased to R736.60 per average beneficiary per month (pabpm) – a 7.2% increase - with gross relevant health care expenditure at R641.60 - an increase of 5.2%

• Claims ratio: 86.4% (Open schemes = 83.5% and restricted schemes = 92.7%)

• Risk contributions increased by 13.5% and risk claims by 11.5%

• Savings account contributions increased by 2.1% and claims decreased by 0.2%. When measured pabpm only in respect of schemes with savings accounts, the contributions decreased by 5.3% and the claims by 7.4%

• Until 2006 the trend was to require a greater proportion of benefits to be funded out of savings accounts rather from the general risk pool. It is still too early to determine whether the lower figures in 2007 reflect a change in this trend

6. Risk Transfer Arrangements

• Capitation fees paid in 2007 amounted to R2.1b resulting in a profit sharing of R24m

7. Operating Results

• An operating deficit of R992m was reported (2006: R2.1b). When investment income and income from other sources were taken into account, the position changed to a net surplus of R2.4b

• 83 schemes made operating deficits • The following 16 high-impact schemes representing 37.7% of average

beneficiaries suffered deficits greater than R16m

� Medicover � Transmed � Polmed � Bonitas � Sizwe � Spectramed � Medshield � Momentum Health � Oxygen � ProSano � Fedhealth � Telemed � BHP Billiton SA Medical Scheme � Medcor � Profmed � Munimed

• Average solvency was 37.9%. The solvency ratio for open schemes was 28.6% and that of restricted schemes 58.9%

• 18 open schemes and 7 restricted schemes had solvency levels below 25% 8. Benefits

• Expenditure on benefits (claims paid) increased by 9.6% to R56.2b

• Risk benefits constituted 89.5% (R50.3b) of total benefits with 10.5% (R5.9b) paid from savings accounts

• The distribution of total, risk and savings benefits in 2007 is demonstrated in figures 2 to 4.


16

FIGURE 2: TOTAL BENEFITS

• Hospital benefits include theatre fees, ward fees, consumables, medicines dispensed and per diem arrangements within the hospital. Public hospital expenditure decreased by 12.5% with private hospital expenditure increasing by 12.5%.

• Medicine benefits (excluding medicines provided by hospitals) increased by 8.2% • Medical specialist benefits increased by 11%

• GP benefits decreased by 1.5%

• Dentist benefits increased by 2%

FIGURE 3: RISK BENEFITS


17

FIGURE 4: SAVINGS BENEFITS

• Specialist benefits are compared between 2005 and 2007 in figure 5

FIGURE 5: SPECIALIST BENEFITS

• The trend in benefit distribution since 1997 is demonstrated in figure 6


18

FIGURE 6: BENEFITS PAID FROM 1997-2007

• When adjusted for inflation, the following trends have been noted in 2007:

� Private hospital expenditure increased in real terms by 5.3% � Expenditure on medicines increased by 1.1% � Medical specialist benefits have increased by 4.3% � GP expenditure decreased by 8.5% � Dentists experienced a decline of 5.3%

9. Utilisation of Benefits

(Utilisation per 1000 beneficiaries)

• Visits to GPs and private nurses per 1000 beneficiaries decreased by 8.5% and 9.2% respectively. Visits to dentists also experienced a decline

• Number of beneficiaries visiting a GP at least once a year: 718 • Visits to a GP: 2.9

• Number of beneficiaries visiting a dentist at least once a year: 218.3 • Visits to a dentist: 0.5

• Number of beneficiaries visiting a private nurse at least once a year: 6.9

• The number of beneficiaries admitted to private hospitals increased. The average length of stay (LOS) declined from 1.3 days to 0.9 days.

• Number of beneficiaries admitted to private hospitals: 180.6

• Number of admissions to private facilities: 293.9

• Beneficiaries visiting a pathologist at least once per year: 306.7

• Total number of visits to a pathologist: 802.1

10. Non-Health Care Expenditure

• Non-health care expenditure consists mainly of:


19

� Administration fees � Managed health care management service fees � Commissions and service fees paid to brokers � Other distribution costs and � Impaired receivables

• Non-health care expenditure increased by 7.3% to R8.9b. The rate of increase seems to have been contained to under CPIX over the last 2 years.

• Non-health care trends over the period 2000-2007 are demonstrated in figure 7.

• Total gross non-health care costs increased by 359.3% since 1997 (116.2% increase since 2000)

• After adjusting for inflation gross non-health expenditure pabpa decreased by 3.8% to R1 219 in 2007.

• Open schemes with non-health expenditure greater than the industry average of R119 pabpm and greater than the open scheme average of 17.7% expressed as a % of Risk Contribution Income (RCI) were:

� COMMED � Compcare � Discovery Health � Fedhealth � Gen-Health � Humanity � Liberty � Medshield � Meridian � Momentum Health � Pathfinder � Protea Medical Aid Society � Resolution Health � Spectramed � Suremed Health � Topmed

FIGURE 7: NON-HEALTH CARE EXPENDITURE: 2000-2007


20

10.1. Administration Expenditure

• Total: 6.7% increase to R6.3b (Open schemes: 3.8% and Restricted schemes: 17.9% increase – due to increase in membership)

• 70.4% of total non-health expenditure

• 28 open and 25 restricted schemes exceeded the 10% of GCI benchmark

• High impact open schemes with administration expenditure > 10% of GCI2

� Resolution Health: 17.9% � Medshield: 14.1% � Fedhealth: 12.8% � Spectramed: 12.4% � Hosmed: 11.9% � Sizwe: 11.2% � Discovery Health: 11.1% � Oxygen: 11.1% � Liberty Medical Scheme: 11.1% � Bestmed: 10.9% � ProSano: 10.7%

• High-impact open schemes with administration expenditure higher than the

industry average of R71.50 pabpm:

� Medihelp: R98.90 � Fedhealth: R98.30 � Resolution Health: R91.90 � Discovery Health: R90.90 � Liberty Medical Scheme: R85.70 � Spectramed: R85.50 � Telemed: R84.60 � Bestmed: R82.70 � Prosano: R78.70 � Global Health: R78.10 � Medshield: R77.70 � Sizwe: R75.20 � Oxygen: R73.60

• Open schemes paid on average 66.7% more for gross administration fees to third party administrators compared to restricted schemes

10.1 Managed Care Fees

• Total: 9.6% increase to R1.5b. • 16.9% of total non-health expenditure

• The number of beneficiaries covered by managed care interventions increased by 7.1% to 7 339 880

10.2 Principal Officer and Trustee Fees

• Remuneration of trustees was 0.7% and that of principal officers 0.8% of gross administration expenditure

• Top 10 schemes with regard to trustee fees:

2 A high percentage could in some instances be a result of a low average contribution, rather than high

absolute administration costs


21

� Bonitas � Fedhealth � Selfmed � Medshield � Discovery Health � Liberty Medical Scheme � Profmed � Medicover � Commed and � Humanity

10.3 Administration and Managed Care Expenditure

• Accounted for 12% of GCI

• Third party administered open schemes paid 13.3% pabpm more than self-administered open schemes

• Self-administered restricted schemes paid 59.4% pabpm less than third party administered restricted schemes

• Self-administered open schemes paid 117.4% more pabpm than self-administered restricted schemes

• Third party administered open schemes paid 54.5% more pabpm than third party administered restricted schemes

• Industry average for administration as a % of GCI: 9.7%

• Industry average for administration and managed care as a % of GCI: 12%

• Expenditure by the 10 largest schemes by number of beneficiaries is demonstrated in table 4.

TABLE 4: ADMINISTRATION EXPENDITURE OF THE 10 LARGEST SCHEMES

SCHEME TYPE AVERAGE BENEFICIARIES

ADMINI-STRATION AS % OF

GCI

ADMIN AND MANAGED

CARE AS % OF GCI

Discovery Health

Open 1 886 448 11.1 13.6

Bonitas Open 567 375 8.5 11.8 Polmed Restricted 438 687 4.8 6.9 GEMS Restricted 364 020 4.9 6.7 Oxygen Open 199 957 11.1 13.1 Bankmed Restricted 192 942 7.2 9.4 Spectramed Open 186 429 12.4 14.9 Medihelp Open 183 711 7.9 9.4 Medshield Open 182 240 14.1 16.8 Fedhealth Open 177 968 12.8 14.9

10.4 Broker Costs

• Broker fees include all commissions, service fees and other distribution costs paid to brokers

• 6.1% increase to R1b

• 11.7% of total non-health expenditure (11.8% in 2006)

• Broker commission increased by 8.1%


22

• Per average member per month (pampm) of schemes that paid for brokers the increase was 6.7%

• Broker commissions as a % of GCI increased by 0.2%

• Rates of increase exceeded the increases in number of members by far

• For schemes that pay brokers, the fees have increased pampm by 128.1% since 2001 with a 48.3% net increase in member numbers

• Industry average was R37.80 pampm. The following schemes exceeded this number:

� Munimed: R59.10 � Lifemed: R50.50 � Suremed: R50.20 � Compcare: R48.10 � Built Environment Professional Associations Medical Scheme

(BEPMED): R47.70 � Pharos Medical Plan: R47.40 � Medshield: R45 � Discovery Health: R44.50 � Fedhealth: R44.50 � Topmed: R44.20 � Humanity: R43.30 � Hosmed: R42.40 � Spectramed: R41.50 � Oxygen: R40.50 and � Bestmed: R40.10

10.5 Reinsurance Results

• Only 2 schemes had reinsurance contracts. Net reinsurance result was a deficit of R6.664

10.6 Impaired receivables (Bad debts)

• 27.2% decrease to R93.9m

• 1.1% of total non-health expenditure

• Contributions are typically collected within 13.1 days exceeding the prescribed 3-day period required by section 26(7)

11. Administrator Market

• The administrator market according to number of beneficiaries is demonstrated in figures 8 and 9

• The market was dominated by 6 administrators, covering 73.9% of the market (excluding self-administered schemes)

• Discovery Health had 38% of the open market

• MHG had 54.4% of the restricted market

• Despite their market dominance and the inherent benefits of economies of scale, the larger administrators do not appear to offer any cost advantages over their smaller rivals


23

FIGURE 8: ADMINISTRATOR MARKET SHARE 2007

FIGURE 9: ADMINISTRATOR MARKET SHARE 2005-2007

• The 5 administrators with higher gross administration costs and administration fees for open schemes in relation to the industry average were:

� Discovery Health (Pty) Ltd � Private Health Administrators (Pty) Ltd � Prosperity Health Managers (Pty) Ltd � Resolution Administrators (Pty) Ltd and � Status Medical Aid Administrators (Pty) Ltd

• The 5 administrators with higher gross administration costs and administration

fees for restricted schemes in relation to the industry average were:


24

� Allcare Administrators (Pty) Ltd � Discovery Health (Pty) Ltd � Eternity Private Health Fund Administrators (Pty) Ltd � HDS Medical (Pty) Ltd (Previously Amanzi Health Administrators) and � PPS Medical Scheme Administrator (Pty) Ltd

• Tables comparing the cost of administration of all the administrators in both the open and closed markets could be viewed in the full report.

Compiled by ESMé PRINS BENGUELA HEALTH (PTY) LTD 25 September 2008

Documents

MEMORANDUM ON THE 2007/8 ANNUAL REPORT …...Annual Report 2007 Memo NPG 2008-09-25.doc 2 • Submission to the Private Health Indaba called by the Minister of Health regarding ways