Wednesday 22 May

On 3 March 2016, the Health Market Inquiry first heard from Kwanele Asante-Shongwe, who is the founder of the breast cancer advocacy organisation, BreastSens. In her submission Asante-Shongwe drew attention to the wide gap between those who have the resources to access healthcare in the private sector and are in some way able to buy access to the best doctors and those who do not.

A cancer survivor, living with a heart condition herself, Asante-Shongwe is aware of the high cost of treatment and medication in the sector. She dramatically tipped out a shopping bag full of the medication essential for her survival onto the table. She maintained that access to treatment should not be predicated by how big your wallet is and implored the industry to probe their corporate responsibility and balance profit-maximisation with the exclusion of people from access to healthcare services. Asante-Shongwe advocated for the transformation of our patent laws to create a space for the manufacturing of generic drugs and procuring medicines at a more affordable rate.

Although the duty to ensure access to healthcare primarily rests with the state, Asante-Shongwe noted that it is not only the state’s responsibility to make public interest considerations of cost efficacy and safety when providing healthcare services. Chief Justice Ngcobo added that the International Convention on Economic, Social and Cultural Rights is binding on member states and comments on the obligation to make healthcare accessible and affordable in both the public and private sector.

Asante-Shongwe said that a complete policy framework was needed and that as long as the framework remained inadequate millions were being denied their rights to healthcare.


Discovery Health Medical Scheme (DHMS) led by Mr Milton Streak, made oral submissions the day after Dr Johnny Broomberg made submissions to the Panel on behalf of its administrator, Discovery Health (Pty) Ltd (Discovery Health).

In this round of public hearings, the Health Market Inquiry Panel is attempting to get to grips with the relationships between and amongst the stakeholders in the private health sector.

This includes the relationship between schemes and their administrators. The relationship between DHMS and Discovery Health is of particular interest to the Panel because they are part of the same group of companies and seem to be inextricably linked. However, speakers for both entities were at pains to emphasise their individuality.

DHMS is the largest open scheme in the country, with 2.7 million beneficiaries. The Board of Trustees has oversight over its operations and must act in the best interest of all the members. DHMS contracts with Discovery Health for administration and managed care services. Very early on in the presentation, Judge Ngcobo enquired what it really means to say that a scheme belongs to members.

Mr Streak explained that members fund the pool of contributions, and for that reason the scheme is obliged to pay their claims. In other words, the pool of funds is for the benefit of all members’ claims.

Governance structure

Mr Streak described a governance structure that clearly distinguishes between the business of the medical scheme and that of Discovery Health. The Trustees are elected by scheme members and appoint the CEO of the scheme. The Trustees take a decision to outsource administration and managed care services – to Discovery Health – on a three-year cycle. Mr Streak described the relationship as “vested outsourcing”.

The principles of the outsourcing model governing the relationship between DHMS and Discovery Health involves:

  • A focus on outcomes, not just transactions
  • Outsource to experts
  • Effective oversight

Panellist, Dr van Gent commented that despite his debate with Dr Broomberg about the “integrated” nature of the relationship between DHMS and Discovery Health, he still thought of the two companies as fully integrated. Dr van Gent noted that DHMS was comprised of 7 executives, 2 senior managers and 3 support staff while Discovery Health had about 3000 staff. In other words, he said, Discovery Health dwarfs DHMS, particularly in analytical power. He asked what Mr Streak thought of the balance of power between the two.

Mr Streak indicated that the Board of Trustees, and the ability of the board to appoint outside expertise, effectively balanced the power. Dr van Gent asked if DHMS could function if it did not get along with Discovery Health. One of the Trustees responded that it would be difficult if DHMS did not have the information and analysis for which they pay administration fees, but that the remedy would be to terminate the relationship on 90 days notice, if that was in the interest of the members. Dr van Gent did not seem persuaded and commented that he was trying to understand the legal independence as distinct from the reality of independence between the two. He returned to the the business model and asked if DHMS could take a strategic decision that hurt Discovery Health, given the “vested outsourcing model”, which was intended to be mutually beneficial to the parties. The Trustee conceded that the outsourcing model meant that both organisations performed better in the way they worked together.

Mr Streak told the Panel about a study commissioned by DHMS about its governance structures. The Deloitte study came to the following conclusions:

  • DHMS is led by a strong, independent board of trustees.
  • The integrated model, in which DHMS outsources all its operation to one service provider, being Discovery Health) was effective in that it costs less (15% less than other open schemes) and delivers better performance.
  • For every R1 spent, beneficiaries receive additional value of between R1.77 and R2.
  • Members were R147 better off every year due to this business model. Members see this savings in the contributions they pay.
  • There was an overall 27% reduction in administration fees between 2007 and 2012.
  • The scheme outperformed all 13 of its open scheme competitors.

Mr Streak noted that the out of pocket expenditure was not included in the value formula because it was too difficult to quantify.

Scheme performance

The Panel heard that DHMS is very successful and is growing faster than other schemes. It maintains a solvency reserve of 12.9bn or 26%, which is 1% higher than the statutory minimum. An independent ratings agency has rated DHMS at AA+ (the highest possible rating for the last 15 years. It is currently the only open scheme with that rating.

In 2015, DHMS paid R33.3bn in claims, with the majority going to hospital, 39% to health care providers, and 10% of total risk expenditure on medicines. “Other”, which includes benefits such as emergency, blood transfusion, support services etc amounted to R1.2bn.

On average, a member contributes R32 100 per year. The top 10 claims cost R43 million, these include respiratory failure, heart disease, neonatal distress, TB (R3.3m). However, the sickest members (2% of members) consume 30% total expenditure.

Administration fees paid to Discovery Health amounted to 7.8% and brokers fees was 2% of expenditure. Mr Streak explained that DHMS had seen a dramatic decline in combined managed care and administration since 2008 and predicted that the fee will continue to decline to 10% and DHMS is aiming for fees to fall below 10% in the future.

Prescribed Minimum Benefits

On the topic of PMBs, DHMS indicated that it contracts with a wide range of designated service providers (DSP), which are critical to delivery of PMB. The PMB Code of Conduct, which has been discussed throughout the public hearings was said to be an important guiding document although it was in need of updating. When Dr van Gent questioned who was responsible for conducting such an update, Mr Streak replied that it was for the regulator to lead. Dr van Gent asked why he described it as a dynamic document if it was out of date and a large player like Discovery could not take the lead in developing it. Mr Streak indicated that DHMS had suggested that it should be updated and was happy to be a key catalyst for its review.

Mr Streak suggested that its low cost KeyCare option had been successful in improving access to health care services.  Approximately 30% of new members to DHMS join on the KeyCare option. Professor Fonn asked whether those numbers could be broken down to show members who were joining a scheme for the first time and not moving from one scheme to another. DHMS undertook to do the analysis and provide the Panel with the data.

Response to Kwanele Asante-Shongwe

The Chair requested that Mr Streak respond to certain of the concerns raised by Ms Kwanele Asante-Shongwe in her oral presentation, particularly related to the way in which she had struggled to obtain cover for various conditions to which she was entitled and the lack of information.

Mr Streak started by inviting her to next AGM taking place at the Convention Centre in Sandton in June 2016. Judge Ngcobo asked whether the agenda generally included an item for responding to members specific concerns. Mr Streak undertook to ensure that it would include such an item in the next AGM. Judge Ngcobo pressed on because her specific concern was that the importance of the AGM and other forums was not conveyed to members. While Mr Streak described how DHMS sends out notices in various forms and routinely got 500 RSVPs, he also stated that only about 200 members generally attended the AGMs. The Judge further questioned what DHMS could do to ensure that people not only received information but understood the purpose and use of the AGM so that they could attend.

Professor Fonn was interested in how accessible the Trustees of the DHMS were to members. “Not very much” was the answer, primarily because they are non-executives who are in full time professions. The members could approach the CEO’s office or Discovery Health for assistance.

Mr Streak was unable to answer Ms Asante-Shongwe’s concern about the fact that mental illness is treated differently by schemes, for example, repeated pre-authorisations needed and hospital costs will be paid while more long term and more effective out of hospital treatment is not.

Relationship with health care providers

Dr Bhengu put the concerns of some specialists to Mr Streak concerning what they see as interference with the treatment of patients through the clinical committees of schemes. One of the Trustees of DHMS suggested that the approach taken by DHMS was to include outside experts as well as expertise in the UK and US on clinical committees. In particular, the Cleveland Clinic was mentioned as a source of expert opinion when there was a dispute between the clinical committee and clinician.

Information asymmetry

The Judge led the last round of questioning and focused on the interaction between member and scheme. Mr Streak stated that the system is complex. The Judge asked what happens when the complexity results in members not getting benefit timeously or losing life battles (referring specifically to a beneficiary who passed away before coming to give evidence to the Inquiry), asking isn’t there something to be done? Again, Mr Steak fell back on the complexity of the system as the problem, stating that there are multiple stakeholders in the value chain and a fragmented system of delivering health care services and finally conceded that is should be more accessible. When the judge pressed further and said “miscommunication can at time be deadly asking ‘How do we do that’? Mr Streak said he is not the expert but that better coordination of care and providers working in teams and with patient-focused approach would assist. The judge asked whether DHMS took the matter seriously enough to commission a study like the one Deloitte was commissioned to do on governance, the answer was no.

Financial Intermediaries Association of Southern Africa (FIA)

Following Discovery Health Medical Scheme, the Financial Intermediaries Association (FIA) made its oral submission. FIA is a not-for-profit organisation that represents the interests of brokers. The FIA told the Panel that brokers provided valuable advice to users and were a distribution channel for products.  FIA said there were currently 24 open schemes in South Africa with 179 plan options across all of them, each with differing benefit structures and contributions.

The FIA admitted that brokers have had to, on occasion, explain how PMBs work and gave an example of a doctor who was uncertain of the process of the service. The services of brokers are defined in the Medical Schemes Act and FIA stated that the two elements relate to advice at the introduction of a member to a scheme and ongoing services.

These ongoing services include the handling of enquiries, instructions, complaints and claims for the members. FIA said that the broker should gather information on the client and then present their proposal and that if a member was unsatisfied with the service the client can terminate the relationship. FIA cited some of the services provided through employers to include:

  • Operational support
  • New member and dependant activations
  • Wellness consulting
  • Member training and education
  • Consulting advice
  • Billing and reconciliation of contributions
  • Providing comparison tools

The FIA said that year-end was a crucial time for brokers.  It was a time for plan updates from scheme and brokers undertook extensive communications including sending out newsletters and conducting road trips to assist clients to review and change their options. The organisation spent some time elaborating on the formal requirements brokers had to meet to practice, touching on minimum qualifications, regulatory exams and operational ability requirements.

Although the Medical Schemes Act does not prescribe who can employ brokers it does prescribe that a medical scheme may pay broker fees. FIA emphasised that fees for brokers were regulated and capped and were not a major cost driver. In fact it is not permissible for schemes to pay directly or indirectly any additional fees to brokers. The FIA suggested that the CMS report inflated broker fees by including scheme advertising and marketing in the fee.

Brokerage fees are built into the member’s contribution. The FIA further explained that brokers’ contract with schemes only to facilitate the payment of commission and that their service is to the member and their relationship with schemes is not an employment relationship.

Throughout, the Panel’s requests for clarity the FIA maintained that there was no incentive to stick to one scheme as the remuneration was the same and those who had contracts with various schemes were independent and not compelled to give advice with favour.

This week’s hearings concluded with a presentation from the Independent Practitioners Association Foundation (IPAF). Unfortunately, our team was unable to listen to their submissions. To view their presentation log onto the Competition Commission’s YouTube channel

For more information contact:

Umunyana Rugege at or +27 83 458 5677

Tim Fish Hodgson at or +27 82 871 9905

Luvo Nelani at or +27 79 381 8521


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