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News Article : Discovery Health response to Stan Eiser
Category: Healthcare Insurance : Medical Schemes
Author:Dr Jonathan Broomberg, CEO, Discovery Health
Email:[email protected]
Posted:21 Feb 2013

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It is unclear why Mr. Eiser chooses to persist with these unfounded allegations

Mr Eiser appears to have a personal axe to grind with Discovery Limited and the Discovery Health Medical Scheme (DHMS). He has raised similar spurious issues numerous times in the past, and seems impervious to the comprehensive responses that have been provided.

The facts, and the ongoing strong performance of DHMS have consistently proved Mr. Eiser's allegations to be inaccurate and without foundation.

It is unclear why Mr. Eiser chooses to persist with these unfounded allegations.

Governance of the Discovery Health Medical Scheme

Contrary to Mr. Eiser's view, Discovery Limited has never had any form of 'ownership' control of DHMS.

In terms of the Medical Schemes Act, 131 of 1998, DHMS is a not for profit entity, effectively owned by its 2.5 million beneficiaries, and is governed on their behalf by an independent Board of Trustees.

As required by the rules of DHMS, over 50% of the DHMS Trustees are elected by members from amongst members.

The 7 Trustees of DHMS are independent, highly skilled professionals qualified in the law, actuarial science, business and medicine, and they serve the scheme with the utmost integrity and independence.

Mr Eiser's regular attacks on the Trustees are malicious, and entirely without foundation.

The relationship between DHMS and Discovery Health is a contractual one, in terms of which DHMS has appointed Discovery Health to conduct the administration and managed care operations of the medical scheme.

In terms of the fiduciary obligations of the DHMS Trustees, their objectives are to act in the best interests of the scheme and its members.  As regards the quorum rules for a Special General Meeting (SGM), the current rules of the scheme stipulate that 5 members may convene an SGM.

In light of the fact that the scheme now has over 1.2 million principal members, the Trustees took legal advice on whether the number of members required for an SGM should be increased to a moderately higher level, aligning this rule with best corporate governance practice, and to ensure that when members convene a SGM, that the matter to be discussed is of relevance and importance to a broad base of the scheme's membership.

This approach was aimed at finding the most appropriate balance between member democracy and best practice governance principles. 

The scheme's legal advisers suggested that the number be increased slightly and a routine application was made to the Council for Medical Schemes to consider, comment and advise on the proposed rule in terms of the scheme's normal interaction practices with CMS.

The CMS advised the Trustees that a change of this nature should be voted on at the Scheme's Annual General Meeting. The Trustees accepted this guidance from CMS.

Mr Eiser's allegations in this regard are entirely false. At no time was this process ever secretive, nor has it failed. The Scheme values its relationship with CMS and guidance from the Regulator is always appreciated.

The statement that DHMS applied to the regulator for exemption from open enrolment regulations is another complete fabrication.

At no time has DHMS ever applied to CMS for such an exemption, and it abides entirely by all elements of the Medical Schemes Act.

There is thus absolutely no basis for Mr Eiser's allegation that the Trustees of DHMS have failed to disclose material information to members.

Financial performance of the Discovery Health Medical Scheme

Mr Eiser's points about the financial position of DHMS could not be further from the truth.

DHMS is the largest, and most financially stable medical scheme in South Africa. It has reserves of over R8.2 billion, and enjoys the highest possible credit rating of any medical scheme in the country. 

DHMS has shown a very strong surplus for the 2012 year, which has added significantly to the reserves of the scheme.

DHMS's strong performance is manifest in its consistent excellent growth in membership - the scheme has added over 600,000 new lives over the past 6 years, while all other open schemes have lost approximately 800,000 lives during the same period.

Contributions for DHMS are approximately 10%-15% lower than other competitor schemes on a plan for plan basis and its benefits are consistently richer than those of competitor schemes.

While a small number of selective benefit cuts have been implemented in the past, principally to curb severe abuse in specific benefit areas, the main trend within DHMS has been to consistently increase benefits particularly in areas of most critical need, such as hospitalisation, chronic medication and cancer.

In all of these areas, DHMS's benefits provide the richest cover available in the South African market.

Administration fees charged by Discovery Health to Discovery Health Medical Scheme

The administration fees charged by Discovery Health to DHMS have been reducing in real terms on a consistent basis for the past 5 years. This is the result of a series of administration fee reductions negotiated by the Trustees.

The net impact of these administration fee reductions is that administration fees have increased by significantly less then CPI each year, and the Trustees have set a combined administration and managed care fee target of 10% of annual gross contribution income to be reached in the next two years. 

At the same time, members of DHMS enjoy the highest levels of service in the industry, as well as ongoing excellence in risk management and managed care, which allows the scheme to offer rich benefits at competitive premiums.

It is also important to point out that Mr. Eiser's linkage of administration fees and contributions and benefits betrays his lack of insight into the workings of medical schemes.

Total administration and managed care fees account for just over 11% of total scheme expenses.

It is changes in healthcare expenses, which account for over 85% of total scheme expenses that influences annual increases in contributions.

Healthcare expenses are themselves driven by both annual tariff increases and increased usage of medical services.

It is ironic that Mr. Eiser fails to recognize that DHMS has by far the lowest annual rates of increase in healthcare expenses in the industry, due to the state of the art managed care and risk management systems and skills applied by Discovery Health.

It is these lower healthcare expenses that allow DHMS to offer richer benefits at lower premiums than all other competitor schemes.

Prior to the AGM held in June 2012, the Trustees decided to commission a review of the value for money obtained by DHMS from Discovery Health.

This review is currently being undertaken by Deloitte and is nearing completion. The results of the review will be made public at the Scheme's AGM in June of this year.

Stan:Stan Eiser's Response to Dr Broomberg (05.03.2013 9:44)

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