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News Article : Discovery’s probable loss of control over Discovery Health Medical Scheme
Category: Healthcare Insurance : Medical Schemes
Author:Stan Eiser
Email:[email protected]
Posted:20 Feb 2013

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By now Gore should have reduced Limited’s cash dependency on DHMS

The trustees of Discovery Health Medical Scheme (DHMS) have given members of the scheme more than sufficient cause, indeed compelling reasons, to have them removed and replaced with an entirely new slate.

Should Discovery Limited (Limited) retain DHMS’ business, it is highly unlikely that the level of control Limited has enjoyed over DHMS will continue.

The high pre-tax return Discovery makes from business with DHMS (40% for the year ended June 30, 2012) is unjustifiable when benefits are being cut and premiums increased to support it.

The six months ended December 31, 2012, is probably the last period for which Limited will be reporting under which the trustees have allowed it the equivalent of “ownership” control.

It is not just the continuing benefit cuts and increasing premiums funding Limited’s high pre-tax return that members are becoming increasingly alarmed and incensed by, but the trustees’ underhandedness in dealing with members, their failure to disclose material information to members, attempts to stifle member interests and grossly mismanaging the inter-option financing of the scheme, that compel their removal.

The trustees’ secret failed attempt to change the scheme’s rules to limit member rights to requisition a Special General Meeting (SGM) and increasing the quorum required for an SGM was probably the most overt action taken by the trustees against member interests.

This was motivated by the two motions that succeeded at the scheme’s 2012 AGM, requiring an independent evaluation of the fees the scheme pays Limited, including placing the services Limited provides DHMS out to tender.

Far from the scheme being in a healthy position, it is on a knife’s edge as evidenced by the scheme’s need to apply to the regulator for exemption from open enrolment regulations.

This surfaced in the media towards the end of last year. Failure to disclose this material event to members since 2009 is inexcusable and unacceptable.

At various times in the past eighteen months Limited has been questioned in the media about the over cross subsidization within the scheme, yet disclosure of the scheme’s appeal to the regulator was never made by the scheme or Limited.

Adrian Gore has a fine line to walk in presenting Limited’s results for the six months ended December 31, 2012 this coming Thursday, February 21.

Failure to acknowledge DHMS member interests in having to fund Limited’s other business with benefit cuts and higher premiums will add further fuel to an already highly charged situation.

By now Gore should have reduced Limited’s cash dependency on DHMS.

Instead businesses have been embarked on that eat cash or don’t produce enough for Limited that he expects members of DHMS to finance, in which members of DHMS, as members, have no stake.

The argument that DHMS is the best scheme in the country (if it is) does not justify a 40% return or anywhere near this when scheme benefits continue to be cut and premiums continue to increase.

The next few months leading up to the 2013 AGM of DHMS (usually held late June) are likely to be very tumultuous for Limited as it fights to protect its ties to its major funding source.

DHMS provided 77% of Limited’s operating cash flow for the year ended June 30, 2012.

So far Gore has resisted taking a commercial interest in DHMS’ results through performance based fees, which would put some commercial fibre between Limited and DHMS, but would also expose Limited to direct risk in DHMS’ results, which he appears to be afraid of.

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