1. Council for Medical Schemes 2008-9 Annual Report Presentation KP Matshidze Acting CEO and Registrar Council for Medical Schemes 18 November 2009

2. Outline Legislative Mandate Functions of Council Highlights of Operational Activities Overview of trends in the medical schemes Concluding remarks Questions and comments

3. Legislative Mandate The Council for Medical Schemes was established in terms of the Medical Schemes Act, 131 of 1998, key policy objective of which is to: Protect the interests of members – Promote non-discriminatory access to privately funded health care through: – Open enrolment – Community rating – Guaranteed benefits – Promote financial stability and sustainability – Encourage active participation of members in scheme affairs – Investigate and resolve complaints from members

4. Other Legislative Provisions Constitution National Health Act Medicines and Related Substances Act Health Professions Act Pharmacy Act Nursing Act Competitions Act

5. Functions of Council Protect the interest of the beneficiaries at all times Control and coordinate the functioning of medical schemes in a manner that is complementary with national health policy Make recommendations to the Minister on the criteria for the measurement of quality and outcomes of the relevant health services provided for by medical schemes, and such other services as the Council may from time to time determine Investigate complaints and settle disputes in relation to the affairs of medical schemes provided for in this Act Collect and disseminate information about private healthcare Makes rules, not inconsistent with provisions of this Act for the purpose of the performance of its functions and the exercise of its powers Advise the Minister on any matter concerning medical schemes and Perform any other functions conferred on the Council by the Minister or by this Act

6. Our Vision To regulate fairly and effectively in order to protect the interests of beneficiaries, and to promote equity in access to medical schemes

7. Our 7 Strategic Aims  Secure an appropriate level of protection for beneficiaries of medical schemes and the public by authorizing 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

8. CMS Accountability Structures MINISTER OF HEALTH Dr Aaron Motsoaledi COUNCIL 12 Members ACTING CEO & REGISTRAR Khathutshelo Patrick Matshidze

9. Composition of the Council Consists of Chairperson, Deputy Chairperson and 10 members, appointed by the Minister of Health Chairperson – Prof William Pick Deputy Chairperson – Ms Tracy Fortune The Council comprises a broad spectrum of highly skilled senior people which include the representative from the National Department of Health, actuaries, lawyers, medical specialists, consumer representatives and general practitioners

10. Committees of Council Council comprises of the following committees: – EXCO – Council The following specialist sub-committees have been established to aid Council in the fulfillment of its complex mandate: Appeals Human Resources Audit

11. REF PROJECT ACCREDITATION BENEFITS MANAGEMENT IT & KM HUMAN RESOURCES RESEARCH AND MONITORING COMPLIANCE AND EDUCATION & TRAINING FINANCIAL SUPERVISION LEGAL SERIVCES REGISTRAR’S OFFICE ACTING CEO & REGISTRAR COMMUNICATION PERSONAL ASSISTANT COMPLAINTS ADJUDICATION MANAGER INTERNAL FINANCE

12. Highlights

13. Operational Activities 1.Ongoing support to DoH on Risk Equalisation Fund (REF) 2.Support to DoH on Prescribed Minimum Benefits (PMB) Review Process 3.Medical Scheme Amendment Bill – Bill lapsed – Technical amendments: minor corrections – Substantive amendments Risk Equalisation Fund (REF) Benefits restructuring Governance Low Income Medical Scheme (LIMS) 4.Demarcation – Task team – Investigations

14. Operational Activities (continued) 5. Broker Consultation Documents 6.Guidelines on Good Governance 7.Guidelines on Fit and Proper Standards 8. Complaints Total received: 3138 Appeal Committee Appeal Board

15. Operational Activities (continued) Top 10 Complaints Type of complaintPeriod 2007-08% of total2008-09% of total Unpaid accounts1 06636.91 16637.2 Scheme refuses to issue authorisation2318.032010.2 Limitation of benefits / PMBs / formularies / DSPs35912.42919.3 Reversal and short-payment of accounts1023.52257.2 Non-payment of refund1384.81936.2 Administrative inefficiencies1896.51705.4 Termination of membership1615.61635.2 Misunderstanding with scheme2047.11324.2 Exclusion of a condition and/or benefits1314.5983.1 Unauthorised deductions722.5672.1

16. Overview of trends in medical schemes

17. Entities in the industry Medical SchemesEntityNumber Open37 Restricted82 Consolidated119 Commercial Intermediaries Administrators23 Brokers7755 Brokerages2081 Managed Care55

18. Trends in number of schemes

19. Coverage of beneficiaries from 2000 to 2008

20. Demographic profile of beneficiaries Average Pensioner Age (years)ratio (%) Open 32.6 (31.9) 6.7 (6.3) Restricted 29.8 (30.4) 5.5 (6.0) All schemes 31.5 (31.4) 6.2 (6.2) *Figures in brackets are for 2007

21. Contributions and claims Total: – Contributions increased by 13.2% to R74.0 billion – Relevant healthcare expenditure incurred increased by 13.6% to R64.9 billion Risk: – Contributions increased by 13.5% to R67.2 billion – Relevant healthcare expenditure incurred increased by 14.0% to R58.4 billion Savings: – MSA contributions increased by 9.7% to R6.9 billion – MSA claims increased by 10.6% to R6.5 billion

22. Contributions and claims (pabpm) Total: – Contributions increased by 9.2% to R800.8 (R733.0) – Gross relevant healthcare expenditure incurred increased by 9.7% to R701.2 (R639.2) Risk: – Contributions grew by 9.6% to R726.0 (R662.4) – Relevant healthcare expenditure incurred increased by 10.0% to R630.7 (R573.3) Savings: – MSA contributions increased by 6.9% to R100.9 (R94.3) – MSA claims increased by 7.9% to R95.0 (R88.1) *Figures in brackets are for 2007

23. Risk claims ratio for all schemes: 2008 prices*

24. Utilisation of services Utilisation of services (per 1 000 beneficiaries) 20082007 Private providersOpenRestrictedConsolidated GP visits at least once a year706.6746.2721.5731.8 Dentist visits at least once a year197.0240.1213.3222.5 Private facilities Admitted to hospitals179.6173.5177.3181.8 Number of admissions250.9204.5233.4295.4

25. Proportion of all benefits paid to providers

26. Total benefits paid per beneficiary per month (2008 prices)

27. Net healthcare results

28. Industry solvency trends for all schemes

29. Non-healthcare expenditure Consists mainly of : Administration Managed healthcare: management services Brokers fees Impaired receivables

30. Non-healthcare expenditure (NHE) Increased by 8.1% to R9.7 billion Increases lower than CPIX over past 3 years Pabpm figures increased by 4.3% – Open: Increased by 8.2% from R119.0 (R128.8) – Restricted: Increased by 0.7% from R64.8 (R65.2 )

31. Administration expenditure (GAE) Increased by 6.5% to R6.8 billion – Open schemes: increased 5.1% to R5.1 billion – Restricted schemes: increased 10.8% to R1.7 billion – GAE main component of NHE: 69.4% Adjusted for membership (pabpm): – Open: R87.5 (R81.5) – Restricted: R48.6 (R50.3)

32. Managed healthcare: management services Increased by 9.4% to R1.7 billion Number of members covered: 7.8 million (5.8% increase) 98.6% of all beneficiaries

33. Broker fees Broker costs: increased by 11.6% to R1.2 billion Broker commission: increased by 13.0% to R1.1 billion On a pampm: – Broker fees increased by 12.0% to R42.4 (R37.9)

34. Broker fees in open schemes

35. Gross non healthcare expenditure pabpa (2008 prices)

36. Impaired receivables

37. Average gross claims covered by cash and cash equivalents

38. Findings There is an increase in the consolidation of medical schemes arising from amalgamations and liquidations – this is more pronounced in restricted schemes There has not been a net loss in membership as a result of consolidation but an improvement in risk pools The rate of increase in contributions and claims appears to have stabilised even though the rate of increase in claims is higher than that of contributions Schemes are subsidising contributions from reserves possibly to minimise the impact of contribution increases on members

39. Findings (continued) There has been a general decline in the utilization of services by members The demographic profile of medical schemes particularly open schemes is worsening Despite all these, schemes are still financially sound with solvency above prescribed level Non healthcare expenditure is coming down

40. Challenges and Possible Solutions Regulatory AspectChallengePossible Solution 1. DemarcationIncrease in health Insurance products such as gap and primary care covers Review of definition of business of medical schemes Participation in the review of Long and Short term insurance legislation 2. Prices of Medical ServicesUnpredictable and opportunistic pricing structures Formation of a Bargaining Council Structure 3. Prescribed Minimum BenefitsScheme are increasingly failing to pay for PMBs in full Clarification of “payment in full” in the legislation 4. Governance practicesPoor governance practices Inadequate punitive measures Review of governance provisions

41. Healthcare Reform Process – Support of the DoH 10 Point Plan – Participation in the NHI Advisory Committee – Ongoing interaction with the DoH to contribute in Health Policy Development

42. Thank You