By 
The Council for Medical Schemes (CMS) has noted Michael Avery’s recent column (“Anatomy of a scandal: Bonitas said to have lost Sanlam’s trust”, October 14).
While Avery questions the whereabouts of the regulator — in a manner calculated to depict the CMS as a supine regulator — he did not bother to obtain comment from us.
The council is aware that Bonitas has appointed Private Health Administrators (PHA) to manage one of its benefit options, BonCap, out of 12 benefit options Bonitas has. The other options are administered by Medscheme Holdings, an entity of AfroCentric.
Entities that are granted accreditation (the right to administer medical schemes) are accredited on the basis that they meet three key requirements: that they are fit and proper; have the necessary resources, systems, skills and capacity to provide the administration services; and financially sound.
The council has the right to suspend or withdraw accreditation should compliance with any of these factors change. The CMS is not aware of the allegations against “Britz and his associates” and we will through the normal regulatory channels engage with Bonitas to establish the veracity thereof.
What underlies Avery’s concerns seems to be the desire to protect these long-standing relationships and maintain the status quo, as illustrated by Bonitas’ recent decision to break away from the AfroCentric group by appointing other entities for certain services.
This resistance to change takes place within a broader context of market concentration, as highlighted in the health market inquiry report, which underscores the lack of competition and innovation due to the dominance of a few administrators. This is the real anatomy of a scandal.
Evergreen contracts
The SA market for medical scheme administration services is highly concentrated, with more than 80% of the market controlled by the top three administrators. This concentration, as highlighted in the health market inquiry report, hinders competition and innovation.
One contributing factor is the prevalence of “evergreen” contracts, long-term agreements between medical schemes and administrators that can last for decades. The coexistence of for-profit and nonprofit entities in the medical scheme administration sector creates potential conflicts of interest, making it harder for the public and beneficiaries to differentiate between them.
This challenge is further complicated by cases in which the branding identities of these entities are so closely aligned that distinguishing between the roles of medical schemes and administrators becomes difficult. Such blurred distinctions can lead to confusion regarding their responsibilities and ownership structures.
The CMS has noted that this limits market competition, as new entrants struggle to break into the market. Only two new entities have entered the market for administration services in the past decade, with both having failed to secure contracts since their accreditation in 2020 and 2023.
The CMS argues that if evergreen contracts persist it will continue to stifle competition and transformation, and ultimately harm the interests of medical scheme members.
The issue is worsened by the practice in which, once an administration contract is awarded to an administrator from a particular corporate group, related contracts such as managed care, marketing, insurance, forensic and internal audit services are also awarded to companies within the same group.
Former employees
This concentration of contracts within a single group of companies raises concerns about competition and the potential for conflicts of interest.
Another phenomenon seems to be unique to this industry. Because of the size of the industry and the demand for specialised skills, most open medical schemes’ principal officers and certain executives are former employees of the administrator of that particular scheme. So sometimes when we look at these contractual arrangements and the pushback we receive from the schemes when we try to intervene in this space, we can’t help but wonder if the principal officers have really cut their cords with their former employers.
To address the issue of evergreen administration contracts, the council has been imposing accreditation conditions that the administration agreements must have fixed terms. Through our routine inspections, medical schemes that are found to have evergreen contracts are directed to ensure they are amended to have a fixed term, to regularly test the market, and to ensure services are procured through a competitive process.
So, unlike Avery, for the reasons mentioned above the council takes a dim view of decades-long contracts between medical schemes and their service providers, particularly if those contracts are not procured through a competitive process and are secured on the basis of open-ended terms.
To safeguard the interests of medical scheme members and ensure they receive optimal value, it is crucial for trustees to regularly review long-standing contracts. Many of these contracts span decades, and in particular instances these are automatically renewed without a competitive procurement process.
This lack of competition can lead to complacency among service providers, potentially reducing the quality of services and innovation over time. Trustees must ensure that all contracts have fixed terms and are subject to periodic review to promote accountability, transparency and competition.
Stagnation
By opening up the procurement process, trustees can secure more favourable terms, improve service offerings and ultimately ensure that medical scheme members benefit from enhanced care and more efficient services.
This approach also ensures that contracts are awarded based on merit and value rather than prolonged relationships, which can create stagnation in market dynamics and hinder improvements.
If trustees embark in these processes to further their own interest and not that of members, the council will not hesitate to act against them.
It is equally important for members of medical schemes to take an active role in the governance and oversight of their schemes. Members should familiarise themselves with the scheme’s rules and actively participate in AGMs. These forums provide an opportunity for members to engage with the board of trustees and raise concerns about contract arrangements, among other scheme-specific issues, especially those that may involve long-standing relationships with administrators or other service providers.
By questioning the renewal of contracts without competitive procurement processes and scrutinising the decisions made by trustees, members can hold the board accountable and ensure that decisions are made in their best interest.
Active member participation is crucial in promoting transparency and accountability, and in ensuring that medical schemes operate efficiently, delivering value and high-quality services to their members.
This not only enhances the governance of the scheme but also aligns the trustees’ actions with the needs and expectations of the broader member base.
• Maswanganyi is acting registrar & CEO, and Dr Willie executive: policy & research, at the CMS.
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