Hosmed faces R350 000 penalty for not sub­mit­ting in­for­ma­tion to reg­u­la­tor

Weekend Argus (Saturday Edition) - - PERSONALFINANCE - LAURA DU PREEZ

Hosmed Med­i­cal Scheme is likely to pay a penalty of R350 000 for fail­ing to sub­mit in­for­ma­tion to the Coun­cil for Med­i­cal Schemes af­ter the North Gaut­eng High Court dis­missed its ob­jec­tions to a claim for the penalty.

The coun­cil im­posed the penalty af­ter Hosmed ran into ad­min­is­tra­tive dif­fi­cul­ties in 2011 and failed to sub­mit to the reg­u­la­tor up­dates on the im­ple­men­ta­tion of a busi­ness plan aimed at re­turn­ing the scheme’s re­serves to the level re­quired by law.

Hosmed, three of its for­mer trustees and the scheme’s prin­ci­pal of­fi­cer ob­jected to the penalty, and the coun­cil took its claim to court. Late last month, the High Court dis­missed the ob­jec­tion and awarded costs against the for­mer trustees and the prin­ci­pal of­fi­cer.

Dawid van Zyl, Hosmed’s prin­ci­pal of­fi­cer, told Per­sonal Fi­nance that the scheme failed to sub­mit the in­for­ma­tion be­cause of dif­fi­cul­ties in com­pil­ing it af­ter Hosmed changed its ad­min­is­tra­tor.

Hosmed moved its ad­min­is­tra­tion con­tract from Thebe Ya Boph­elo to All­care in 2004 and then back to Thebe Ya Boph­elo in 2011.

Van Zyl says that, af­ter the 2011 han­dover to Thebe, Hosmed dis­cov­ered that All­care had prob­lems with its ad­min­is­tra­tion sys­tem, which made it dif­fi­cult for Thebe to com­pile the scheme’s fi­nan­cial state­ments, as well as the other in­for­ma­tion re­quired by the Coun­cil for Med­i­cal Schemes.

The coun­cil was made aware of this, and a penalty was not im­posed for the scheme’s fail­ure to sub­mit its 2011 fi­nan­cial state­ments on time.

Van Zyl says that Hosmed is now li­able to pay the penalty, but it will in­sti­tute a process to claim back the money from All­care, be­cause All­care had a con­trac­tual agree­ment with the scheme to pro­vide it with the in­for­ma­tion.

He told Per­sonal Fi­nance that Hosmed had re­tained some monies owed to All­care in trust, which could be used to pay the penalty.

At the be­hest of the Regis­trar of Med­i­cal Schemes and the chief ex­ec­u­tive of the coun­cil, Dr Mon­wabisi Gantsho, Hosmed was sub­ject to a foren­sic in­ves­ti­ga­tion that has re­sulted in claims be­ing lodged against, in the main, in­di­vid­u­als as­so­ci­ated with All­care.

Hosmed is cur­rently sub­ject to an in­ves­ti­ga­tion – also at the be­hest of the regis­trar – into the fit­ness and pro­pri­ety of its trustees.


The ori­gin of the court case dates back to 2010, when Hosmed was un­der the ad­min­is­tra­tion of All­care and the scheme’s re­serves as a per­cent­age of its con­tri­bu­tion in­come, or its sol­vency ra­tio, were at nine per­cent, well be­low the legally re­quired 25 per­cent of re­serves.

Hosmed sub­mit­ted to the Coun­cil for Med­i­cal Schemes a busi­ness plan to re­turn the re­serves to the re­quired level. The coun­cil ap­proved the busi­ness plan.

Ac­cord­ing to the High Court judg­ment, the coun­cil asked the scheme to sub­mit monthly man­age­ment ac­counts, to in­di­cate how Hosmed was per­form­ing rel­a­tive to the busi­ness plan, and asked the trustees to at­tend quar­terly meet­ings with the coun­cil.

The scheme did not com­ply with th­ese re­quests, and in De­cem­ber 2011 the reg­u­la­tor in­formed each trus­tee and the prin­ci­pal of­fi­cer that they were li­able for penal­ties as a re­sult of their non-com­pli­ance.

Hosmed, its for­mer trustees – Solomon Sello Bodiba, Thomas Baloyi and Takalani Kwinda – and Van Zyl ob­jected to the claim.

Ac­cord­ing to the judg­ment, they said Hosmed had not been given proper no­tice of the penal­ties, be­cause only the for­mer trustees and the prin­ci­pal of­fi­cer had been no­ti­fied of them. But Judge CH Nicholls dis­missed this, say­ing it is clear from the Med­i­cal Schemes Act that no­tice to the prin­ci­pal of­fi­cer amounts to no­tice to the scheme.

The for­mer trustees and Van Zyl also ar­gued that the scheme is obliged to sub­mit a busi­ness plan only and can­not be di­rected to sub­mit monthly man­age­ment ac­counts.

Judge Nicholls said the Regis­trar of Med­i­cal Schemes has the right to re­quest fur­ther in­for­ma­tion from schemes, and he could ask for monthly man­age­ment ac­counts in or­der to ob­tain fur­ther in­for­ma­tion about a scheme.

The for­mer trustees and Van Zyl said the scheme could not be pe­nalised for the fail­ure of its of­fice-bear­ers to at­tend meet­ings.

But the judge said there was no merit in this ob­jec­tion, be­cause the coun­cil’s claim was based pri­mar­ily on the scheme’s fail­ure to pro­vide fur­ther in­for­ma­tion.

Judge Nicholls also dis­missed an ob­jec­tion that only the trustees could be li­able for a fail­ure to pro­vide quar­terly fi­nan­cial state­ments and not the scheme or Van Zyl. He said the Med­i­cal Schemes Act makes it clear that any li­a­bil­ity of the trustees is that of the scheme and its prin­ci­pal of­fi­cer.

“All the ex­cep­tions raised by the de­fen­dants are premised on ap­ply­ing ar­ti­fi­cial sep­a­ra­tions be­tween the scheme, the board of trustees and the prin­ci­pal of­fi­cers.”

Judge Nicholls said the Act im­poses cer­tain obli­ga­tions on med­i­cal schemes through their trustees and prin­ci­pal of­fi­cers.

“If th­ese are not com­plied with timeously, the Act en­ti­tles the [coun­cil] to im­pose daily penal­ties. This is pre­sum­ably to en­force good gov­er­nance and to en­sure that a scheme is en­cour­aged to de­lay as lit­tle as pos­si­ble in com­ply­ing with its obli­ga­tions,” he said.


Gantsho wel­comed the judg­ment and said his of­fice would en­force it.

“This is a wel­come break­through in the long bat­tle with schemes such as this one, and the judg­ment will also serve as a valu­able les­son and guid­ance to other schemes that may be of the view that they can willynilly ig­nore the di­rec­tives is­sued by this of­fice un­der the Med­i­cal Schemes Act,” he says.

Van Zyl says that Hosmed’s le­gal ad­vis­ers are re­view­ing the judg­ment, be­cause it holds him, the three trustees and the scheme li­able, with­out tak­ing into ac­count the cir­cum­stan­tial ev­i­dence.

Al­though the judg­ment might not be in the in­ter­ests of the med­i­cal scheme in­dus­try, Hosmed will take le­gal ad­vice on whether chal­leng­ing the judg­ment will be in the in­ter­est of its mem­bers, he says.

Van Zyl says that foren­sic au­di­tors Ligwa Ad­vi­sory Ser­vices had, at the be­gin­ning of 2011, pub­lished a re­port into their in­ves­ti­ga­tion. As a re­sult of their find­ings, Hosmed in­sti­tuted sev­eral civil claims, mainly against in­di­vid­u­als as­so­ci­ated with All­care. A crim­i­nal case was also reg­is­tered.

Hosmed re­cov­ered R6.5 mil­lion plus in­ter­est from a ser­vice provider for a loy­alty pro­gramme that was deemed im­proper by the coun­cil, Van Zyl says.

In Oc­to­ber this year, the regis­trar in­sti­tuted an in­ves­ti­ga­tion to as­cer­tain if the trustees of the scheme are fit and proper.

Van Zyl says that Hosmed has raised its sol­vency ra­tio from nine per­cent in 2010 to 23.1 per­cent in Novem­ber 2013, and it ex­pects to reach the re­quired 25 per­cent by the end of this year.

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