Dis­cov­ery bosses de­fend prof­its on ad­min­is­tra­tion

Weekend Argus (Saturday Edition) - - PER­SON­AL­FI­NANCE -

The heads of both Dis­cov­ery Health Med­i­cal Scheme (DHMS) and its ad­min­is­tra­tor were again ques­tioned about the fees the scheme pays for ad­min­is­tra­tion and the value it gets for these fees at the scheme’s an­nual gen­eral meet­ing on June 23.

The ques­tions asked at this year’s AGM and trus­tee elec­tions, which re­sulted in four new trustees be­ing an­nounced this week, have been asked be­fore and are likely to be asked again.

That’s be­cause al­though the scheme’s board feels “com­fort­able” about the re­sults of a study it com­mis­sioned that de­ter­mined that you, as a scheme mem­ber, do get value for money, many mem­bers do not feel quite as sat­is­fied with the in­for­ma­tion pre­sented and other in­for­ma­tion they re­ceive or their ex­pe­ri­ence when it comes to claim­ing ben­e­fits.

This year, Jonathan Egdes, a mem­ber of the scheme who was also up for elec­tion as a trus­tee, raised the is­sue of the fees paid to the scheme’s ad­min­is­tra­tor, Dis­cov­ery Health. Egdes, and more than 100 other mem­bers who stood for elec­tion, did not get enough votes to make it onto the board.

Egdes pointed out at the AGM that while the med­i­cal scheme is a not-for­profit en­tity, the net sur­plus or deficit made by the scheme is akin to a profit in a for-profit en­tity.

He said the prof­its made by the for­profit ad­min­is­tra­tor, Dis­cov­ery Health, had con­sis­tently out-per­formed the sur­plus made by the scheme – by al­most 100 per­cent.

It is a huge con­cern that the scheme and its mem­bers bear all this risk while Dis­cov­ery Health and their ad­min­is­tra­tion and man­aged health­care busi­nesses dou­ble their money, and this had been go­ing on for a num­ber of years, he said.

This week, health­care busi­ness ad­viser and en­tre­pre­neur Stan Eiser elab­o­rated on the point Egdes made, say­ing that in 2015 the scheme col­lected R40 bil­lion in con­tri­bu­tion in­come (ex­clud­ing con­tri­bu­tions to med­i­cal sav­ings ac­counts), and made a sur­plus of 1.27 per­cent, or R507 mil­lion. The ad­min­is­tra­tor, on the other hand, made a profit of R2.07 bil­lion in ad­min­is­tra­tion fees, which is 5.17 per­cent of the con­tri­bu­tion in­come.

Eiser has sim­i­lar fig­ures for pre­vi­ous years. In 2014, for ex­am­ple, the scheme made a sur­plus of R753 mil­lion, while the ad­min­is­tra­tor made R1.9 bil­lion profit on ad­min­is­tra­tion and man­aged care fees.

CARE­FUL BUD­GET­ING

Dis­cov­ery’s prin­ci­ple of­fi­cer, Mil­ton Streak, was quick to dis­miss Egdes’s com­ments. Streak said it is com­pletely in­cor­rect to com­pare the sur­plus of a med­i­cal scheme to the prof­its its ad­min­is­tra­tor makes, be­cause the scheme bud­gets “very care­fully” for a slim sur­plus – just a one-per­cent mar­gin – so a R500-mil­lion sur­plus on al­most R50 bil­lion in con­tri­bu­tion in­come, if med­i­cal sav­ings ac­counts are in­cluded.

He said mem­bers should not pay more in con­tri­bu­tions than is re­quired to cover the health­care and non-health­care costs and to main­tain the scheme’s re­serves at the re­quired level (at least 25 per­cent of its con­tri­bu­tion in­come).

Both Streak and Dis­cov­ery Health’s chief ex­ec­u­tive, Jonathan Broomberg, pointed out that the scheme’s ad­min­is­tra­tion fees, on av­er­age per ben­e­fi­ciary per month, are below the open med­i­cal scheme av­er­age: R118 for DHMS ver­sus R121 for open schemes (al­beit ex­clud­ing self-ad­min­is­tered schemes, which typ­i­cally have lower fees).

Streak said the scheme’s non-health­care ex­penses con­tin­ued to de­cline, and last year, an­nual ad­min­is­tra­tion fee in­creases were 0.5 per­cent­age points below con­sumer price in­dex (CPI) in­fla­tion and de­clined to 7.79 per­cent of gross an­nual con­tri­bu­tion in­come from 7.98 per­cent in 2014.

The chair­man of the board of trustees, Michael van der Nest, re­minded mem­bers at the AGM that the board had en­gaged Deloitte in 2013 to de­ter­mine sci­en­tif­i­cally the an­swer to the ques­tion of whether mem­bers get value for the ad­min­is­tra­tion fees they pay.

Streak said a for­mula used in the Deloitte study had found that, in 2014, for ev­ery R1 the scheme spends on ad­min­is­tra­tion and man­aged care per ben­e­fi­ciary per month, it de­rives R1.69 in added value for ben­e­fi­cia­ries.

He says an anal­y­sis of con­tri­bu­tions paid by op­tion type among the top 10 open med­i­cal schemes has again shown that DHMS re­mains the most af­ford­able across the en­tire spec­trum of health­care plans avail­able in the open med­i­cal scheme mar­ket on a like-for-like ba­sis.

Van der Nest told the AGM the board of trustees was sat­is­fied that mem­bers were get­ting value and this was the rea­son DHMS was grow­ing when oth­ers were not and why the scheme was ahead of the rest of the open mar­ket.

Streak said the scheme and its ad­min­is­tra­tor shared a com­mon ob­jec­tive, re­sult­ing in what he de­scribed as a “vested out­sourc­ing ar­range­ment” that an in­ter­na­tional ex­pert on the sub­ject, Uni­ver­sity of Ten­nessee pro­fes­sor Kate Vi­tasek, be­lieved it was a “win-win” for both the party do­ing the out­sourc­ing and the ser­vice provider.

In de­ter­min­ing whether mem­bers got value for money, the Deloitte study con­sid­ered how DHMS per­formed rel­a­tive to its open scheme peers in terms of fi­nan­cial strength, growth in mem­ber­ship and sus­tain­abil­ity, qual­ity and value for money.

DMHS’s strong mem­ber­ship growth and fi­nan­cials make it hard to doubt the study’s con­clu­sions on these as­pects.

On the harder-to-mea­sure qual­ity and value-for-money as­pects, the study con­sid­ered fac­tors such as the out-of-pocket ex­penses mem­bers faced and the num­ber of com­plaints per 1 000 ben­e­fi­cia­ries against the scheme.

It also took into ac­count the fixed cost of ad­min­is­tra­tion and the costs that could de­crease as the num­ber of mem­bers in­creased and con­cluded that the ad­min­is­tra­tor is pass­ing on a sig­nif­i­cant pro­por­tion of the economies of scale, but pos­si­bly not all.

MEA­SURE OF DIF­FI­CULTY

The cyn­i­cal will view the Deloitte study and this year’s vested out­sourc­ing model com­ments as at­tempts to jus­tify the fees paid to Dis­cov­ery Health, while scheme sup­port­ers will view it as a re­spon­si­ble move by the board.

The two will prob­a­bly never agree un­til there is an in­de­pen­dent mea­sure of what schemes de­liver and at what cost.

The dif­fi­culty with mea­sur­ing this is in how one mea­sures the qual­ity of health­care we get for our money.

A com­par­i­son of con­tri­bu­tions across dif­fer­ent schemes, or the ra­tio of money spent on claims rel­a­tive to ad­min­is­tra­tion and other health­care costs, gives no in­sight into the ben­e­fits or qual­ity of health­care you get from a scheme.

All of this is com­pli­cated by the fact that many schemes now con­tain costs by in­sist­ing you use hospi­tal, doc­tor and phar­macy net­works.

An­other prob­lem in the value-for­money equa­tion is that med­i­cal schemes are not re­quired to put their ad­min­is­tra­tion con­tracts out for ten­der; they are only en­cour­aged to do so by the Coun­cil for Med­i­cal Schemes.

As the Com­pe­ti­tion Com­mis­sion’s heath­care in­quiry has ac­knowl­edged, “con­sumers are un­able to make in­formed choices in the se­lec­tion of health prod­ucts (in­surance, ser­vices and prod­ucts) due to lack of trans­parency in the health­care sec­tor”.

The in­quiry in­tends to ex­plore the ex­tent to which, if any, in­for­ma­tion weak­nesses re­duce the abil­ity of con­sumers to make in­formed de­ci­sions, and whether this has any im­pli­ca­tions for com­pet­i­tive be­hav­iour within the sec­tor.

Many years ago, there was a sug­ges­tion that schemes should be com­pelled to of­fer the same com­mon pack­age of ben­e­fits and pro­vide add-on ben­e­fits in com­pa­ra­ble pack­ages, so that con­sumers could com­pare them eas­ily. DHMS has ar­gued against this in a sub­mis­sion to the Com­pe­ti­tion Com­mis­sion, say­ing schemes’ mem­ber­ships are too di­verse for stan­dard pack­ages.

We can only hope the com­mis­sion will give some thought to this pro­posal or an al­ter­na­tive that solves the prob­lem we have in de­cid­ing whom to be­lieve when it comes to value and what is a rea­son­able profit mar­gin on ad­min­is­tra­tion fees.

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