Watchdog targets medical aid trustee fraud

YEARS of voting fraud at medical aid AGMs have led the regulator, the Council for Medical Schemes, to propose a new law to ban businesses from manipulating the election of trustees.

A medical scheme is a not-forprofit trust, and trustees should act independently in the best interests of members who pay monthly premiums. Instead, the council says that trustees favoured by brokers and the administrators — who make money from the scheme — have been elected in rigged elections at some schemes.

So, on April 17, the regulator drafted a “declaration of undesirable business practices” to stop businesses that are paid from medical aid funds campaigning for candidates or influencing proxy voters (standing in for someone else) to vote for trustees that represent the businesses’ interests.

The council has placed some medical aids — including Sizwe, Hosmed and Medshield — under curatorship after investigations revealed fraudulent trustee elections and instances where those trustees looted medical aids of millions.

In Medshield’s 2012 elections, five out of 10 trustees were fraudulently elected and linked to a company that had earned R135-million from doing business with the scheme. The High Court in Pretoria ordered that Medshield trustees repay R1million back to the scheme “out of their own pockets for failing in their duty to protect the best interests of the medical scheme’s 200 000 beneficiaries”.

In January 2014, the council also launched an investigation into the 2013 AGM of the country’s largest medical aid scheme, Discovery, after one member alleged “irregularities” in the election of trustees.

It remains unclear what those allegations are. Dr Jonathan Broomberg, CEO of the admin- istration company, Discovery Health, told Business Times this week that it was “not aware of any specific allegations”.

That council probe examined all aspects of the Discovery AGM, including the nomination of trustees — but although the controversial election happened two years ago, the regulator has yet to finalise its report.

A draft report into the Discovery investigation was made available to the scheme and Discovery Health last September, which responded to the council’s findings.

Council spokeswoman Elsabe Conradie defended this delay, saying “the council is reviewing submissions . . . from the affected parties, including the Dis- covery Medical Scheme and the administrator”.

Broomberg said it was no secret that the administrator encouraged its staff — who were medical scheme members — to vote or send proxies. But he said that “Discovery Health never instructs its staff on how to vote, and nor does it campaign for specific candidates”.

Of the votes, four trustees received more than 70% of votes. The closest runner-up was elected with just more than 14% of votes in an election audited by PricewaterhouseCoopers.

Bonitas medical scheme also came under scrutiny over its 2012 AGM, when the scheme was under curatorship.

Only two of the trustees elected at the meeting remained on the board, said principal officer Dr Bobby Ramasia.

Ramasia said: “The council inspected the election in question while Bonitas was under curatorship, and was not able to prove any irregularities.”

The council wanted to re-examine that AGM, but the scheme took the unusual step of appealing to the council’s appeal board. Despite the court action, Ramasia said “Bonitas is not trying to stop the inspection . . . the council, not Bonitas, took the matter to court”. The case will be heard on June 15 at the High Court in Pretoria.

Conradie said one reason the new law had been drafted was because “certain parties [which contracted with medical schemes have been circumventing provisions of the law by getting their favoured persons into boards of trustees and thereby achieving the mischief that the Medical Schemes Act sought to prevent”.

Broomberg said the problem with elections was that medical scheme members “tended to be apathetic, and not participate in scheme meetings”.

Only 0.5% of all Discovery Medical Scheme members voted at elections.

Discovery Health does not campaign for candidates