Spectramed, Liberty plan to merge

Liberty Medical Scheme and Spectramed Medical Scheme have announced their intention to merge, saying the merger will create one of the largest and most stable open medical schemes in South Africa and provide members with “leading benefits at competitive rates”.

The merger is subject to the members of both schemes voting for it, as well as approval from the Council for Medical Schemes and the Competition Commission.

The merger also has to comply with the requirements of the Medical Schemes Act.

Merger talks began in 2010, when Spectramed moved its administration to Vmed, which also administers Liberty.

The merger talks have been marred by legal action that has resulted in the Registrar of Medical Schemes, Dr Monwabisi Gantsho, investigating the fitness and propriety of Liberty’s board of trustees.

Liberty’s trustees voted against the proposal to merge the two schemes when it was first made in 2010.

Later in 2010, Vmed lodged an application in the South Gauteng High Court to interdict the then chairman of Liberty’s board of trustees, Larry Jacques, and one of the trustees, Dan Pienaar, from attending the board’s meetings and discussing the scheme’s contract with Vmed.

The court papers reveal that Peter Botha, chief executive of Liberty Health Holdings, complained to the Council for Medical Schemes that Jacques and Pienaar were attempting to become shareholders in a marketing company that was being set up to offer services to Liberty Medical Scheme. This would result in a conflict between Jacques and Pienaar’s fiduciary duty as trustees and their financial interest in a service provider to the medical scheme.

The High Court dismissed the application as premature, saying that, as trustees, Jacques and Pienaar were free to make lawful decisions about the scheme’s administration contract.

INVESTIGATION

The Council for Medical Schemes then embarked on an investigation into the two trustees, but Pienaar, who succeeded Jacques as chairman of Liberty Medical Scheme, applied to the North Gauteng High Court to prevent the council from investigating the complaint laid by Botha.

In February this year, the High Court rejected Pienaar’s application, but he vowed to lodge an appeal at the scheme’s expense.

In the meantime, the council discovered that, in 2011, Liberty Medical Scheme had paid one of its trustees, Boyce Mkhize, the former registrar of the Health Professions Council of South Africa, R1.7 million as a compromise settlement and restraint-of-trade agreement when he resigned a month before his term of office expired.

The council directed Liberty Medical Scheme to recover the money from Mkhize, but he refused to comply.

The Council for Medical Schemes then approached the North Gauteng High Court, which late last month ruled that the payment was illegal and ordered Mkhize to repay the money.

Pienaar has since resigned from the board of trustees.

At the end of 2011, Liberty Medical Scheme had about 142 000 beneficiaries and a solvency ratio (reserves expressed as a percentage of contributions) of 27.9 percent – above the 25 percent required by law, according to the Council for Medical Schemes’s annual report for 2011/12.

Spectramed had about 73 000 beneficiaries and a solvency ratio of 32.2 percent at the end of 2011, the annual report states.

The annual report also shows that both schemes lost members between 2010 and 2011. Liberty lost almost 15 percent of its membership and Spectramed about 20 percent over the year to the end of 2011.