THE activism displayed by members of Discovery Health Medical Scheme (DHMS) last month, when they called for a review of fees paid to administrator Discovery Health, may be a sign of things to come for an industry that operates largely unchallenged by consumers.

Direct encouragement from regulators, such as the Council for Medical Schemes and the National Consumer Commissioner, and tough economic conditions are driving members to ask questions of the medical schemes.

"Member activism has traditionally been weak in open medical schemes . because it only becomes effective when there is some form of concerted action, which many have found difficult," says Alex van den Heever, who holds the Old Mutual chair of social security at Wits.

"(But) as private health costs rise, it is inevitable that it will become worthwhile for both employers and members to exercise their rights, already enshrined within the Medical Schemes Act, to take a far greater interest in the strategic decision making of all open medical schemes," he says.

Consumer activism is the order of the day, agrees Blum Khan, CEO of Metropolitan Health. "Everyone is feeling the economic downturn, and affordability is high on everyone's agenda," he says.

Medical schemes and their administrators are tightly regulated by the act. It stipulates that medical schemes are trusts, nonprofit entities that pool members' money to cover future medical expenses.

There were 100 schemes registered with the council in 2010, 73 restricted to people working for specific employer groups and 27 open to anyone who could afford the monthly premiums.

Administrators are companies run for profit, providing schemes with services such as managing member's claims and negotiating rates with private hospitals.

DHMS is the biggest open medical scheme on the market, with 2,35-million members last year, and is administered by SA's second-biggest administrator, Discovery Health, a subsidiary of JSE-listed Discovery Holdings.

Discovery Health was established by Adrian Gore in 1992, and was initially a health insurance company called Momentum Health. He quickly differentiated it from its rivals, introducing medical savings accounts to encourage consumers to be more judicious about their day-to-day use of doctors and dentists, and devised a loyalty programme called Vitality to attract and retain them.

Vitality rewards members for their healthy choices, such as gym visits or purchasing nutritious food, measures that also help the scheme contain its healthcare spend.

Since Discovery Holdings is a listed company, the financial performance of DHMS's administrator Discovery Health is open to public scrutiny to a greater extent than many other administrators.

Discovery Health received R3,2bn in administration and managed-care fees from DHMS for the year ended June 30 last year, and R217m from the other 13 restricted schemes it services.

DHMS contributed more than 90% of the administrator's R1,4bn operating profit.

However, direct comparison with other administrators is difficult, as few are listed on the JSE and none offer identical services.

Metropolitan Health, for example, looks after several restricted medical schemes for public servants, including the Government Employees Medical Scheme.

It is a subsidiary of JSE-listed MMI, and contributed R1,2bn or 5% to the group's diluted core headline earnings of R2,59bn for the year to June 30 last year.

However, restricted schemes do not carry the same costs as open schemes, such as broker fees. Nor does Metropolitan provide the same incentive programmes.

DHMS members appear to pay a relatively large amount of money over to their administrator compared to the rest of the market: the council's annual report shows DHMS administration fees per beneficiary were the second highest in the country, at R102 per beneficiary per month.

But Discovery Health's CEO Jonathan Broomberg argues this is a misleading measure because the industry does not use a standard definition of administration fees.

A more accurate yardstick, he says, is the ratio of total nonhealthcare expenditure to gross contribution income, which shows DHMS is paying competitive rates. Its total nonhealthcare expenditure as a proportion of gross contribution income has fallen from 16,2% in 2007 to 14,6% last year, placing it just below the industry average of 15%. Equally, Discovery's nonhealthcare expenditure has fallen in real terms, while all other costs have risen faster than inflation. DHMS members are asking the right questions, but they may be hard pressed to understand all the answers.

kahnt@bdfm.co.za