Discovery building in Sandton. Picture: SUNDAY TIMES/SYDNEY SESHIBEDI
Discovery building in Sandton. Picture: SUNDAY TIMES/SYDNEY SESHIBEDI

DISCOVERY Health Medical Scheme (DHMS) defended on Thursday its relationship with its administrator Discovery Health in the face of close questions from the Competition Commission’s Health Market Inquiry, now in its third week of public hearings.

Among the matters in the spotlight were the independence of DHMS and the fees it pays to Discovery Health, two sensitive issues that received intense scrutiny from a group of activist members several years ago.

DHMS is SA’s biggest open medical scheme, with 2.7-million members, and is administered by Discovery Health, a subsidiary of JSE-listed Discovery. DHMS is a not-for-profit organisation that pools members’ funds to pay for medical expenses.

Discovery Health is one of Discovery’s most successful subsidiaries, and delivered R1bn in normalised profit from operations for the six months to December 31, an 11% increase on the corresponding period the year before.

Panel chairman, retired chief justice Sandile Ngcobo, put it to DHMS that there was a perception that the medical scheme and its administrator were one and the same. The inquiry had heard that Discovery Health and DHMS shared premises and that executives from the two entities attended the open sessions of one another’s executive committee meetings.

DHMS chairman Michael van der Nest said that while perception might exist, the scheme did make its own decisions.

Member concern about the relationship between the two parties had led DHMS to commission research from Deloitte Consulting in 2012, he said, referring to a rare show of member activism that also saw a demand for a targeted reduction in administration fees and an assessment of whether the administration business should be put out for tender.

The Deloitte report concluded that while the scheme was paying nonhealthcare fees to Discovery Health that at the time were R11.43 higher per average beneficiary a month than the industry average for open schemes, members were getting value for money.

It also concluded that the DHMS model of outsourcing its administration and managed care to a single entity was the most efficient approach.

DHMS principal officer Milton Streak said on Thursday the nonhealthcare fees paid to Discovery Health had declined from 11.6% of contribution income in 2012 to 10.4% last year, and it was now paying a rate below the industry average. "We get significant value … in terms of innovation investment. I think it is a fair fee and an efficient fee," he said.

Panel member Cornelis van Gent expressed some scepticism about the capacity of DHMS to change administrator. "It’s impossible for me to believe that (in) reality, you would fire (Dr) Broomberg (CEO of Discovery Health)," he said.

Mr van der Nest said the relationship with Discovery Health would terminate if it did not provide the information and services the scheme required.

Panellists also pushed DHMS to explain the process a member would go through if they had a complaint, and questioned why consumers were expected to go through first the administrator, then the scheme, and finally take their issues to the Council for Medical Schemes.