A potential merger that could have led to the formation of the largest black-owned medical scheme has been brought to a grinding halt by the Council for Medical Schemes (CMS). 

Instead of joining with Hosmed, Sizwe Medical Scheme is fighting an application by the CMS to place the fund under curatorship.

CEO and registrar of the CMS, Dr Sipho Kabane, says the exposition submitted by the two medical schemes as part of their application to merge failed to show that the merger would be in the best interest of the schemes' membership.

Sizwe and Hosmed's principal membership numbers are about 46,900 and 21,000 respectively.

A combined Sizwe-Hosmed would be the eighth largest open medical scheme in SA based on membership size. According to the exposition document, the two schemes combined are projected to report a net deficit of about R83m in 2020, if the merger does not go ahead.

However, a due diligence performed in July this year highlighted several concerns that have now been raised by the CMS in its curatorship application. These include:

• The inaccessibility of platforms on which members could vote for the merger and the lack of support for Hosmed members to cast their votes for the transaction.
• The fact that Hosmed’s accreditation to the South African Local Government Association (Salga) would lapse on confirmation of the merger, which would cause 79% of Hosmed members who are municipal employees to lose their medical scheme subsidy until the merged scheme reapplies for accreditation by the end of May 2021.
• Key objections to the merger were raised by Salga, along with the Independent Municipal and Allied Trade Union (Imatu), and the South African Municipal Workers’ Union (Samwu). The CMS notes that this suggests a lack of, or insufficient, stakeholder engagement. “This dissent has potential to affect operations of the business, and ultimately affect the interests of medical scheme members,” Kabane says.
• The due diligence process for Sizwe was only conducted in July 2020, when the amalgamation process was already under way.
• Sizwe’s auditors submitted a management report that highlighted deficiencies in internal controls on the part of the scheme’s principal officer, trustees and administrator. Kabane says such deficiencies in internal controls may place members of this medical scheme at a disadvantage.

“To ensure good governance, effective management and functioning of the scheme and to safeguard the interest of members, the CMS has launched an application to place Sizwe under curatorship,” Kabane says. This application remains pending and will proceed through the normal court roll.

Sizwe Medical Scheme was last placed under curatorship in 2012. The scheme’s principal officer Dr Simon Mangcwatya, in a hotly worded response to the CMS, alleges that during the period of the curatorship and over the next five years the fund consistently lost members, with numbers declining by 20%. 

With reference to the complaint that Hosmed scheme members were not afforded sufficient opportunity to vote on the merger, Sizwe’s statement says: “The Hosmed members were afforded an opportunity to vote and the majority of those who voted supported the merger. Other mergers have passed with less voter turnout under normal conditions.

“What Dr Kabane is trying to destroy is a merged scheme that would be in the top 10 biggest medical schemes, with contributions of R4bn, solvency of 33% and reserves of R1.37bn,” says Mangcwatya.

What curatorship means for a medical scheme

Medical schemes are usually placed under curatorship when the Council of Medical Schemes has concerns regarding the existing senior leadership and the management of the scheme.

Under curatorship means an independent curator is appointed to take control of the scheme and manage its business in accordance with the provisions of the Medical Schemes Act and the rules of the scheme.

The appointed curator must report to the registrar of the CMS and members of the scheme within two months of being appointed, and to the registrar every two weeks during the two months.

His final report must include findings and recommendations on the affairs of the scheme and the possible continuation of the curatorship.

The curator must convene a special general meeting of the scheme at which a new board of trustees must be elected; this meeting must take place within 90 calendar days from the date on which the curatorship is granted.

If you are a member of Sizwe Medical Scheme, it is important to note that a curatorship application does not necessarily mean the scheme is financially unstable or unable to honour any claims. It is simply a means to ensure that the scheme is being responsibly managed in the best interest of the members.

Mmatsie Mpshane, acting general manager of stakeholder relations at the CMS, says the matter is now before the court and the CMS will only comment on these issues once the court has made its ruling.

“The CMS reiterates its mandate and commitment to protecting the interests of medical scheme members at all times,” she says.

Mangcwatya did not respond to requests from Money for an interview.