THE decision by the Council for Medical Schemes (CMS) to place Sizwe Medical Fund (SMF) under curatorship is a ploy by the Registrar, Dr Sipho Kabane, to halt the merger between Sizwe and Hosmed Medical Scheme “that would place it [the merged scheme] in the top 10 biggest medical schemes, with contributions of R4Billion and solvency of 33% and reserves of R1.37 Billion” – a claim made in a statement released by Sizwe in response to CMS’ application in the high court to place Sizwe under curatorship and to halt the merger.
The medical aid fund accuses the Registrar of harbouring a personal vendetta against it and says he has a history of scuppering attempts by Sizwe to merge with other medical schemes. “It is important to report another incident of a merger of Sizwe sabotaged by the Registrar’s Curatorship.
“In 2019 Sizwe Medical Fund was approached by Thebe Medical Schemes which wanted to merge with us. Thebe proposed a merger with Sizwe and just before the transaction was concluded CMS placed Thebe under Curatorship. Thebe will die in the hands of the Curator and possibly be merged into one of the big schemes. We think this is what CMS wants to achieve, strengthen the power of the dominant players in the industry.
“Is it a coincidence that when Hosmed wants to merge with Sizwe then he wants to place Sizwe under Curatorship?”
In addition, Sizwe accuses Kabane of being anti-transformation. “Sizwe is the only medical scheme in the country that is administered by a 100% black owned administrator, a black internal audit company, a black external audit company and a black actuary…..This Scheme [meger] just like Sizwe will have a significant black majority board, black management, black administrator, black internal auditor, black external auditor”.
The statement addresses the reasons advanced by the Registrar in his application for the appointment of the curator to the Scheme. Reasons by the Registrar include the following:
- The accessibility of voting platforms and support for Hosmed members to cast their votes for the transaction.
- Hosmed’s accreditation to SALGA lapsing 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 end May 2021
- The objections to the merger by IMATU, SAMWU and SALGA being indicators of dissension in this transaction, suggesting lack or insufficient stakeholder engagement. This dissent has potential to affect operations of the business, and ultimately affect the interests of medical scheme members.
- The due diligence process for Sizwe being conducted in July 2020, when the amalgamation process was already underway. – The management report submitted by Sizwe’s auditors raised internal control deficiencies by its principal officer, trustees, and administrator. Such deficiencies in internal controls may place members of this medical scheme at a disadvantage.Here are the Registrar’s concerns with regards to SMF and the proposed merger LegSection 63(6) Letter to schemes 29 07 20_final edited.docx
Below is Sizwe’s full statement in response to the CMS.
“The Board of Sizwe Medical Fund and its Executives have received with shock the media statement of CMS regarding the refusal to approve our merger with Hosmed and his reference to his intent to place Sizwe under Curatorship.
Before responding point by point to all the matters that the Registrar has raised I think I should deal with the matter of the purported Curatorship first.
Sizwe was established in 1978 by a group of black doctors and business people with one white man. Sizwe is first medical aid that was established for black people, the hurdles our founders had to cross include the fact that it was illegal for black people to be members of a medical aid and to open company bank accounts, our founding fathers and mothers also opened the first black hospital in Soweto. We pride ourselves with our founding fathers who include luminaries like Ntate Maponya, Dr Motlana, Dr Mphafudi, Dr Tlakula and others. These legends are the founders of Sizwe’s administrator, 3Sixty Health which is formerly known as Sechaba Medical Solutions.
Sizwe is the only medical scheme in the country that is administered by a 100% black owned administrator, a black internal audit company, a black external audit company and a black actuary.
The Registrar in his statement released on Friday 31 July to the public is misleading especially about his statement on Curatorship as if it’s only a future event. The Registrar has on 14 July 2020 filed with the Pretoria High Court an urgent motion to place Sizwe under Curatorship.
It was interesting that the Registrar went to Court on urgent bases but when he saw our answering affidavit he wanted a postponement and we declined and insisted on the judgement.
The matter was considered by the judge after our replying affidavit was served and the matter was thrown out of court with costs. The Judgement said “the matter is struck out of court due to its lack of urgency”.
The reasons that Dr Kabane as registrar placed as the reason for Curatorship are anything but laughable. We invite the members of the public with an interest in the case to obtain CMS’s application and our answering affidavit. The Registrar was supposed to reply to our answering affidavit and he hasn’t. He hasn’t served us with fresh papers and no Curatorship is pending.
It is important to report another incident of a merger of Sizwe sabotaged by the Registrar’s Curatorship. In 2019 Sizwe Medical Fund was approached by Thebe Medical Schemes which wanted to merge with us.
Previously Thebe had solvency problems but they were on the mend, however their growth was escalating and creating an unintended problem of lower solvency, another of the CMS’s rules applied without logic.
The calculation is such that if a scheme grows membership its solvency will initially decline and as it needs time to build reserves from and for new members. Thebe proposed a merger with Sizwe and just before the transaction was concluded CMS placed Thebe under Curatorship, Thebe will die in the hands of the Curator and possibly be merged into one of the big schemes. We think this is what CMS want to achieve, strengthen the power of the dominant players in the industry.
Is it a coincidence that when Hosmed wants to merge with Sizwe then he wants to place Sizwe under Curatorship?
Sizwe was placed under Curatorship in 2012. During this time there was a deliberate and sinister plan where Sizwe would have been “absorbed “ into another scheme. This would have been the end of Sizwe as we know it and in fact had it not been because of the members, Sizwe would not exist.
Curatorship is not good for medical schemes, it gives too much power to an individual and removes accountability. Often these individuals serve their own interests, the stories above indicate that, it is our belief that Curatorship does not work and should be done away with and replaced with less destructive interventions.
During the period of Sizwe’s Curatorship and for the next 5 years thereafter the scheme consistently lost members, Sizwe declined by 20% as a result of Curatorship and it is only recently with the help of 3Sixty Health that the decline was arrested and growth started coming in and perhaps that is the reason why we are under attack.
It is a curios that CMS has suspended key executives and CMS itself is being investigated by SIU. They have ensured that the industry does not transform and that dominant players become more dominant.
We should note that it has never happened in the history of medical schemes that the Registrar makes public his intention to place a scheme under Curatorship, this action only tarnishes the name and reputation of Sizwe.
We are appalled at the behaviour of the Registrar at a time that the country and the world is fighting Covid-19. He has created doubt about the safety of Sizwe members money and the ability of the scheme to serve them.
Dr Kabani has not served the interest of Sizwe and Hosmed members. It is important that we should inform the members that Sizwe has submitted to CMS Sizwe performance results for the prior year and the first quarter results. The Scheme is in a strong and healthy financial position with reserves of 36% against regulatory requirements of 25% and our credit rating is AA-.
The Scheme is well managed and will meet or even exceed its budget for the year 2020. These figures are in the public domain at the CMS website. When there is a merger there should be an undue advantage enjoyed or disadvantage suffered by members of any of the merging schemes. In this case both schemes have high solvent and members would benefit from economies of scale.
The Registrar has approved mergers before that were highly unmatched than this one . CMS itself has defined the Sizwe and Hosmed merger as the best merger ever.
We will now deal with Dr Kabane’s reasons for declining the merger and where necessary we will refer the readers to the Medical Scheme Act to point at the folly of the press statement.
- Accessibility of voting platform for Hosmed members
We obtained input from Hosmed on this matter and we copied and pasted as received. We all find ourselves engulfed by a terrible virus that has changed the world in which we live, nobody is unaffected. The Hosmed members were afforded an opportunity to vote and majority of those who voted supported the merger. Other mergers have passed with less voter turnout under normal conditions. The communication systems in our country are sufficiently advanced to reach most if not all members, business and commerce is running online.
We contest this fact and dismiss it outrightly as the reason for declining the merger. The Registrar could have required that the process be audited or repeated to his satisfaction but it can never be the reason for declining the merger.
- SALGA accreditation
South African Local Government Authority (SALGA) is an employer group for municipalities. Again we obtained input from Hosmed on this matter and we copied and pasted as received. Hosmed met all the SALGA requirements and the merged scheme would meet the requirements. We informed SALGA about the intended merger and there were no objections. We discovered to our horror that the Registrar has been engaging with SALGA directly behind our backs, something that is not done in the industry.
Why would SALGA not be happy with a bigger black administered medical scheme when all medical schemes in SALGA are administered by white companies. We are in the process of reengaging SALGA and we dismiss the attempt of the Registrar to attempt to influence the outcome.
- The objections by SAMWU, IMATU and UTATU
This is the most shocking of all the reasons advanced by the Registrar, we have received information that some of those who objected have withdrawn their objections and want to come forward and testify about how their objections were coordinated by our competitors.
We intend to reveal the details when we formally appeal the decision. We would like the Registrar to point us to a section of the medical scheme act that he relied upon to accept the views of organisations since the members of medical schemes are members in their personal capacity and not via a trade union.
- The due diligence of Sizwe being conducted in July
The process Dr Kabane refers to as due diligence is actually merger administration and not due diligence in the strictest sense of the word. A due diligence of the schemes is what is called an exposition document which was submitted to Dr Kabane long ago. This process only needs to be completed before the merger is completed which was due to for 1 August and was concluded a week before the due date.
- The management report of Sizwe with questions over internal controls
The Registrar takes issue with the fact that an internal auditor has revealed short comings in internal controls and fails to note that Sizwe has just submitted unqualified financial reports for the year 2019.
Sizwe is internally audited by Sekela Xabisa and externally by Ngubane & Co. It is the duty of the Internal Auditor to flag internal control problems on a continuous basis and the internal and external auditors must do so with independence and without fear and favour.
In all organisations it is the role of the internal auditor to raise issues on a continuous basis so that they can be debated and corrected. The findings of the internal auditor must indicate to all that the internal auditor as an internal control is working, the auditors did not identify malfeasance as he wants to intimate.
The Registrar will be hard pressed to demonstrate how the internal controls deficiencies have cost Sizwe money and how they will cost the merged scheme money and why he thinks they can’t be fixed. He will have to tell the country that all medical schemes have zero internal audit findings, something if true should scare us all.
But the substance on this matter has nothing to do with the impression that the Registrar is trying to create. One of the issues has to do with the requirement of the Medical Schemes Act to have contributions collected within 3 days of the new month. We complete our collections within 7 days and there is no medical scheme that collects within 3 days. This is such an impossible requirement for the industry and we wonder why Dr Kabane thinks it should be possible for us only.
We are happy that our auditors continue to flag even impossible things and report them to Council. CMS promotes mergers to make schemes stronger but it seems these mergers are only acceptable to Dr Kabane and his predecessors if they strengthen the big players.
With Covid it is inevitable that both Sizwe and Hosmed will lose members through retrenchment and the merger will protect remaining members of the merged scheme. Dr Kabane is acting against the interest of members. He is also acting against transformation, we seem to be pursuing too deep a transformation against his liking.
There is another inconsistency by Dr Kabane. He initially approved the Exposition document in the month of May. At some point thereafter Dr Kabane changed his mind about the merger and he started looking for reasons. He didn’t start off by establishing reasons and then making a decision.
You can tell from the clumsiness of his statement and court papers that this is a rushed job with nefarious intentions. When he embarked on a failed attempt at placing Sizwe under Curatorship he did not meet with Sizwe Board to declare his dispute. Curatorship is an extreme and destructive measure and the Registrar who is conducting his role with care and skill will not use it as the first option, but the objective of Curatorship was to scupper the merger. We then started enquiring from him about his intentions and he declined that the merger will be stopped. We have been writing to the Registrar over the postponement of the AGM which was supposed to be in July and he still has not replied to us. He did not meet us to engage us about his unhappiness and he refused uncharacteristically to meet with us and Hosmed about the merger.
Dr Kabane has declared war with Sizwe and risks bringing the entire industry into disrepute. His fight with Sizwe is personal and has nothing to do with members.
The Court dismissed his urgent application with costs and we will be fetching our members money from CMS. His circular is full of innuendos which should never come from a regulatory office. His actions against Sizwe during the Covid-19 pandemic is reckless to the extreme. What Dr Kabane is trying to destroy is a merged scheme that would be in the top 10 biggest medical schemes, with contributions of R4Billion and solvency of 33% and reserves of R1.37 Billion.
This Scheme just like Sizwe will have a significant black majority board, black management, black administrator, black internal auditor, black external auditor.
This intervention of Dr Kabane is not new, we have many stories to tell about him. We have reported CMS and Dr Kabane to the Public Protector for abuse of power and to the Competition Commission for uncompetitive regulatory behaviour. We hope these offices will see these matters as urgent.
We are happy to be judged in a court of public opinion because we have no confidence in Dr Kabane. His conduct on this matter and other mergers involving Sizwe that he and his office have undermined leave us with no confidence in his leadership of the industry.
We challenge Dr Kabane and his team to a public hearing or an interview. He must face us in public so that members of the public can judge for themselves instead of him releasing statements that tarnish our reputation. We are proud of our work and we have done nothing that warrants this kind of treatment except for his love for big dominant players. We are under attack and we will not lie low until the truth comes out.
Statement by Sizwe Medical Fund