Court approves final curatorship for Pro Sano

Pro Sano Medical Scheme, one of South Africa's oldest, has been in the news for all the wrong reasons recently. On 30 April 2007 the Cape High Court ordered that the Pro Sano Medical Scheme be placed under final curatorship.

Mr Justice Yekiso granted the order, which followed a provisional order on 30 March 2007.

Mr Johannes Malose Seoloane, who was appointed as the interim curator under the previous court order, will continue managing the scheme.

The court ruling follows its consideration of a report provided by Seoloane on 25 April 2007. The report highlighted a number of administrative problems at Pro Sano and recommended that the provisional order be confirmed.

Pressure from GEMS

Membership at Pro Sano was coming under increasing pressure from the Government Employees Medical Scheme (GEMS). As many as 60% of Pro Sano members were government employees who were being lured to the government scheme through competitive medical aid allowances.

This pressure led to Pro Sano making short sighted decisions in an attempt to bolster ailing member numbers. An example noted by Seoloane was the takeover of 4, 832 medical scheme members from Eskom in 2004.

Despite this and other attempts to keep membership numbers up, Pro Sano gradually lost members, from 45, 361 some five years ago, to only 34, 585 today.

Advertising spend unwarranted

The interim curator's report contained details of a number of irregular contracts and agreements. These included a payment of R1.6 million to Primed for a capitation fee. Another R18, 000 per month contract for medical advice services was verbally concluded. Questions were also raised about a payment of R1 million made to a firm of Cape Town attorneys. This money is currently held in trust by the attorneys.

Other allegations contained in the interim curator's report were claims of excessive advertising expenditure. Pro Sano records reveal that as much as R17 million had been spent on advertising over a period of three years. This expenditure had been placed with a single advertising agency - and did not result in any significant increase in scheme membership.

In his report, Seoloane concluded that "continued expenditure of this magnitude on a single service provider over the relevant period, in the absence of tangible results, would appear prima facie to have been reckless usage of member funds."

While the report claims this advertising expenditure could not be justified, it would have been interesting to include details of how many scheme members were lost to GEMS over the same period. It seems to FAnews Online that, considering the challenges facing Pro Sano, this large ad spend might have softened the blow of the walkout to GEMS, and might not constitute reckless expenditure as charged.

Members' concerns addressed

Serious steps had to be taken to get Pro Sano back on track. Recent decisions had simply contributed to the decline. A 5% per annum increase in member contributions was unable to stem the average 14% increase in member claims over the same period. According to the interim curators reports, administrative expenses also rose by an alarming 34%.

Seoloane added that "the scheme's reserves (accumulated members funds) of R314m, which is above the 25% required by the regulator, could be depleted within three years if the current losses are left to continue unabated."

The court order should ensure that the scheme is in sound hands over the next few years. The curator will be responsible for stabilising the business with the view to appoint a new board of trustees in the next couple of years. The company will have to grow its non-government membership base to become sustainable in the longer term. In the interim, both curator and regulator believe that existing scheme members will be adequately covered.

Mr Patrick Masobe, Registrar of Medical Schemes: "Members can rest easy tonight. The scheme is now in safe hands. The scheme has the funds to meet all its obligations, and I have every confidence that members' interests will be paramount under the management of the curator. Our primary concerns were with the governance of the scheme, and these concerns have now been effectively addressed with the appointment of a curator."

Editor's thoughts:
It appears that the Government Employees Medical Scheme has led to a significant decrease in membership at Pro Sano. Do you think GEMS will cause problems for other medical schemes too? Send your comments to [email protected].