Three hundred versus a healthcare giant

In March this year FAnews Online reported on possible legal action being taken against Discovery Health to recover voluntary charges which were deducted from member medical aid accounts. Six months later, Wynsam Wealth is suing the medical scheme on behalf of approximately 300 individual members.

Should the court action be successful, Wnysam Wealth will recover in the region of R852, 000 from Discovery (though Discovery alleges the total in the claim is closer to R475, 000). Regardless of which number you prefer the amount is petty cash compared with the lawsuit which could follow if Wynsam Wealth is successful.

Thousands of members affected

Discovery Health is accused of charging a voluntary fee as if it were compulsory. Discovery says "The Ancillary Services Fee was a charge that covered certain valuable services offered by Discovery Health (Pty) Ltd to members of the Discovery Health Medical Scheme prior to 2004."

The R39 per month fee was levied on the medical aid contributions of as many as 244, 000 Discovery Health members. Wynsam alleges the majority of these members were never given the opportunity to refuse this 'voluntary' charge and that in many instances Discovery staff were not aware of the voluntary nature of the charge either.

Discovery Health has been consistent in their response since day one, and it appears they are getting ready for a long fight. The group issued the following statement: "Discovery Health Medical Scheme members made extensive use of these services and received fair value. The fee was not part of a medical scheme contribution, it was disclosed separately and was voluntary (i.e. those members who elected not to pay the fee would not receive the services). Based on economies of scale, Discovery Health only charged the fee to groups comprising 35 or less members."

Getting to grips with a voluntary charge

Perhaps a closer look at the term 'voluntary' will shed more light on the situation. The Chambers Twentieth Century Dictionary defines it as: "acting by choice, done or made without compulsion or legal obligation." We are not in possession of any application forms or monthly statement from the period; but based on the above definition assume Discovery clients would have had to indicate their choice to receive the 'voluntary' benefit. We also believe monthly statements would have had to indicate the R39 charge separately. In the absence of these items we believe Discovery could be in for a tough time.

To charge this fee as a matter of course and expect the customer to cancel the service at a later stage is rather unfortunate business practice. Even subscription services have been stopped from automatically taking the next year's subscription from their subscriber accounts.

Opening a floodgate of claims

What this case aptly demonstrates is how quickly a large administrative company can generate cash from its members. The R39 per month charge levied across Discovery's 244, 000 affected members would have resulted in a net cash inflow of R114 million in one calendar year. If we consider this practice ran from 2001 to the end of 2004 the total charge is in the region of R450 million.

Of course this number represents a rough estimate and could fluctuate substantially based on when members 'opted' for the benefit and how many members were signed up for the benefit at any given time. The amount does not include compensation for lost interest. And that could conservatively add another R280 million to the claim.

Discovery seems unconcerned by this court action. Their position is surprising given how damaging a negative court outcome would be. If all 244, 000 members had to be compensated the amount would run to three quarters of the groups 2007 full year after tax profits!

Editor's thoughts:
When we first wrote about possible action against Discovery we were not convinced that Wynsam would proceed with legal action. To find and convince 300 claimants to take Discovery on is a significant achievement. We eagerly anticipate the outcome of these proceeding and will keep our readers posted as new developments happen. Will the courts make Discovery pay? Send your comments to [email protected]