Council for Medical Schemes wins Resolution court battle

Gareth Stokes, FAnews Online Editor

On 1 September 2009 the North Gauteng Division of the High Court of South Africa put an end to Resolution Health (Pty) Limited’s hopes of continuing business as a managed healthcare organisation and medical scheme administrator. In a tersely worded press

An ongoing regulatory battle

The CMS has been locking swords with Resolution Health and Resolution Administrators for some time. A Personal Finance article by Laura du Preez reveals that the CMS investigated the Resolution group as early as 2006, when concerns emerged over conflicts of interest between the Resolution Health Medical Scheme and its service providers. A year later the outgoing registrar, Patrick Masobe, upped the ante. He wanted Resolution Health to repay the medical scheme an amount of R143m due to what he termed unlawful contracts. At the time he threatened to withdraw the group’s accreditation.

Personal Finance notes that Resolution Health and Resolution Administrators subsequently merged their businesses. The administrator function was picked up by Resolution Health, and the CMS accreditation to act as a medical schemes administrator ceded to it. The medical scheme’s in-force agreement with Resolution Administrators (signed 7 November 2007) was also ‘ceded’ – apparently without the medical schemes’ knowledge – to the merged entity on 1 January 2008. “The CMS was not informed of the merger or the cession and regarded the cession as a dishonest strategy to enable Resolution Health to supply administration services without it applying for accreditation,” writes Du Preez. In October 2008 the CMS granted temporary accreditation to the businesses provided substantive applications were lodged by the end of that month. These applications were rejected in May 2009!

And thus the battle was joined. The case featured two applicants (Resolution Health and Resolution Administrators) and four respondents. Resolution was up against The CMS, the Registrar of Medical Schemes, Resolution Health Medical Scheme and the Minister of Health – though only the first two respondents opposed the application. What Resolution wanted the court to do was to reinstate its temporary accreditation until such time as all internal appeals and subsequent court reviews of the CMS decision were finalised.

Scathing words from Judge Bertelsmann

According to the CMS, Judge E. Bertelsmann “was particularly scathing of the manner in which the two entities had conducted their affairs!” Among his concerns was that Resolution Administrators’ directors continued to render services for financial gain despite it being unlawful in the absence of CMS accreditation. He also lamented the “flagrant contravention of the provisions contained in Regulation 23 of the Medical Schemes Act (Act 131 of 1998) that contributions should be held in an account in the name of the scheme.” According to the Judge these transgressions had to be viewed in a very serious light!

Bertelsmann felt that Resolution Administrators had erred in transferring its administrator function without “pertinently advising” the CMS. “If the failure to pertinently advise the CMS was deliberate, the first applicant’s directing minds might well be regarded as lacking in probity and frankness,” said Judge Bertelsmann. “If it arose from negligence, the fitness of the directors to conduct its business with the necessary acumen might well be questioned.” The judge dismissed the application with costs and advised that the applicants and the third respondent (Resolution Health Medical Scheme) had three months to “transfer the functions of an administrator and managed health care provider to another provider (or providers) of such services, or to the third respondent itself.” Resolution will have to proceed with this instruction while it awaits the decision of its internal appeal against the CMS decision.

No concerns for Resolution Health Medical Scheme members

Resolution Health Medical Scheme members shouldn’t be adversely affected by the ruling. What the ruling requires is that it source new providers to manage its administration and managed healthcare. The CMS has advised that it would investigate the scheme to ensure that all appropriate governance structures are in place going forward. The CMS would also identify and addressing other areas of non-compliance. The CMS 2009 Annual Report shows the Resolution Health Medical Scheme had an average 41 215 members through 2008. The scheme’s solvency level declined slightly from 17% in 2007 to 16.1% at the end of 2008 and one would expect returning this ratio to the CMS-set level of 25% will be top of the list of compliance issues the scheme will have to attend to.

Editor’s thoughts: The High Court ruling describes some serious contraventions of the Medical Schemes Act and suggests the CMS was well within its rights to refuse the renewal of Resolution Health’s medical schemes administration and managed healthcare accreditation. Have you had any recent dealings with Resolution Health Medical Schemes and do you believe scheme members should be concerned by future CMS interventions? Add your comment below, or send it to gareth@fanews.co.za