CMS declines Sizwe/Hosmed merger
August 3, 2020
The Council for Medical Schemes (CMS)
issued Circular 40 of 2020
in May 2020, releasing the exposition and supporting documents to pave the way for the proposed amalgamation of Sizwe Medical Fund and Hosmed Medical Aid Scheme.
“The exposition for the proposed amalgamation did not satisfy the CMS that the transaction would not be detrimental to the interests of the beneficiaries of these medical schemes in terms of Section 63(7)(a) of the Medical Schemes Act (131 of 1998),” said Dr Sipho Kabane, Chief Executive and Registrar of CMS.
The CMS therefore decided to decline the proposed transaction in terms of Section 63(6)(c). “The CMS’ decision is fuelled by its mandate and commitment to protecting the interests of medical scheme members at all times,” added Dr Kabane.
The evaluation process of the proposed merger revealed a number of concerns for the CMS, such as:
- 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.
“To ensure good governance, effective management and functioning of the scheme and in order to safeguard the interest of members, the CMS subsequently launched an application to place Sizwe under curatorship,” continued Dr Kabane. This application remains pending and will proceed through the normal court roll.
The provisions of Section 63(8) and 63(12) of the Medical Schemes Act outline the remedies available to these schemes for this issue.
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