October 14, 2006
By Laura du Preez
An urgent application for curatorship of Pro Sano medical scheme's details conflicts of interests, excessive remuneration and benefits paid to the trustees, vast amounts spent on legal fees and unlawful contracts with brokers.
"When considered cumulatively, it is my opinion that the various irregularities and the concerns raised [in the application] are demonstrative of serious governance failure," Patrick Masobe, the Registrar for Medical Schemes, says in the 142-page application.
The Council for Medical Schemes has, however, been quick to point out that it is not applying for curatorship because of any problems with the scheme's finances.
Pro Sano has healthy reserves and at the end of 2005, the scheme had a solvency ratio (the reserves as a percentage of contributions) of 46.1 percent, well above the 25 percent required by law.
The council says it is confident that the court will protect members interests and urges members not to consider leaving the scheme.
The council also warned healthcare brokers not to take advantage of the situation and move members from the scheme, or they could lose their accreditation as a medical scheme broker and their licences under the Financial Advisory and Intermediary Services Act.
Masobe has asked the court to appoint a curator to investigate the following issues:
Remuneration of trustees
Pro Sanos rules provide for trustees to be paid reasonable costs incurred in attending meetings; for the use of technological equipment; and honorariums determined by the board.
Masobe says the standard honorarium payable to the trustees in 2005 was R25 000 per trustee.
In addition to the honoraria, the scheme paid a monthly stipend, which both this year and last year amounted to R10 000 for ordinary trustees and R12 000 for the chairman. Masobe says the trustees were not entitled to pay themselves these stipends, which are akin to a salary.
The trustees were also paid for leave they took to attend meetings at their current salary to a maximum of R800 a day. Brian Jacobs, the chairman of the board, claimed for 30 days leave in 2005. Masobe said these payments were not authorised and were "a further example of trustees having abused their powers to improperly enrich themselves".
According to the Council for Medical Schemes annual report for 2005/6, Pro Sano had the highest payments to trustees in 2005. The scheme paid R4.581 million to its 19 trustees last year.
Masobe also wants the curator to investigate business-class travel, spending allowances paid to scheme representatives who attended a conference in the United States; large amounts paid to trustees for the use of their private vehicles; high telephone bills and ISDN and ADSL line costs paid for the trustees; and laptops and 3G-cards bought for the schemes trustees.
"The readiness with which the majority of the trustees have been willing to receive and indeed significantly increase payments to themselves, ... makes me seriously question their appreciation of the nature and ambit of their fiduciary duties," Masobe says
He says remedial action needs to be taken and this may include recovery of amounts paid to trustees.
Broker agreements
Masobe wants the curator to look into broker agreements that Pro Sano concluded with Aquila Insurance and Healthcare Consultants, Independent Distributions Network, Hamilton Wealth, Manella Trading and Leon Liedeman & Associates and particularly any personal interests or conflicts of interest for the trustees or any official of the scheme in these agreements.
Masobe's application states that in order to get top brokers on Pro Sanos side, the scheme allocated members who are not represented by a broker - known as orphan members - to these brokers to generate additional commission for them.
The Medical Schemes Act prevents a scheme from paying a broker for members the broker did not introduce to the scheme. Some of the brokers were not even required to service orphan members.
Later, the scheme attempted to reverse the payments to the brokers.
Brokers contracts included marketing fees for each new member they signed up in an apparent contravention of the Act and one of the brokerages was not accredited when Pro Sano contracted with it.
Masobe says this is "indicative of a very serious failure on the part of the trustees to understand the regulatory environment in which they operate".
He wants a curator to investigate an agreement to outsource Pro Sanos distribution network to Westside Trading and any personal interests or conflicts of interest the trustees or any official of the scheme have in this agreement.
Conflicts of interest
The application states that Masobe is concerned about a possible link between Jacobs and Hamilton Wealth and Westside Trading.
Westside Trading and Hamilton Wealth have the same address and common directors.
A director of Hamilton Wealth is also a director of Lefika Consulting and Trisource Holdings, together with Jacobs.
Despite this, Jacobs failed to declare his interest or recuse himself from meetings at which agreements with Hamilton Wealth and Westside Trading were discussed, and Masobe is of the view that this should be investigated.
Transfer of members
In 2004, Pro Sano lost its accreditation as a scheme for which local government employees would receive a subsidy from their employer.
It was agreed that Global Health would take on Pro Sano's local government members and that Global Health's administrator, Amanzi, would pay Pro Sano's administrator a consulting fee of one-and-a-half percent of the gross contributions of these members for two years.
A broker, Mentor Health, was appointed to move the members. Mentor Health's owner was the son of one of Pro Sanos trustees.
Masobe says this is too unlikely to have been coincidental and he wants a curator to investigate any personal interests and conflicts of interest in this matter.
Legal fees
Masobe says in his application that the scheme incurred "exceptionally high legal expenses", mostly on "ultimately fruitless" arbitration with its former administrator Medscheme. More than R86 million was spent on this arbitration.
Masobe says it appears that the legal practitioners did not share in risk of proceeding with the arbitration. He is of the opinion that if one of the fee arrangements he had sight of is indicative of the fees paid generally by the scheme, it was "inappropriately luxurious" and it would be in members interests if the matter was investigated.
Shares in Sigma
Despite an instruction by Masobe to Pro Sano to dispose of 57 percent of the shares it holds in Sigma Health Fund Managers, its current administrator, it continues to hold these shares in contravention of the Medical Schemes Act.
Some of the trustees of Pro Sano, including Jacobs, are also directors of Sigma and this is also a contravention of the Act.
Masobe wants the curator to address this issue.
  
 
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