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Discovery Health responds to detractors

CEO Jonathan Broomberg says the company’s success and profitability is not a function of higher fees but efficiency driven by management.

In a rebuttal to the provisional findings of the long-awaited Health Market Inquiry (HMI), Discovery Health says its growth and profitability is not a result of any market advantage or charging its medical scheme members higher fees.

Instead, its success is a function of innovation and operational efficiency driven by management and ongoing investments in customer service technologies. 

“We disagree strongly with the view that Discovery Health’s sustained growth and success is a sign of market failure,” says Discovery Health CEO Jonathan Broomberg. “Discovery Health was started up 25 years ago without any members, at a time when our competitors already had substantial scale and brand recognition.”

The Competition Commission’s HMI provisional report, which was unveiled on Thursday (July 5) by former chief justice Sandile Ngcobo, found that Discovery’s astounding profitability was an indication of “market failure”.

And with the absence of new and emerging players in the medical aid scheme industry to challenge Discovery’s dominance, there are no signs that the market would self-correct, the HMI found.

Read: Behind the dominance of the big 4 in private healthcare

While Ngcobo, who has chaired the inquiry since its start in 2014, supported Broomberg’s views about how skilled its management is in running the business, he painted a grim picture of Discovery’s dominance relative to competitors Metropolitan and Medscheme.

Of the 22 medical schemes open to the public, just two hold 70% of the market in terms of the number of members they have, according to the HMI. One of these is the Discovery Health Medical Scheme, which holds 55% of the medical schemes market.

“Under normal competitive conditions, Discovery’s profitability would attract new competitors and stimulate competition from incumbents,” says Ngcobo. “There is no sign of this. On the contrary, we see Discovery growing and becoming more successful over time.”

However, Broomberg says Discovery’s growth has been organic given the competitive rates it charges for open schemes (geared for ordinary members) and closed/restricted schemes (driven by employers).

When compared on a like-for-like basis, Discovery’s premiums are on average 16.4% lower than the next eight competitor schemes, he says. “This is due to a combination of effective procurement, claims and fraud risk management by Discovery Health.”

Discovery Health is the administrator of Discovery Health Medical Scheme (it has the same name as its administrator). Medical schemes are not-for-profit and owned by members, and should operate separately from administrators, which operate on a for-profit basis.

Discovery Health manages more than three million lives on an open and closed Discovery Health Medical Scheme and collected R5.5 billion in fees in 2017 for this role.

“Similarly, Discovery Health’s 18 restricted scheme clients benefit materially from the full range of services provided by Discovery Health, including major claims risk savings which result in lower premium increases over time,” says Broomberg. 

He adds that publicly available data confirms that the weighted average administration expenses and fees incurred by Discovery Health Medical Scheme and closed schemes administered by Discovery Health are “in line with the overall market.”

He continues: “The fees charged to Discovery Health Medical Scheme are in fact the 14th lowest out of 22 open medical schemes when measured on a rand per beneficiary per month basis, or 10th out of 22 open schemes when measured as proportion of contribution income.”

The HMI’s report also features the market share of Discovery Health (the administrator). There are 16 medical scheme administrators in SA, but Discovery Health and Medscheme accounted for 76% of the market based on gross contribution income in the five-year period assessed (2010 to 2014). The HMI found that the interests of administrators are dominant, and that scheme members are too weak or disempowered to force administrators to align to member interests.

The report stated: “The lack of incentives … to scheme employees, trustees and principal officers … weakens schemes’ resolve to hold administrators to account for delivering value to members. Healthcare costs and administration fees are increasing and benefit packages cover less care.”

Broomberg agrees, saying that trustees of schemes should hold administrators accountable for delivering value to members.

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Nope. It’s higher fees.

And flat out taking of clients’ money.

Why is the savings account not carried over 100% from year to year if unused?

100% of your MSA does get carried over to the next year

But that is our money. Not theirs. What is your point?

My point is the following: if you don’t use your MSA, it’s carried over to the following year. If you move to another med scheme, Discovery Health will refund you what’s left in your MSA.. hence contributions was paid. Funds in MSA is your money.

Funds in your MSA are an interest free loan to Discovery… People wake up… Why do you think they make so much money?

Open a capitec account, pay the same extra amount every month but put it into your capitec account. You build up your “MSA”, with interest and can use it when and where you like without jumping through hoops as to why you need to access your savings…

How much will all this negative publicity and sentiment cost Discovery?

Not much – “Fake news” only fools the gullible – sensible folks generally know what’s going on. . . The reason for knocking Discovery is an attempt to justify using YOUR (and my) money to fund the bottomless pit that WILL become the NHI. At THAT stage it will not only cost Discovery, but also ALL of its members – BIG TIME 🙁

It is carried over.You are even refunded your Savings if you leave the Scheme or downgrade to a plan that does not have a Savings plan.

The truth is is that if the advantage of being with discovery was because they are such experts at keeping costs down and being so efficient, then why is their annual increases as high as they have been? I am afraid that Discovery and its esteemed CEO Dr. Jonathan Broomberg appear to be ecumenical with the truth.

Absolutely.Claiming their contributions are lower than competitors when their own actuaries will tell them it is the result of a lower risk profile.

Add to that other variables such as differences in benefits and benfit limits.AND non-payment of benefits?

The truth is is that if the advantage of being with discovery was because they are such experts at keeping costs down and being so efficient, then why is their annual increases as high as they have been? I am afraid that Discovery and its esteemed CEO Dr. Jonathan Broomberg appear to be economical with the truth.

If these guys are so efficient and are ripping everyone off then I wonder where all the cash is going. Return on equity 12.2%. Return on total assets 3.1% for 2016. Hardly a highly profitable company. Maybe the medical staff are getting all the cream.

Have you seen their new building?? I reckon that’s where our money has gone. To make a profit is fine but they can’t fool everyone, they are milking us.

Discovery Offers a range of services and products and I am afraid they all occupy the new building…a successful brand indeed

Come on Moneyweb, you’ve just copied the original article into this one. Please just add the responses from affected parties to the original article next time.

Was the original article plagiarised? If so, give us the details of the original article.

I left discovery and went onto Medihelp about 4 years ago. What an abosilute pleasure. Lower rates, far…and i mean far…better payouts, and a 100 percent better call centre. Discovery really sucks big time.

Firstly, well done to a company that took a gap and did very well in a free market system.
Secondly, any company listed on the JSE, will have as a priority, making money for shareholders and not charity for members.

Discovery took the administration of Bankmed, what an EFFING DISASTER!!! ISO LESO is a complete waste of time, they expect optometrists to supply a pair a spectacles for R650.00 including eye test!!!

I drive a 10yr old Toyota and live in R1m house. I could have so much more if I didnt hand over >R10k pm to Discovery Health.

The heart of the issue is the overly cosy relationship between the medical aids (non-profit, member driven) and the medical administrators (for profit corporates).

It’s like a priest who owns a church’s land and then funnels off the collection towards rental.

The problem starts at the hospital companies, they are making far too high margins. Next is doctors who are more complicated and I can’t fully comment there and then medical aid providers admin fees are too high. I see the same thing with retirement saving providers, very high fees for what should be a simple job.

I had ACL surgery a couple of years ago. Three things struck me, R20k for a hour of a surgeons time seems high. I stayed in a room overnight, R50k which seems ridiculous, that is before consumables. How on earth can that be right? Lastly and what really got my goat was Discovery refused to pay for a single physio or Bio session.

I am switching to Camaf at the end of the year, had enough of Discovery.

Specialist charges should be regulated, way over the top. Mystery charges from them and hospitals must be queried. As advancing seniors we have plenty hospital experiences. All mystery charges have been credited once queried. There is one hospital group that will give you a hard time on queries but have to persist. These have totaled around 50k over the years. Talk about unscrupulous used car dealers….

The HMI is a nice distraction from the appalling public healthcare system that dishes out disgusting treatment to the masses. Any report that cannot acknowledge the obvious success that is Discovery Health has no credibility in my opinion.

I am more than happy with Discovery. I have no complaints. I left a Medical aid that did not pay as well and was almost as expensive.
If you are not happy with Discovery LEAVE and try greener pastures. There are always people joining Discovery WHY? Also why do they have such a large number of members?
If you want to moan about something moan about the price of petrol.

WHY? Perverse incentives for brokers, as a result some of whom only promote Discovery.

So Discovery is being slated for its dominance and profitability with its 55% market share however Government wants 100% market share with its NHI which is fine. The analysis of Discovery’s dominance is wrong for so many reasons, most of which are not even known by the public. The sheer ignorance of the commentary is frightening. Could the Governments smothering of the industry in red tape and legislation be a big contributing factor as to why more competitors haven’t entered the industry, I wonder ? It is far easier to blame a successful company than it is to ask the hard questions which will uncover the true reasons for the sick state of healthcare in SA.
Look deeper people. Discovery is not the enemy here.

You sir, are ignorant of the Competition Act.

I think Broomberg’s comments are disingenuous. The complexity of the rules of Discovery’s medical aid fund are so complex that the self paid portions of claims and the limits imposed,ensure the sustainability of profit growth. Exclusions for those with chronic problems have such restricted limits that they are effectively no cover.
Generous cover is extolled in areas where little is claimed so is selectively excluded.
Also monitoring of expenditure is a nightmare when trying to get claims information for specific date parameters for tax estimation purposes. And the fiction of a savings account is the end. This serves as aa extension of the subscription, masked under a heading of savings. It is again a complication which is difficult to monitor and anticipate. The whole set up could be simplified.
Another red flag is the capital that is allocated to

“Discovery’s premiums are on average 16.4% lower than the next eight competitor schemes.”

B.S. The premiums are lower due to a lower risk profile.

All members pay the same for a spesific plan – There arent different premiums for higher risk members.Its legislated that way

What do you guys think will happen with the “reserves” of the Schemes once NHI is implemented.Discovery holds roughly 18-20 billion in reserve.Legally speaking a medical aid is like a stokvel – Everyone pays towards a pool and can then claim against this pool of money – Of course sicker/older are subsidized by younger/healthier. So should the Scheme then be disbanded by its members(if they so which) the money should be refunded to all that have contributed to the pool. I wonder how they would calculate who gets what? Will it be based on your claims, no refund if you claimed more than you contributed…..

My point is – the money the Scheme holds is the peoples money.It is not like a car insurer based on risk.So the peoples money should get refunded right.NHI cannot lay claim to this money.

A doc told me that the reason this smooth-talking company makes so much money is that they take a fortune from clients, and give peanuts back.DHS ‘medical-aid’ is a misnomer.

What a load of blather. It’s not really about high or low fees. Its about effectiveness.

Discovery’s ‘procurement’ procedure involves beating down the un-unionised health services industry in rate negotiations, resulting in abandonment of medical aid rates (what a joke) for adoption of increasing additional co-payments. Leaving the member with a bill at the end of the day that they can’t jump over.

It’s great that the medical aid fund and administration is separated. But that is a half truth misdirect. Even not-for-profit funds have management structures and associated fees (unless they found the fund fully formed and autonomous under a rock). These go to salary wages and bonuses for performance, and profit is only measured after all these have been paid.

I’m sure there are lots of anecdotes out there about a family member that has lupus or cancer or dengue fever and Discovery paid for the lot. Of course they did. All those are low risk from a population total point of view. A drop in the ocean. Just remember that anecdote next time you are in a car accident, which 90% of South Africans will actually experience.

Medical aids are fast turning into really expensive dread disease cover that is uneconomical for every day (preventative!) medical expenses and Discovery is leading the pack.

It’s the bogus Medical Savings Account, Above Threshold Benefit vs Hospital Admission cover that the actuaries at Discovery have made too complex for anyone (including doctors) to understand that drive the stratospheric greed at Discovery.

Discovery is nothing more than a glorified savings account as everything comes out of medical savings and you literally have to contract a terminal disease to get any benefit out of hospital cover (and then you may find out that they don’t cover it).

My youngest son was admitted to the emergency room at Fourways Life Hospital after splitting his head open! Guess where the R4000+- was paid from? Medical Savings Account.

Blood Tests? Medical Savings.

Colonoscopy? even when admitted to a hospital bed. Medical Savings.

Anesthetist? Medical Savings.

Urologist? Medical Savings.

Psychology? Medical Savings.

Psychiatry? Medical Savings.

Chronic Medication? for my son who has to take Ritalin daily until he finished school (at least). Based on a Prof. of Child Psych. diagnosis and motivation for chronic treatment. Medical Savings.

At least I realized the value add with Discovery when I drive past their 20 Billion ZAR building.

I paid for it.

The Judge is right, hence Broomberg’s defensiveness!

But hey let’s regulate Netflix.

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