Discovery Health Medical Scheme (DHMS) paid R5.389 billion to Discovery Health in administration expenses last year.
It pays the entity owned by Discovery for these services as well as for managed care for its members. During a year impacted by Covid-19, it paid Discovery R1.883 billion for the provision of the latter.
Administration fees comprised 7.23% of gross contributions last year (2019: 7.38%), while managed care fees were 2.54% of gross contributions (2019: 2.53%).
Discovery Health provides administration and managed care services not only to DHMS, but another 18 restricted schemes too. These services cover over 3.5 million medical scheme members.
DHMS notes in its annual report that its “gross administration expenditure is the seventh lowest [as a percentage of gross contribution income] out of 20 schemes in the open scheme market”.
The average administration fee per member in 2020 was R336.84 – 5.25% higher than the prior year, “primarily reflecting the impact of an annual CPI-linked increase”. The average administration fee per member was R366.87 on all but the scheme’s income-linked KeyCare plans (on these, the average was R106.70 for Core members and R198.81 for Start and Plus members).
DHMS says its “analysis of the CMS [Council for Medical Schemes] Annual Report 2019-2020 shows that, at 7.6% for 2019, DHMS continued to rank below the weighted average gross administration expenditure for open schemes when considered as a proportion of gross contribution income, which was 8.1% excluding the Scheme”.
“This means that the Scheme’s gross administration expenditure is the seventh lowest out of 20 open medical schemes in the market,” it added.
Critics will point to the size of the scheme (it had a 57% share of the open scheme market as at September 30, 2020) and suggest that efficiencies at the scale at which it operates could mean this percentage ought to be lower.
Of open schemes that have at least 100 000 beneficiaries, DHMS sits fifth out of eight in terms of administration costs as a percentage of gross contribution income (or ‘fourth lowest’).
The table below compares the administration expenditure as a percentage of gross contribution income for 2019 (CMS annual reports lag reporting by each scheme, in this case DHMS’s annual report for 2020). It also includes the CMS’s calculation of administration expenses per active beneficiary per month (not per member, which is how DHMS discloses it). A member may have multiple beneficiaries.
|Medical scheme||Administrator||Beneficiaries||2019 gross administration expenditure||As % of gross contribution income||Per active beneficiary per month|
|Makoti Medical Scheme||Universal Healthcare Administrators||7 746||R9.3 million||12.6%||R101.04|
|Genesis Medical Scheme||Self-administered||21 118||R42.5 million||12.31%||R165.48|
|Momentum Health||Momentum Health Solutions||298 852||R597.1 million||11.56%||R166.51|
|Compcare Wellness Medical Scheme||Universal Healthcare Administrators||34 858||R73.6 million||11.48%||R234.10|
|Thebemed||Momentum Thebe Ya Bophelo||29 040||R42 million||11.11%||R115.73|
|Fedhealth Medical Scheme||Medscheme Holdings||156 904||R361 million||10.69%||R204.71|
|Suremed Health||Momentum Thebe Ya Bophelo||2 275||R5.8 million||10.38%||R216.08|
|Cape Medical Plan||Self-administered||9 240||R19.6 million||10.25%||R172.44|
|Sizwe Medical Fund||3Sixty Health||111 409||R243.5 million||9.9%||R180.08|
|Health Squared Medical Scheme||Agility Health||34 936||R110.7 million||9.78%||R245.35|
|Medshield Medical Scheme||Self-administered||158 996||R287.2 million||7.87%||R148.74|
|Discovery Health Medical Scheme||Discovery Health||2 808 106||R5.3 billion||7.64%||R159.11|
|Hosmed Medical Aid Scheme||Medscheme Holdings||54 502||R99.3 million||7.25%||R147.64|
|Keyhealth||Professional Provident Society Healthcare Administrators||67 476||R153.8 million||7.09%||R191.48|
|Bonitas Medical Fund||Medscheme Holdings||722 943||R1.2 billion||7.01%||R141.16|
|Medimed Medical Scheme||Momentum Thebe Ya Bophelo||14 893||R16.7 million||7%||R91.03|
|Medihelp||Self-administered||204 305||R322.4 million||6.64%||R130.76|
|Bestmed Medical Scheme||Self-administered||199 297||R345.6 million||6.08%||R145.50|
|TOTAL*||4 936 896||R9.4 billion||7.81%||R157.31|
|Government Employees Medical Scheme (GEMS)||Metropolitan Health Corporate + Medscheme Holdings||1 892 295||R1.8 billion||4.45%||R82.61|
* Topmed and Selfmed removed from this comparison as these schemes amalgamated with others during 2019.
Source: Council for Medical Schemes Annual Report 2019-2020
DHMS provides detailed disclosure to the CMS. It is one of only four open schemes to provide a breakdown of administration costs. Of the amount paid to Discovery Health, 7% is used on marketing. Contrast this with 13.3% at Sizwe Medical Fund and 22.1% at Momentum Health.
With regards to managed care services expenditure (paid to Discovery Health), DHMS says the 6.64% increase in 2020 “reflects the annual CPI-linked increase and the full-year impact of an expansion in services provided by Discovery Health during 2019 as well as further expended services during the year, including diabetes management services and Covid-19 management services”.
It says the CMS annual report for 2019-2020 “demonstrates that the Scheme’s managed care cost as a proportion of gross contribution income was 2.5%, compared to the weighted average of 3.0% (which excludes the Scheme)”.
Costs ‘slightly higher’ than those of other schemes
“Our managed care costs are slightly higher than those of other open schemes, reflecting the complexity of the Scheme’s benefits, the breadth of managed care services offered, the claims cost savings generated by the managed care services, and the overall value for money provided to our members by our administrator and managed care provider.”
DHMS says in 2019, “claims cost savings of R213.84 (2018: R199.73) per average beneficiary per month were realised through claims review processes, protocols implemented, price negotiations and drug utilisation reviews. This equates to a saving of R3.05 (2017: R2.68) for every rand paid in managed care costs, an exceptional return on investment of 305%”.
DHMS is, of course, separate to Discovery Health and is a non-profit entity regulated by the Council for Medical Schemes. The scheme belongs to its members and any surpluses generated within the scheme become reserves, also belonging to members.
It notes in its annual report that “every year, the Trustees assess the value provided by Discovery Health through their administration and managed care services to the Scheme. Since the assessment began in 2014, Discovery Health has provided more value to our members than the Scheme has paid for. In the 2019 financial year, Discovery Health added nominal value of R7.09 billion (2018: R7.34 billion). Put differently, for every R1 paid, our members received R2.03 in value”.
(The comparatives for the above as well as for the claims-cost-savings benchmarking are for the preceding year – 2019 – as “the assessment uses industry information”.)
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