KPMG to probe Sizwe Hosmed R162m claims gap

Sizwe Hosmed medical scheme has appointed KPMG to conduct an independent investigation into a massive R162m underprovision for claims from Hosmed members when it merged with Sizwe in late 2021.

Sizwe Hosmed was placed under statutory management last month after its solvency ratio plunged below 20%, well below the statutory minimum of 25%. The solvency ratio of a medical scheme is a key measure of its financial health and is the ratio of its accumulated funds to its annualised contribution income.

The underprovision for Hosmed claims came to light during an internal investigation, said Sizwe Hosmed principal officer Nozibele Tshobeni.

“We are not sure how it arose — that is what the investigation is for,” she said on Monday. “All we know is we paid too much, and someone should have known about it before the merger.”

Sizwe Hosmed is a medium-sized medical scheme, with 56,000 principal members and 135,000 beneficiaries, and is open to anyone who can afford its monthly premiums. It is administered by 3SixtyHealth, a subsidiary of the 3Sixty Global Solutions Group owned by the Numsa Investment Corporation.

The scheme’s solvency ratio was 49.4% just after the merger in November 2021, but fell to just over 25% at the end of 2022, according to the Council for Medical Schemes (CMS) industry report for 2022, the latest year for which market-wide data is available.

In addition to the unexpected claims from Hosmed members that fell due after the merger, the scheme had underpriced some of its products, Tshobeni said.

“Over the last year we have tried to fix the pricing. We had a midyear increase of 5.4% to try to claw back some of the gap [in 2023] and a 10.2% increase this year, which is significantly higher than in the past,” she said.

Tshobeni said Sizwe Hosmed had taken steps to address the issues raised by the CMS in its 2022 industry report, which shows the scheme spent far more on administration, marketing and trustee remuneration than most other schemes.

It had 18 trustees in 2022 who were paid a total of R11.8m, averaging R658,000 each, making them the most generously remunerated trustees after those working at the Government Employees Medical Scheme (GEMS) and Discovery Health Medical Scheme.

However, unlike the Discovery and GEMS trustees, whose remuneration was almost entirely for attending meetings, the trustees at Sizwe Hosmed were also remunerated for holding office.

Before the merger, there were 22 trustees between the two schemes, and their average remuneration was less than half that of 2022, at R288,000.

Sizwe Hosmed spent R120.84 per beneficiary per month on advertising and marketing in 2022 — four times the industry average — and paid R225.61 per beneficiary per month for administration, 23% higher than the open scheme average of R182.75.

The high administration and marketing costs were due to the merger, which initially saw fees paid to in-house and external service providers, she said. The scheme had embarked on a major cost-cutting drive, which included reducing the number of trustees to 11, ending its in-house marketing and administration services, and negotiating better rates with 3SixtyHealth, which had reduced its administration fee by 3.5%.

She assured members that the scheme remained financially sound and could cover medical expenses. “The scheme is liquid and able to pay claims as and when they fall due.”

kahnt@businesslive.co.za