Pro Sano, the third-largest medical aid scheme in the country, has run up R90- million losses and now faces serious charges of bribery and corruption. Marion Edmunds and Mungo Soggot report
A TOP medical aid scheme for public servants is on the verge of collapse, racked by financial mismanagement and corruption allegedly involving leading insurance and consulting groups.
Papers filed in the Cape Town Supreme Court this week by the Department of Health claim Pro Sano Medical Aid has been allowed to run up losses of nearly R90-million while its ruling council took bribes from companies eager for its business.
The scheme, the country’s third largest, provides medical cover to 70 000 members, most of them teachers, postal and municipal workers and staff at Telkom and Eskom.
The members contribute nearly R44-million a month into the scheme.
But the health department’s registrar of medical schemes claims the council has been operating an ambitious kickback network, involving high-profile groups including Metropolitan Life.
Department registrar Danil Kolver says the Pro Sano council cannot be trusted to save the scheme amid “wholesale and continuing irregularities which are seriously prejudicial to members”.
Kolver says the court must move quickly to put the scheme into judicial management, as compromising evidence could disappear.
He says prolonged uncertainty could herald the scheme’s collapse, depriving its members of medical cover.
The application is due to be heard in court on Friday, and Kolver is also calling for a commission of inquiry. Kolver sprang into action after presenting on November 15 a forensic report to the Council of Medical Aid Schemes. The chairman of the council is Justice David Melamet.
The papers detail a string of allegations against the Pro Sano council, but Kolver says he does not want to vilify anybody by naming names. The council’s current chairman Shuayb Patel, who took office in November, said his predecessor was Bernard Wentzel who resigned last month. In the previous year Lionel Kearns was chairman. The organisation’s principal officer until last month was Dr Louis Kathan, whose predecessor was Solly Fourie. The current principal officer is Sidney Stadler.
The papers say that in 1990 the council quietly set up its own company, Bon Sano, which has been used to ferry under-the-table payments to council members.
Bon Sano’s illicit funtions included sponsoring council members’ overseas travel and paying salaries to several key current and past employees of Pro Sano.
Bon Sano took on Pro-Sano’s funeral policy for which it received R1,069-million a year. However, Kolver said: “it is not apparent what services, if any, Bon Sano, is to perform in consideration of which it receives this very substantial income)”
Kolver’s list of irregular payments received by Pro Sano’s council include:
lR638 631 from consultant Willmore Spies, which company received commission and administration fees from one of Pro Sano’s policies, the Admed insurance policy.
The department’s papers claim that Wentzel had demanded “commission” from Willmore Spies for the commission that Willmore Spies got from Pro Sano.
Willmore Spies, which received commissions totalling R4,4-million between 1991 and 1995, was sub-broker to consultant Alexander Forbes, which earned R4,2-million. Willmore Spies also received unauthorised administraion fees worth R1,4-million, while Alexander Forbes bagged undisclosed administration fees worth R2,3-million.
l R10 000 from Metropolitan Life, which was used to fly two members of the management council to a conference in Boston in the United States this year.
Within months of the payment, Pro Sano struck an in-principle agreement with Metropolitan Life that one of its subsidiaries would take over Pro Sano’s administration from Medscheme.
* R6 000 from Quality Health Holdings for part of the expenses of the wives of the chairman and the principal officer to attend the same Boston conference.
* A portion of the cost of university education for the son of the chairman of the management council was paid by Medscheme and Quality Health Holdings.
Kolver questions the relationship between Pro Sano and two Old Mutual employees who set up an investment company, Sterling Investments.
The two employees earned commissions on investments they made for Pro Sano.
Kolver also questions Medscheme’s administration and scolds top accountant Ernst & Young for failing to blow the whistle on Pro Sano’s doctored accounts for the year to December 1995.
“It is necessary to establish why Ernst & Young issued an unqualified audit report when it had earlier formed the view that the respondent was conducting business in insolvent circumstances and had reported it to the Public Accountants’ and Auditors Board.”
He said that the auditors’ statement that Pro Sano was “trading itself out of a deficit situation was at the very least misplaced optimism.”
Patel told the Mail &Guardian the council intended to fight the application. He said the registrar had failed to note that there had been major changes in policy this year, adding that the scheme was on track for a surplus in 1996. “There is lots of politics in all this.”
Kolver points out that Pro Sano proceded to lose another R22-million from December 1995 until mid year.
The bad news for the members of the scheme is that, like all medical aid policy holders in South Africa, their premiums are expected to increase – possibly as much as 25% in a looming industry shake-up.