The CMS’s decision to halt the proposed merger of black-owned Sizwe and Hosmed Medical Scheme has dealt a blow to the transformation of the medical schemes sector, which is urgently needed.
The CMS decision followed a failed urgent court attempt to put Sizwe under curatorship. The matter was dismissed by the Pretoria High Court with costs as it found it was not urgent.
“The CMS’ decision is fuelled by its mandate and commitment to protecting the interests of medical scheme members at all times,” said Dr Sipho Kabane, CMS’s chief executive and registrar.
CMS said in a recent statement that its evaluation of the proposed merger raised concerns, such as:
- the accessibility of voting platforms and support for Hosmed members to cast their votes for the transaction;
- the objections to the merger by the Independent Municipal and Allied Trade Union, the South African Municipal Workers’ Union and the South African Legal Government Association being indicators of disagreement, suggesting a lack of or insufficient stakeholder engagement;
- the due diligence process for Sizwe being conducted in July 2020, when the amalgamation process was already under way, and the management report submitted by Sizwe’s auditors had raised internal control deficiencies, when such deficiencies in internal controls may place members of the scheme at a disadvantage.
But Sizwe’s chief executive, Simon Mangcwatywa, has expressed concerns over Kabane’s decision and disputed the claims made by the CMS. Mangcwantywa said that Kabane took issue with the fact that an internal auditor had revealed shortcomings in internal controls and failed to note that Sizwe has only submitted unqualified financial reports for the year 2019.
“It is the duty of the internal auditor to flag internal control problems on a continuous basis and the internal and external auditors must do so with independence and without fear or favour,” said Mangcwatywa, who has challenged Kabane and the CMS to a public hearing.
Mangwantywa also said it was not the first time Kabane and the CMS had blocked a merger involving Sizwe.
In 2019 Thebemed approached Sizwe for a merger. “Previously Thebe had solvency problems but they were on the mend. However, escalating growth was creating an unintended problem of lower solvency, another of the CMS’s rules applied without logic. Our proposed merger with Thebe was met with resistance and the registrar placed Thebe under curatorship,” said Mangcwatywa.
He added that Thebemed would “die in the hands of the curator and possibly be merged into one of the big schemes. We think this is what CMS wants to achieve, to strengthen the power of the dominant players in the industry. Is it a coincidence that when Hosmed wants to merge with Sizwe then he wants to place Sizwe under curatorship?”
The Mail & Guardian previously reported how Kabane ordered Sizwe and Hosmed to suspend their amalgamation processes, saying he had been presented with the report on an inquiry by the CMS’s compliance and investigations unit.
Not approving the amalgamation has robbed the two medical schemes of its plans to become the eighth-largest open medical scheme in South Africa, with 78 000 members.
Sources at the CMS have previously criticised Kabane’s approach in dealing with black-owned companies’ proposed mergers. Sizwe, in its statement, has argued that it is in a healthy financial state and that there is no reason for it to be placed in curatorship or not to merge with Hosmed.