How much DHMS pays Discovery to administer your medical aid

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.

Read: Discovery: Profitable in a pandemic

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.

Administration expenditure

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”.

Read: Discovery Health increases medical aid contributions

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”.)

Listen to Nompu Siziba’s interview with Professor Birgit Kuschke from the Department of Private Law at the University of Pretoria (or read the transcript here):