The Council for Medical Schemes can investigate accredited medical scheme brokers for non-compliance with the Medical Schemes Act

The Supreme Court of Appeal has confirmed that the Council for Medical Schemes (CMS) has the power to investigate accredited medical scheme brokers under section 44(4) of the Medical Schemes Act, 1998 (MSA). Accreditation under the MSA is not a mere administrative formality but places brokers within the regulatory reach of the CMS, including its power to inspect brokers, without prior notice, for non-compliance with the MSA.

The facts of the case were that:

1. Optivest Health Services (Pty) Ltd (Optivest) was accredited as a medical scheme broker by the CMS in terms of section 65 of the MSA. In May 2019, a former employee of Optivest made an anonymous tip-off through the Deloitte tip-off line.  The former employee alleged that Optivest was charging medical scheme members a monthly "service fee" by debit order, often without their knowledge or informed consent, and that it continued to collect these fees even after members had resigned from their medical schemes.  More than ten thousand "orphan" service fee profiles allegedly existed on Optivest’s system, being profiles of members who were still paying the service fee to Optivest despite no longer having an active medical scheme membership.
2. The CMS's Compliance and Investigation Unit reviewed the tip-off and formed the view that the allegations, if true, indicated irregularities and non-compliance with the MSA, warranting a formal inspection.  The Registrar of the CMS approved the recommendation and appointed Open Water Advanced Risk Solutions (Pty) Ltd (Open Water) to conduct an inspection into Optivest’s affairs in terms of section 44(4)(a) of the MSA, read with the Financial Sector Regulation Act, 2017 (FSR Act).  No prior notice was given to Optivest given the nature of the allegations and the risk that evidence could be concealed if Optivest were given advance warning.
3. Open Water attended Optivest's premises on 21 and 22 October 2019 and Optivest initially co-operated.  When Open Water returned on 14 November 2019 to continue the inspection and interview officials, Optivest withdrew its co-operation, refused to hand over documentation including audited financial statements, and challenged the CMS's authority to investigate a broker.
4. Despite Optivest’s limited co-operation, Open Water nonetheless produced a draft investigation report based on the information available to it.  The report found that there was no written agreement setting out the terms of the service fee arrangement between Optivest and its clients. It also found that management had instructed the call centre staff not to discuss the fee with clients unless clients specifically enquired.  The services offered by Optivest to justify the fee were the same services that brokers were expected to provide under their accreditation in any event. In other words, Optivest was charging members separately for services it was already required to provide as part of its accreditation.   The debit orders authorising collection of the fee were made without proper consent or agreement.

Against that background, the SCA had to decide whether the CMS has the power under section 44(4) of the MSA to investigate the conduct of an accredited medical scheme broker and whether the CMS was required to afford Optivest the right to be heard before commencing the investigation.

Optivest's assertion was that section 44 of the MSA was designed to inspect medical schemes, not brokers. It submitted that the words "any person" in section 44(4) of the MSA referred only to persons who owe a positive duty to a medical scheme, such as a trustee.  In addition, Optivest also argued that because the investigation was triggered by a written complaint, it ought to have been afforded the right to respond under section 47 of the MSA before any inspection took place.

The court did not agree with Optivest on the above and its reasoning was as follows:

5. On a contextual and purposive interpretation, the phrase "any person" in section 44(4)(a) of the MSA is not limited to medical schemes.  The legislature made a clear policy decision in using those words. The power to investigate a broker is reasonably incidental to the power to accredit brokers under section 65 of the MSA and to enforce compliance with the regulations to the MSA.  Without it, the remedies available to the CMS, including directing refunds under regulation 28(9) where a broker has received payment through misrepresentation or unlawful conduct, would be meaningless.
6. Section 44 of the MSA operates independently of the complaints procedure in section 47 of the MSA. The purpose of section 44(4) of the MSA would be thwarted if the right to be heard were required before an investigation could commence.  It is in the public interest that a person suspected of non-compliance not be given the opportunity to hide or destroy evidence.
7. The SCA decision was not unanimous.  Goosen JA, in dissent, held that the investigatory powers under section 44 of the MSA were intended to relate only to medical schemes and that accreditation does not place a broker under the supervisory control of the CMS.  The dissent raises important questions about regulatory overlap between the CMS and the Financial Sector Conduct Authority under the FAIS Act.

While section 44(4) gives the CMS power to investigate accredited brokers, that power is confined to compliance with the MSA and its regulations.  Many brokers are licensed under the FAIS Act and as such subject to both CMS and FSCA oversight.  The SCA has recently confirmed in FSCA v Municipal Employees Pension Fund that a regulator’s decision to investigate is not administrative action and the regulated entity cannot compel reasons and/or record for such a decision.   It would be interesting to see in future how the court will decide on the interplay between CMS’s and the FSCA jurisdiction over broker conduct. 

The key takeaway is that accredited medical scheme brokers are subject to investigation under section 44(4) of the MSA.  Service fee arrangements charged separately from commissions will be scrutinised for compliance with the MSA and regulation 28 to the MSA.  The practical lesson is to structure fee arrangements with the regulatory framework in mind from the outset, ensuring compliance with the MSA and proper transparency with clients.

Optivest Health Services (Pty) Ltd v The Council for Medical Schemes and Others (396/2023) [2024] ZASCA 64 (30 April 2024)