A medical scheme’s claw-back of payments made in error under section 59(3) of the Medical Schemes Act is constitutional

Authored by Michelle David and Notokozo Ngubane.

The ‘claw back’ provision in the Medical Schemes Act, 1998 (MSA) has yet again come under scrutiny. The ‘claw back’ is a useful tool for medical schemes, many of whom are alleged to utilise it to address errant behaviour amongst health care providers. The high court in  SAPS Commercial Affairs (Pty) Ltd v Minister of Health and Others (49159/2021), has  held that section 59(3) of the MSA, the so-called “claw-back” provision, is constitutional and that a provider aggrieved by the ‘set off’ is not left without a remedy.

The application was brought by SAPS Commercial Affairs (Pty) Ltd (SCA Commercial), a company wholly owned by a non-profit professional membership body whose members are physiotherapists. In its application, it cited the Minister of Health together with 95 other respondents, amongst them a number of well-known medical schemes.

The gist of the matter lies in the disputes between health care practitioners and medical schemes concerning payments made by the medical schemes to the health care practitioners. By way of background:

1. Section 59 of the MSA allows two methods of payment in respect of medical services rendered to a member of a medical scheme, namely, a payment to the member or a payment directly to the service provider. In the first instance, the medical scheme reimburses the member, who has already paid the service provider, and in the second instance, the medical scheme pays the service provider directly. In practice, schemes pay providers directly.
2. This is where the claw-back comes into play, in that section 59(3) of the MSA allows a medical scheme to deduct from any benefit payable an amount paid in good faith to which the member or service provider was not entitled, or a loss the scheme suffered through theft, fraud, negligence or misconduct. Where the scheme has already paid the service provider, it recovers the money by withholding that service provider’s future payments until the debt is recouped.
3. A common instance is where a medical scheme refuses to effect payment of a rendered account to a service provider. After payment has been made, a medical scheme may decide, after the fact, that an account should not have been paid, for reasons which, amongst others, include that the member was not covered, the funds were exhausted, or the wrong billing code was used for the treatment given to the member, and as such begin withholding future payments from the service provider in order to recover such amounts. If the service provider disputes that decision, the medical scheme refers the dispute to an administrator that it appoints and pays.
4. For SCA Commercial, this was the nub of the problem, in that it leaves the medical scheme as judge, jury and executioner in its own cause. In addition, the medical scheme decides whether a payment was an error, whether a “debt” arose, and then steers the dispute through an administrator on its own payroll. As such, SCA Commercial argued that section 59(3) of the MSA makes no provision for an impartial decision and accordingly infringes a service provider’s rights to just administrative action under section 33 of the Constitution and to have a dispute decided by a court.
5. Having regard to the above, SCA Commercial asked the high court to declare section 59(3) of the MSA invalid and to suspend that declaration of invalidity so that Parliament could cure the defect.

The court had to answer three questions:

1. whether section 59(3) of the MSA infringed the right to just administrative action under section 33 of the Constitution;
2.  whether the above section also infringed the right to have a dispute decided by a court as contemplated under section 34 of the Constitution; and
3. if so, whether that limitation was justifiable under section 36 of the Constitution.

The court was not persuaded that section 59(3) of the MSA is unconstitutional, and its reasoning can be distilled into three points, which in summary are as follows:

6. Section 59(3) of the MSA cannot be read in isolation, because section 59 of the MSA has three linked parts, namely: the service provider renders an account to the member; the medical scheme pays either the member or the service provider; and the claw-back right for medical schemes then arises. Subsection (3) therefore has no independent existence and depends on compliance with the rest of the MSA.
7. The detailed mechanics sit not in the section but in regulations 5 and 6 to the MSA. If regulation 6 does not provide a dispute procedure, the answer is to amend the regulation and not to strike down the section.
8. The service provider is not without a remedy, because section 48 of the MSA allows a person aggrieved by a decision in a dispute to appeal to the Council for Medical Schemes (CMS). Because that route exists, section 59(3) of the MSA does not infringe sections 33 and 34 of the Constitution, and as such no reading-in was needed and the application was refused with no order as to costs.

The message for the industry is two-fold , for medical schemes, the claw-back stands confirmed as a lawful recovery tool, provided it is exercised within the framework of section 59 of the MSA and the regulations to the MSA whilst for service providers, the route to challenge a deduction runs through the CMS under section 48 of the MSA, not through a constitutional attack on section 59 of the MSA.  Whilst the case highlights the existence of an internal mechanism, it does not appear, at least from the judgment, to consider some of the more convoluted issues that stem from the ‘claw back’ provision.  In addition, whilst there does exist an internal mechanism to determine a dispute, within the MSA, this mechanism would need to be invoked every time there is a disputed claim, meaning that the healthcare provider would need to be in a position to lodge a complaint every time an invoice is disputed after payment.  There seems to be little recognition as to whether the internal remedy is meaningful or capable of handling so many claims’ disputes. 

It will be interesting to watch this area of law develop, specifically a challenge to whether the medical scheme and by extension its administrator is legally competent to make a finding on theft , fraud, negligence or misconduct as required under section 59(3)(b) of the MSA, a finding of unlawfulness on this  issue will no doubt materially impact the use of the “claw back” to mitigate against potential fraud, misconduct, negligence or theft. The impact of the use of section 59(3) on the member, where direct payment is employed, is also an issue that is yet to be properly ventilated given the object of a medical scheme. 

SAPS Commercial Affairs (Pty) Ltd v Minister of Health and Others (49159/2021), High Court of South Africa, Gauteng Division, Pretoria.