Circular 26 of 2022: Brokers and Brokerages who earn commission in respect of their own health or medical scheme policies

The Council for Medical Schemes (CMS) would like to clarify its position regarding the recent communication sent by Discovery Health (Pty) Ltd (an accredited medical scheme administrator) to all affected brokers, informing them that they may not earn commission on their own health or medical scheme policies unless they appoint an alternative broker by the end of this month. In their correspondence, the administrator had indicated that they were communicating a directive received from the CMS.

Background
1. The Accreditation Unit recently conducted an on-site evaluation to assess the administrators’ compliance with the Accreditation Standards for Third-Party Administrators of Medical Schemes. Whilst evaluating the compliance with the broker remuneration management related accreditation standards, it was discovered that a broker had been receiving ongoing broker commission in respect of broker services rendered to himself as a member of a medical scheme. At the time, it was believed to have been an isolated incident, and the administrator did not advise any other such instances.

2. The Accreditation Unit discussed the matter with the CMS Legal Unit, who then issued a legal opinion expressing their views on the matter. The Accreditation Unit forwarded the legal opinion to the administrator, advising them to discontinue such practices.

CMS’s position on brokers and brokerages who earn commission in respect of their own health / medical scheme policies
3. The CMS would like to put on record that neither the Registrar nor the Council issued a formal “directive” to the administrator or any other entity that it regulates in this regard. The legal opinion was provided to the administrator based on the findings of the on-site evaluation and to effect full compliance with regards to the appropriate calculation and payment of broker commission.

4. Based on the number of enquiries received from brokers and other industry stakeholders since the communication sent out by Discovery Health (Pty) Ltd, it seems that the incident noted during the on-site evaluation was not an isolated incident but is, in fact, an industry-wide practice. Therefore, the CMS has resolved to issue a formal directive to the industry, which will require all affected parties to take note of and comply accordingly.

The Medical Schemes Act (131 of 1998) defines ‘broker services’ as

    “(a) the provision of service or advice in respect of the introduction or admission of members to a medical scheme; or

    (b) the ongoing provision of service or advise in respect of access to, or benefits or services offered by, a medical, medical schemes.’’

5. When one analyses the above provision and applies the literal interpretation in law, it is evident that broker services aim to provide ‘services’ or ‘advice’ to other ‘persons’. Put differently; one cannot provide broker services or advice to oneself.

6. It is further evident that in terms of the “mischief rule of legal interpretation, the legislator intended to ‘incentivise’ brokers for introducing new members to schemes. To that end, it is evident that commission can only be payable for ‘services’ or ‘advice’’ rendered to potential members.

7. While it is common cause that a broker would naturally have insight into medical scheme membership related matters which most members would not have, granting an individual broker the right to earn broker commission under these circumstances would lead to absurd results and may well be deemed to be ‘unbusinesslike’ results which courts require us to refrain from, as was evident in the case of Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] 2 All SA 262 (SCA) para [18], wherein the court ruled as follows in so far as the interpretation of legislation is concerned:

8. In interpreting legislation, one should take into cognisance ‘the context in which the provision appears, the apparent purpose to which it is directed,…….. Where more than one meaning is possible, each possibility must be weighed in light of all these factors. The process is objective, not subjective. A sensible meaning is to be preferred to one that leads to insensible or unbusinesslike results or undermines the apparent purpose of the document….’

9. The CMS would like to emphasise that medical schemes, scheme administrators and brokers have a legal obligation to comply with the Medical Schemes Act (131 of 1998) (MSA), its Regulations and other applicable regulatory instruments.

10. The CMS would like to emphasise that medical schemes, scheme administrators and brokers have a legal obligation to comply with the prescripts of the Medical Schemes Act No. 131 of 1998 (MSA), its Regulations and other applicable regulatory instrument. CMS wishes to particularly draw the attention of all affected parties to the provisions of Section 66 of the MSA and its regulations, more specifically, Regulation 17A and 28C of the MSA. To the extent that any affected party demonstrates unwillingness to cease such practices and/ or fails to comply with this directive it may be incumbent on the CMS to invoke these provisions of the Act or, Regulations on the basis that the said parties contravened or, failed to comply with the said provisions.

11. Similarly, the CMS is also at liberty to invoke the provisions of section 16 of the Act, which enable the Council to report the conduct of any person to anybody or to any other relevant professional statutory organisation which has jurisdiction over the concerned.

Directive from CMS

12. All affected medical schemes and administrators who act on behalf of medical schemes must immediately terminate any arrangements in terms of which any broker is receiving broker commission, whether directly or indirectly, related to their own health/medical scheme policy, and confirmation thereof must be provided to the CMS by 30 June 2022.

13. Written confirmations must be sent to Ms Florence Maphanga, the Broker Accreditation Manager, by email: f.maphanga@medicalschemes.co.za, Subject line: “Confirmation of compliance with the broker commission related directive” in the subject line.

14. This directive does not stop or prohibit any affected broker from appointing a broker of his or her choice for the purpose of providing broker services and being compensated as such. However, such a broker should be independent, i.e. should not be a broker linked to the same brokerage as the broker in question.

15. All affected parties have until 30 June 2022 from the date of publication to comply with this directive, failing which CMS will have no option but to take the necessary steps to impose the appropriate sanctions on parties who fail to comply with the directive.

Download the Circular here: