KPMG Steps in to Investigate Sizwe Hosmed's R162 Million Claims Discrepancy

Sizwe Hosmed, a South African medical scheme, has roped in the expertise of professional services firm KPMG to conduct a thorough independent investigation into what appears to be a significant R162 million financial gap due to an underprovision for claims. This situation came under scrutiny following the 2021 merger between Hosmed and Sizwe, which was aimed at strengthening the financial and operational position of the combined entity.

The appointment of KPMG follows Sizwe Hosmed's unfortunate slip into statutory management as a stark consequence of a dip in its solvency ratio, falling beneath the 20% mark. This is considerably lower than the regulatory threshold of 25%, a measure that reflects a medical scheme's capability to meet its long-term obligations. Nozibele Tshobeni, the scheme's principal officer, highlighted the mysterious nature of the financial shortfall and the firm resolve to untangle the circumstances that led to such a predicament.

At the heart of the financial woes is an unanticipated financial liability involving claims from Hosmed members that were settled post-merger—claims that had seemingly not been appropriately accounted for. These unexpected payouts dearly cost the scheme, which serves 56,000 principal members and 135,000 beneficiaries.

To make matters more challenging, Sizwe Hosmed had erroneously underpriced some of its healthcare plans, which exerted additional pressure on the scheme’s finances. Mitigating measures have since been introduced, such as adjusting the pricing of its offerings. A midyear premium increase of 5.4% was implemented in 2023, followed by an upward adjustment of 10.2% — a hike that transcends the scheme's historical patterns.

Sizwe Hosmed’s difficulties were further compounded by relatively lavish spending in areas such as administration, marketing, and trustee remuneration. In 2022, it was reported that their trustees were amongst the highest compensated in the industry, coupled with advertising and marketing expenses that were substantially above the mean.

In response to the concerns flagged by the Council for Medical Schemes (CMS) in its 2022 report, the scheme has inaugurated a robust cost-cutting campaign. Measures include a reduction in the number of trustees and the cessation of in-house marketing, among other initiatives.

Despite the financial hurdles and the ensuing investigation by KPMG, Tshobeni assures members that Sizwe Hosmed remains on a stable footing, capable of fulfilling its financial obligations to its members. The medical scheme maintains a state of liquidity that ensures the prompt settlement of claims.