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									PRESS RELEASE



FOR RELEASE IMMEDIATELY.




Thursday, June 29, 2006




    THE REGISTRAR of Medical Schemes, Patrick Masobe, has stepped in to stop a lengthy
    and damaging legal battle waged by Prosano Medical Scheme which has cost its members
    more than R44million in legal fees with little or nothing to show for it. The figure is due
    to escalate when this year’s legal costs are accounted for.



    This is money that would more ordinarily be spent on Prosano members’ health care costs.
    It began with a dispute with Medscheme over its administration of the scheme.



    The Registrar has told Prosano’s trustees that they may be held personally liable for the
    legal fees and has threatened to use the section of the Medical Schemes Act which would
    stop them holding office at the medical scheme if they were found not to be “fit and
    proper” for their posts.



    In addition, he has ordered the scheme not to fly certain of its members from Cape Town
    to Gauteng to Emperor’s Palace Hotel for the scheme’s annual general meeting believing
the costs constitute further reckless expenditure of scheme funds. In addition, transporting
certain members to the meeting may compromise the integrity of the meeting.



Masobe’s intervention follows years of a legal dispute between Prosano and medical
scheme administration company Medscheme. In the most recent salvo, the dispute was
taken to an arbitrator – retired Judge Gerald Friedman – whose finding the trustees now
contest. The scheme’s trustees believed the award to be inadequate and decided to ask
the courts to review the arbitrator’s decision.



During this period Prosano spent R8,5million in 2002; R17million in 2003; R4,5million
in 2004, and R14million in 2005. Most of this was spent in the dispute with Medscheme –
despite an offer of settlement which was tendered by Medscheme, but rejected by
Prosano.



A letter from Masobe conveying this information has been sent to scheme Trustees. In it,
the Registrar says: “The position of this office in relation to the expenditure of funds
belonging to the medical scheme in pursuance of this action has been made manifestly
clear to the scheme in the response provided to it by our Mr (S) Harrison.



“This advice as you are aware, is consistent with the position which this office has
maintained throughout the protracted duration of this matter and which has been conveyed
to you in numerous meetings and also to your legal advisers Messrs Mallinicks Inc. in a
separate meeting with them.




“…It is our view that such conduct constitutes reckless behaviour and would accordingly
render members of the board liable for these expenses in their personal capacities.”
On the issue of the Annual General Meeting, the letter states: “It has furthermore come to
our attention that the board of trustees have resolved to transport certain members of the
medical scheme who would like to attend the Annual General Meeting being held at the
Emperor’s Palace Hotel in Guateng, to the meeting by air.



“The cost implications of such a resolution…would also constitute reckless expenditure of
scheme funds.”




Ends




For further information please call



Patrick Masobe

Registrar: Council for Medical Schemes

012 431 0500



Pat Sidley

Head: Communication

Council for Medical Schemes

082 414 4540
            The text of the letter follows:



Dear Sirs



PROSANO MEDICAL SCHEME: PROPOSED REVIEW OF ARBITRATION AWARD


1.    Your request for direction and input from this office concerning the abovementioned
      matter and the e-mail response furnished to your Ms. P. Moiloa by our Mr. S. Harrison
      on 21 June 2006 in this regard refers.


2.    We note your advice that the board of trustees has resolved to take the award of the
      arbitrator in this matter on review.


3.    The position of this office in relation to the expenditure of funds belonging to the
      medical scheme in pursuance of this action has been made manifestly clear to the
      scheme in the response provided to it by our Mr. Harrison.


4.    This advice as you are aware, is consistent with the position which this office has
      maintained throughout the protracted duration of this matter and which has been
      conveyed to you in numerous meetings and also to your legal advisers Messrs.
      Mallinicks Inc. in a separate meeting with them.


5.    The conduct of the board of trustees in persisting with this matter regardless of our
      reservations has resulted in the scheme incurring massive legal expenses totalling in
      excess of R60 million without any significant result.


6.    An analysis of the schemes Annual Financial Statements reveals that expenditure on
      legal fees comprised R8,523.207 million in 2002, R17,163.122 million in 2003,
      R4,452.429 million in 2004 and R13,916.014 million in 2005, most of which was
      occasioned by the Medscheme arbitration.
                                                                                          2.


7.    We further note that this matter was persisted with in spite of an offer of settlement
      having been tendered by Medscheme.


8.    Trustees are required to exercise a greater duty of care in dealing with trust funds
      entrusted to their custody than they would exercise in dealing with their own monies.


9.    To the extent that the board is disregarding the adverse impact of the legal
      expenditure incurred to date on the scheme and is seeking to again incur further costs
      without there being any reasonable prospect of success, it is our view that such
      conduct constitutes reckless behaviour and would accordingly render members of the
      board liable for these expenses in their personal capacities.


10.   Such behaviour places the board of trustees in conflict with both their common law
      fiduciary responsibilities and the provisions of the Medical Schemes Act, Act 131 of
      1998 (“the Act”), with specific reference to the following provisions:


      9.1   Section 57(1) of the Act which obliges a medical scheme to have a board of
            trustees who are fit and proper to manage the affairs of the medical scheme ;


      9.2   Section 57(6)(a) of the Act which requires that the board of trustees take all
            reasonable steps to ensure that the interests of beneficiaries in terms of the
            rules of the medical scheme and the provisions of the Act are protected at all
            times ;


      9.3   Section 57(6)(b) of the Act which requires that the board of trustees act with
            due care, diligence, skill and good faith.
11.   Your attention is further invited to the provisions of section 46 of the Act which finds
      application under circumstances where trustees fail to meet the requirements of
      section 57(1) of the Act.


12.   It has furthermore come to our attention that the board of trustees have resolved to
      transport certain members of the medical scheme who would like to attend the Annual
      General Meeting being held at the Emperor’s Palace Hotel in Gauteng, to the meeting
      by air.


13.   The cost implications of such a resolution, in the event of the board having approved
      such, would also constitute reckless expenditure of scheme funds.



                                                                                             3.


14.   This behaviour has the potential of compromising the requirement that the elections
      be free and fair, particularly as only certain members will be afforded the opportunity
      of attending the Annual General Meeting.


15.   Your confirmation of the following is required before close of business on Thursday 28
      June 2006, failing which this office will be obliged to exercise it’s statutory remedies:


      15.1   That the board of trustees will not proceed to incur further expenditure with
             regard to the award of the arbitrator ;



      15.2   That the scheme will not persist in flying members to the Annual General
             Meeting on Friday 30 June 2006.

Yours sincerely

T.P. Masobe


                               AR OF MEDICAL SCHEMES

								
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