Top Discovery Health man quits in voting row

Official ‘taped while trying to rig’ election of board of trustees

● An investigation has been launched after a senior Discovery Health official was caught on tape hatching a scheme to fix the board at one of its client medical aids in order to protect its profits.

A general manager for mass markets, Khethang Malefane, was heard on tape discussing with LA Health’s brokers in KwaZulu-Natal the alleged fixing of elections to appoint the scheme’s trustees.

Discovery yesterday said Malefane resigned after its forensic investigation found he had discussed influencing the elections.

LA Health services about 91,000 employees in local government. Discovery, as its administrator, earns about R500m in fees each year. Two months ago its brokers in KwaZulu-Natal were called to a meeting at Discovery’s offices in Durban by Malefane.

The discussion, which breached regulations covering the medical schemes sector and the financial sector, was how to protect a “really, really lucrative business” for Discovery, Malefane told brokers.

“I am coming to you cap in hand asking you to help us protect our collective business,” he told the brokers in reference to the LA Health annual meeting last month.

“We are happy to provide you with the names of the people that we want to ensure make it to the board. Some of them are there, they are just being renewed.

“The stakes are high ... I’m asking us to protect what we collectively have built over the last few years, and ensure that we can look ourselves in the mirror and say we are part of an ethical business. That is in your hands, through your members,” he told them in the 55-minute recording that the Sunday Times has been given by a whistle-blower.

Discovery confirms it was Malefane’s voice on the tape. Malefane referred questions to Discovery.

If found guilty of what is described as an undesirable business practice, the company could lose its accreditation to perform its medical aid administration work in SA, which brings in about R1bn a year.

The Council for Medical Schemes said it was investigating “pronouncements made by the alleged Discovery Health employee”.

The council’s acting general manager for stakeholder relations, Mmatsie Mpshane, said it would take “appropriate” action once the investigation was concluded.

Discovery Health CEO Dr Ryan Noach said the meeting had been approved by the company. “But we were explicitly not aware of the content of the discussions and — had we been aware of this content — such a meeting would have been absolutely prohibited,” he said.

“We first heard of the content of the meeting when you brought this to our attention on Thursday, July 1. When we authorised this round of broker meetings, we did so as brokers were seeking clarity on the upcoming LA Health AGM processes, considering this would be held virtually for the very first time [in light of the Covid pandemic], as opposed to the usual in-person meeting with manual voting.

“Mr Malefane was not acting under any instruction whatsoever from Discovery Health. To the contrary, we are clear on the laws and conduct required in relation to trustee elections, and would not breach these regulations, nor condone them being breached, under any circumstance.”

The whistle-blower said Discovery being allegedly involved in anything related to the annual meeting would be irregular.

“There is a distinct difference between the scheme, its administrator, and the independent body that will run the elections. Discovery, as a service provider, should not be involved in the elections and the fact that its employee, using their resources and acting in their interest, did this is an indictment,” the whistle-blower said.

The revelations have an implication for the credibility of the new board of trustees elected last month. The election will also be part of the council’s investigation, the Sunday Times has established.

In the recording, Malefane said it was necessary to prevent LA Health from being captured by nefarious forces which were in competition with Discovery.

He based his suspicions on an instruction to LA Health, by the council in December, to put the administration contract out to public tender. The council said the instruction was because LA Health had failed to test the market since 2005, when Discovery won the contract.

Malefane said there were rumours the instruction was driven by some of LA Health’s own trustees who were compromised. “If the rumour about some people trying to control the board is true, it follows that we have to make sure that the people who end up on the LA Health board are ethical,” he said.

“The people who nominate the trustees, to a large extent, are your members.”

LA Health’s principal officer, André de Koker, said this week it viewed the council’s instruction as being in the best interests of the beneficiaries of the scheme.

“On an annual basis the board of trustees evaluates all its third-party service provider contracts to determine the value delivered and the return on investment. Although the board of trustees is clear on the value added by the scheme’s administrator and the return on investment, for good corporate governance it was resolved to embark on a competitive tender process for its administration and managed care services,” he said.

At some point in the meeting Malefane acknowledged that his request was unlawful. He said the list of trustees would not be shared “under carpet”.

“I’m not supposed to have this discussion with you, obviously, because as an administration company we can’t be seen to be participating or meddling in the elections. But I felt that you need to appreciate the background, because you don’t always know what’s happening behind closed doors,” he said on the tape.

As part of the scheme, Malefane told brokers, Discovery had partnered with the Independent Municipal Allied Trade Union (Imatu), one of two recognised unions in local government.

“We are pretty much basing ourselves on the Imatu ticket. You guys know we are in partnership with Imatu. Imatu has put out a few names they want to put on the board of LA Health, and we ... would like to see those people joining the board,” Malefane said.

Union general secretary Johan Koen said: “There is no ‘Imatu ticket’ and Imatu has no preference when it comes to the election of any trustees on any board. Mr Malefane obviously had his own motives for making the statement, but it is untrue.”

Mr Malefane was not acting under any instruction whatsoever from Discovery Health. To the contrary, we are clear on the laws and conduct required in relation to trustee elections, and would not breach these regulations

Dr Ryan Noach Discovery Health CEO