Exposed: GEMS’ R600m ‘dodgy’ contract

The scheme awarded the multivitamin contract to Activo Health through the quotation system in a process adjudicated by a third party

THE GOVERNMENT Employees Medical Scheme (Gems) has irregularly issued a R600 million multivitamins contract, in violation of the Public Finance Management Act (PFMA) and other regulations.

The controversial contract was awarded to pharmaceutical company Activo Health in December last year through the quotation system. This was despite the PFMA requiring state contracts above R500 000 to be advertised and subjected to competitive bidding.

The Pretoria News can reveal today that GEMS appointed pharmaceutical company Activo Health on Christmas eve to supply multivitamins A-Z to its 1 million members for a period of five months, starting from January 2022.

At the current retail price of R130, the contract is valued at R600 million.

According to highly placed sources and official documents seen by the Pretoria News, Medscheme recommended its sister company, Activo Health, for appointment. The records include official GEMS documents, quotations submitted by the bidders, and letters exchanged between Medscheme and the service providers.

Activo Health and Medscheme, which facilitated the “special project”, are both subsidiaries of Afrocentric Group, the largest health administration and medical risk management solutions provider, chaired by Dr Anna Mokgokong.

Medscheme is one of GEMS’ service providers. It was appointed by GEMS to source the multivitamins on its behalf. After evaluating the quotations, Medscheme recommended Activo Health.

In a request for information letter sent to LHC Pharmaceuticals, one of the potential service providers approached, Mthabisi Ncube, Medscheme’s Advanced Specialist for Strategic Sourcing, said the scheme sought to “ascertain the willingness of LHC Pharmaceuticals to supply multivitamins to the beneficiaries of one of our large medical scheme clients”.

“The medical scheme intends to supply the multivitamins to all of its beneficiaries over the age of 18, approximately 1 000 000 (one million) for 5 months, starting in January 2022,” Ncube said.

But sources said the decision to appoint Activo Health was done abruptly, and the approvals fast-tracked in breach of normal procurement and regulatory processes.

“They have pursued this initiative with complete neglect and disregard for appropriate procurement policies, dispensing, and clinical best practice. This is contrary to Good Pharmacy Practice (GPP) regulations as determined by the SA Pharmacy Council.”

Another industry source said black pharmaceutical manufacturers were sidelined despite playing a major role in supply of over-the-counter (OTC) multivitamins, cough mixtures, and Covid-19 personal protective equipment.

“The multivitamins are mainly produced locally and most black manufacturing businesses thrive on them for existence. These companies are struggling to make it in highly protected industries, and they are very much excluded from participating fairly in the value chain,” the source added.

GEMS principal officer, Dr Stan Moloabi, signed the contract. Moloabi confirmed that Medscheme sourced quotations and adjudicated the process on behalf of GEMS. However, he said GEMS made the decision to appoint.

“The scheme mandated Medscheme to analyse claims trends for the most commonly claimed vitamins and obtain quotations. The scheme then adjudicated the quotations, to identify a preferred vitamin supplier based on procurement criteria outlined to all prospective suppliers.”

Moloabi confirmed Activo Health’s appointment. “Activo Health was appointed on the basis of its retail sales volumes as a proxy for general consumer acceptance of the vitamin brand. All the submissions from the five suppliers were considered equitably …”

Moloabi did not respond to specific questions on whether due processes were followed and whether or not the tender was advertised. He said the Council for Media Schemes protocols did not apply to GEMS’ strategic purchasing processes. Moloabi maintained that all GEMS processes were conducted in line with its rules and in compliance with the Medical Schemes Act.

Asked what procurement process was followed and whether it was advertised, Afrocentric chief executive officer, Ahmed Banderker said “GEMS requested Medscheme to do research. Medscheme submitted an output of the research and GEMS made the final decision.”

Banderker said the company and its subsidiaries had no relationship with any of the GEMS board members.

But the Black Pharmaceutical Industrial Association (BPIA) questioned the process, saying GEMS did not advertise the contract to exclude black businesses.

BPIA chairperson Kingsley Tloubatla accused Medscheme of sourcing information from other suppliers merely to tick the box beforeawarding the multi-million contract to Activo Health. He called the process “entrenched corruption” that had been happening for years.

“The procurement process was not completed. Only Activo.

“What is worrying is the conflict of interest not declared by the administrators, Medscheme, who awarded their subsidiary company, and apparently it’s not only at GEMS but all other medical aids they administer.

“It’s an untransformed sector of our economy. The regulator doesn’t recognise the BEE Act or the Constitution as it relates to the Equality Clause.

“NT in 2018/19 awarded the biggest part of DLT (ARV tender) to 100% Indian owned companies. One of them employs two people in SA, reducing allocations to SA-owned manufacturers in favour of imports.

So if our own government does this, they have little or no regard to transforming a hugely biased industry.”