The Council for Medical Schemes (CMS) has moved into the implementation phase of its Section 59 reforms, issuing Circular 10 of 2026 on 17 March as an immediate intervention aimed at stabilising the sector while longer-term regulatory changes are developed.
The move follows the publication of the Section 59 Final Investigation Report in July 2025, which found systemic procedural unfairness and evidence of racial discrimination in how certain medical schemes and administrators conducted fraud, waste and abuse (FWA) investigations between 2012 and 2019.
Read: Panel upholds findings of racial bias in medical scheme fraud investigations
The findings were strongly contested by parts of the industry. The Board of Healthcare Funders (BHF) and Discovery Health rejected the report’s conclusions, arguing they were based on flawed methodology and warning that implementing them could weaken efforts to combat fraud, which is estimated to cost medical schemes about R30 billion annually.
Read: BHF and Discovery challenge section 59 report’s conclusions
At the same time, the investigation highlighted longstanding concerns from providers, particularly black practitioners, around delayed payments, disproportionate clawbacks, and opaque audit processes.
During a meeting of the National Assembly’s Portfolio Committee on Health on 25 March, John Letsoalo, senior manager: legal services at the CMS, said the investigation confirmed that the application of section 59 of the Medical Schemes Act (MSA) had been inconsistent and fragmented across the industry.
“You go from one scheme to the other, you find that the practices are very different… and even how providers are treated… is quite distinct,” he said.
He added that weaknesses in audit processes and a lack of standardisation had contributed to mistrust and disputes between providers and schemes.
From contested findings to regulatory reform
Section 59 of the MSA governs both the payment of claims within 30 days and the recovery of funds incorrectly paid. The investigation found that although schemes acted within broad legal powers, the absence of detailed procedural standards allowed for inconsistent and, in some cases, unfair outcomes.
The Section 59 Investigation Panel, chaired by Advocate Tembeka Ngcukaitobi, identified an imbalance in power between schemes and providers, as well as a lack of transparency in algorithm-driven audit systems. Risk-ratio analysis suggested that, in certain disciplines, black practitioners were significantly more likely to be investigated and penalised.
At the same time, industry stakeholders argued that the findings did not adequately account for factors such as patient demographics, billing patterns, and exposure rates.
Letsoalo said the CMS is seeking to address both sets of concerns through a reform process that introduces uniform standards without undermining the ability of schemes to combat fraud.
“We are not actually punishing the industry… we are actually reforming the industry,” he said.
He added that the intention is not to protect wrongdoing, noting that “the safeguards… are not there to protect those that do wrong”, but to ensure that compliant providers are treated fairly.
Central to this effort is the development of a Universal Code of Conduct (UCC), which will standardise how audits, investigations, and recoveries are conducted. The Code is expected to be adopted as subordinate legislation, making it enforceable across the sector.
Circular 10: immediate intervention in a contested environment
Circular 10 provides the CMS’s immediate regulatory response, setting out expectations with which schemes must comply while the broader reform framework is being finalised.
The Circular must also be understood in the context of ongoing legal and industry sensitivity around the Section 59 findings.
Letsoalo indicated that the CMS is proceeding cautiously, noting that reforms must withstand legal scrutiny and avoid delays caused by litigation.
“We need to tread carefully… we also do not want to attract litigation, because it will then suspend the whole process,” he said.
He explained that Circular 10 forms part of a transitional approach – establishing immediate standards while allowing for further stakeholder engagement on Circular 10’s provisions and ensuring legal alignment.
Immediate expectations: standardising conduct
Circular 10 requires schemes to eliminate practices that may result in discriminatory outcomes, including reviewing algorithms and decision-making processes.
It reinforces compliance with the 30-day payment rule, addressing one of the core concerns raised by providers. Letsoalo said restoring timely payments is critical to maintaining provider sustainability and trust.
“We want to also restore the payment mechanism of 30 days… so that we can also improve the cash flow of providers,” he said.
The Circular also limits clawbacks, requiring that recoveries be proportionate, justified, and non-coercive – a direct response to findings that retrospective recoveries had, in some cases, forced providers to close their practices.
In addition, schemes must implement early-warning systems to notify providers of potential issues before formal action is taken – another recommendation stemming directly from the investigation.
Oversight and transparency: addressing ‘black box’ systems
A key concern raised in the Section 59 report was the lack of transparency in FWA detection systems, particularly algorithm-driven processes.
Circular 10 responds by requiring greater transparency, including data submissions and clearer documentation of audit and decision-making processes.
Letsoalo acknowledged that fragmented and opaque systems had contributed to distrust in the industry, adding that improved transparency is essential to rebuilding confidence.
Prohibited conduct and provider protections
The Circular explicitly prohibits practices identified as problematic in the investigation, including race-based profiling, unjustified data requests, and coercive recovery practices.
It also introduces interim protections for providers, including clearer communication requirements, reasonable response timelines, and access to independent facilitation.
These measures directly address findings around procedural unfairness and power imbalances between schemes and providers.
Implementation: a phased and legally grounded process
Letsoalo outlined a three-phase implementation strategy, beginning with the issuance of Circular 10 and initial stakeholder engagement, followed by detailed consultation on the UCC, and culminating in its formal adoption and rollout across the industry.
The first phase centres on establishing immediate expectations through Circular 10, while initiating engagement with stakeholders to align on the direction of reform.
The second phase will involve structured consultation to refine the UCC, incorporating stakeholder input and ensuring alignment with legal requirements.
The final phase will see the code gazetted as subordinate legislation, followed by implementation across the industry, including training, monitoring, and enforcement to ensure consistent application.
He emphasised that consultation is not optional, but a legal requirement.
“We still need to consult the industry… because PAJA [Promotion of Administrative Justice] is applicable to the CMS,” he said.
He added that this process is necessary to ensure that reforms are legally sound and capable of withstanding challenge.
At the same time, the CMS is working with other regulators, including the Information Regulator and the Health Professions Council of South Africa, to address issues such as patient consent and data handling.
What comes next
The CMS has positioned the final phase – the finalisation and gazetting of the UCC – as the cornerstone of its longer-term regulatory reform.
As outlined in Circular 10, the UCC is intended to establish a unified, legally binding behavioural framework for the industry, addressing the systemic weaknesses identified in the Section 59 investigation and replacing fragmented practices with standardised rules.
Once adopted under section 7(f) of the MSA, the Code will carry the force of subordinate legislation, requiring compliance across medical schemes, administrators, and related stakeholders. The CMS has indicated that the UCC will formalise standards for audits, investigations, and recovery processes, with a focus on consistency, proportionality, and procedural fairness.
The Circular also makes clear that the development of the UCC will be consultative, with further engagement planned to refine its provisions before implementation. The objective is to ensure that the framework is both operationally workable and legally robust, while aligning with broader constitutional and statutory requirements.
Alongside the Code, the CMS is advancing complementary reforms, including the development of minimum standards for audit and recovery practices, strengthened collaboration with regulators and law enforcement agencies, and the use of its inspection powers to address material non-compliance.
Letsoalo said the ultimate objective is to create a system that is both fair and effective.
“It must be a structure that protects providers but also ensures that the schemes… still detect fraud… and still protect members,” he said.
