Software developer Neil Harvey & Associates (NHA) has escalated its 15-year legal battle with Medscheme over copyright infringement and alleged damages by filing a lawsuit against the administrator of the medical aid from the Council for Medical Schemes (CMS).
Medscheme is owned by JSE-listed healthcare company AfroCentric Investment Corporation and insurance giant Sanlam.
In its complaint, the NHA questioned whether Medscheme was fit and proper to provide administrative services; has the resources, systems, skills and capabilities to perform the administrative services it wishes to provide; and is financially sound.
The complaint follows arbitrator and retired Supreme Court of Appeals Justice FDJ Brand who issued an order in October 2020 that ordered Medscheme to pay the NHA R2.7 million for the 27-month period during which NHA’s Medware EMI software was improperly used by Regime Medical.
The NHA had claimed approximately R23.7 million based on Medscheme’s alleged copyright infringement.
NHA Director Neil Harvey said the NHA is now pursuing its other claims in arbitration against Medscheme for breach of contract, misappropriation of confidential information, unlawful competition and misrepresentation.
This arbitration hearing is expected to begin in 2022 and, if the NHA is successful, could result in Medscheme being ordered to pay the NHA up to nearly R1 billion.
This massive amount was mentioned in the heads of argument by Medscheme’s legal adviser in a High Court costs security claim he filed in 2016 against the NHA.
Complaint could make Medscheme ‘financially unstable’
The NHA’s complaint to the CMS claims that if the NHA is successful in its main arbitration claim, such a drain on cash reserves “could well render Medscheme financially unstable” and impact its ability to survive. comply with the fit and proper requirement to provide administrative services.
Hannelie Cornelius, CMS Accreditation Manager: Managed Care Administrator and Organization, confirmed last week that a complaint had been lodged with the Complaints Adjudication Unit against Medscheme.
However, Cornelius said the complaint was later referred to the council’s compliance, investigation and accreditation units as it fell outside the scope of the complaints adjudication unit.
“The matter has been assessed by the Accreditation Unit and duly considered by the Board as part of Medscheme Holdings (Pty) Ltd Administrator and Managed Care Organization reaccreditation applications.
“The concerns were noted, but were found not to adversely impact the Board’s assessment of the fitness, ownership and financial strength of Medscheme Holdings at this time.
“The situation will however be monitored in the future and appropriate measures [will be] taken if deemed necessary at the time,” she said.
AfroCentric Health Group’s chief legal officer, Billy Mokale, said last week that they had submitted their reaccreditation documents to CMS on September 30 and had obtained approval for the next two years ending. December 31, 2023 for Managed Care and Administration Accreditation.
Mokale said they could not at this stage respond to the NHA’s submission to CMS because they were unaware of the complaint, but they are satisfied that the complaint “is without merit and is clearly a NHA’s attempt to pressure Medscheme into a settlement against Medscheme.”
“There is nothing in the award that warrants a complaint to the CMS, or any other authority.
“The award was about events that happened nearly two decades ago,” Mokale said.
“And we emphasize that the NHA only received a fraction [approximately 6%] of its full claim, including interest, and that the claims against the three former Medscheme employees have been dismissed, along with the NHA’s claim for punitive damages.
“Furthermore, although Medscheme’s contribution to the creation of the software in question was found to fall short of the requirement of joint authorship and ownership, its contribution was nonetheless significant. It was also found that the software was rarely used and was relatively worthless,” he said.
Mokale said Medscheme and NHA have agreed to start arbitration on June 1, 2022, but NHA’s preference now is to start in August 2022 and Medscheme is resisting that.
He added that Medscheme has always had a firm belief, confirmed by its attorneys and lead counsel, that it has a strong case and intends to continue to oppose the NHA’s other claims.
“We remain fully confident that the arbitrator will ultimately rule in our favour. It is in this context that we would not make a provision as expected,” he said.
Mokale added that the NHA only received R2.7 million in the first hearing against a potential R24 million, or about R50 million with the NHA’s interest claim.
“The small size of the award creates no reputational risk for Medscheme and the NHA has proven no loss but has only received notional royalties of R2.7 million for Medscheme’s minimal use of the software.
“The following case is based on assumptions that have yet to be proven and it is delusional for the NHA to believe that the EMI award has a direct bearing on the strength of its ’emulation and loss of future revenue’.
“If anything, the award demonstrates the weakness of the NHA’s remaining claims.
“The possibility of a settlement in one of the current reporting periods or in the near future is remote,” he said.
“No reliable estimate can therefore currently be determined of a possible liability and, therefore, no provision has been made. A contingent liability has, however, been disclosed.
Medscheme “keeps things rolling”
Harvey said Medscheme was found guilty of stealing NHA’s software and sharing it with NHA’s competitors and therefore broke their confidentiality agreement and acted in bad faith “no matter how they tried to do so. turn”.
“If they wanted to use EMI [software] and felt entitled to do so, all they had to do was negotiate with us, as in any supplier/customer relationship.
“Instead, they tried to clandestinely implement our brokerage solution behind our backs and with the help of our industry competitors. For years, they denied responsibility and assured their shareholders that there was no there was no risk,” he said.
Harvey said Medscheme took “theft of software [copyright infringement] and give it a very different twist.”
He stated that Medscheme’s defense that it provided the specifications and assisted in the development of this software and therefore considered that the organization authorized to use the software during the period in question was only concocted by the legal team of Medscheme only in 2018 for the first time.
“Up to this point, since 2006, they had refuted all of our allegations and claimed to have written their own version of EMI from scratch, independently and on Microsoft.net,” he said.
Harvey said all of this turned out to be untrue, with the arbitrator noting that although Medscheme initially disputed the fact “…it later became common cause on the pleadings that the Nexus EMI is indeed a reproduction exact sound [NHA’s] Medware counterpart”.
He said damages in the first part of the NHA case would always be difficult to validate, but believes the arbitrator got part of the order wrong.
Harvey said the NHA could have appealed the arbitration order and award, but decided not to on the grounds that it would have extended the case by six to eight months and “we wanted the main case to be heard after about 15 years of delay”.
“In the main case which will be heard on June 1, 2022, the damage is much more apparent,” he said.