Medical Schemes and Public Power - The Constitutional Clarification in Famous Idea v GEMS

The Constitutional Court delivers a reassuring and defining message in its judgment of Famous Idea Trading 4 v Government Employees Medical Scheme (GEMS) – a medical scheme’s decisions are not administrative actions simply because they operate in a public space.

The case involved a courier pharmacy company which lost out on a lucrative contract with GEMS. Famous Idea believed the tender process was unfair and approached the courts to have GEMS’ decision reviewed and overturned.

Defining Public Power And Function

The key question in the case was whether GEMS was exercising a public power.

While at first glance, GEMS might appear to perform a public function as it serves government employees, receives public funds, and plays a significant role in South Africa’s healthcare landscape, “it is the function, rather than the functionary, that is important in assessing the nature of the action”.

The Court found that GEMS, like other medical schemes, operates fundamentally as a private entity within a regulated industry. The business of a medical scheme does not encompass the performance of a public or government function or the exercise of public power.

Its decisions, including the awarding of service contracts, are commercial in nature.

Implications For Judicial Review

The Court held that GEMS did not exercise a public power or perform a public function when it procured the services of a courier.

This distinction matters as only decisions that involve the exercise of public power, or the performance of a public function qualify as administrative action under the Promotion of Administrative Justice Act.

By confirming that medical schemes do not cross that threshold in their procurement decisions, the Court effectively placed these decisions outside the reach of judicial review.

Legal Certainty And Institutional Autonomy

From the perspective of medical schemes, the judgment provides legal certainty and a crucial affirmation of institutional autonomy.

It means that, while they remain accountable to regulators and their members, they are not subject to the procedural rigours of administrative law every time they make a commercial choice.

Tender processes, in this context, are not public procurement exercises but private contractual arrangements.

Ongoing Accountability And Regulatory Oversight

Of course, this does not mean that medical schemes operate without constraint. They remain subject to contractual obligations, statutory regulation, and principles of fairness in private law.

Equally significant is the Court’s rejection of the idea that public funding or a public-oriented membership automatically transforms a private body into a public actor.

If that were the case, many entities operating in mixed public-private environments would find themselves unexpectedly bound by administrative law.

The Court wisely avoided this slippery slope.