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Into the 21st Century: Medical Indemnity

Medical indemnity was an even bigger problem, arguably the most difficult that the AMA had ever had to deal with. Its solution had to be extruded from the Government very slowly and often painfully. Over more than 10 years, though it almost certainly had the odd Ministerial file on it and probably its own inter-departmental committee, the problem had been meandering along with no apparent timetable or sense of priority. Back in 1991, the then Labor Government had flicked the problem to a Professional Indemnity Review (or PIR, as it became known throughout a long life) “to examine the current arrangements relating to professional indemnity and current experience with compensation for medical misadventure”. PIR took four years to come back with a final report that offered very little in the way of practical solutions but an enormous number of ideas for identifying more areas to be investigated. There PIR rested – a huge disappointment to the AMA.

For years, members had been expressing alarm and despondency at the mischief that the problem was wreaking on medical practice and the AMA had been warning the Government about it. By 1995, “in response to growing concerns . . . at the direction legal decisions affecting the profession were taking”, as the Annual Report said, an AMA Ad Hoc Medico-Legal Committee had been set up to advise Federal Council on ways to press resolution of the matter. The AMA formed the view that resolution should come in two ways: reform of state tort law to provide short- to medium-term relief and, for the longer term, amendments to federal tax law that would allow structured settlements instead of the usual lump sum payments. The effect of the amendments would be that injured patients could receive compensation in stages, thus providing patients with regular incomes over the periods in which their injuries could be cured.

Finally, in 2000 and into 2001, the Government had to pay attention when the problem went critical. United Medical Protection (UMP) and its subsidiary Australian Medical Insurance Ltd (AMIL) issued a call-up of members in November 2000 equal to a full year’s premium plus a general increase in its premiums of 8 per cent. At the time, UMP was Australia’s largest medical defence organisation (MDO), covering about 60 per cent of doctors nationally and about 90 per cent of doctors in New South Wales and Queensland.

In February 2001, a chink of light appeared when the NSW Government agreed to amendments to tort law and caps on compensation payouts in some areas of practice. It also included a proposal that professional indemnity insurance should be compulsory for medical practitioners. The NSW Government produced its reform legislation in June. The AMA welcomed this first sign that its concerns were registering at government level. But it was unhappy about the compulsory nature of the scheme, which Dr Phelps said would effectively give insurers greater power to disqualify doctors than the NSW Medical Board had, and which could make practice non-viable for doctors working part-time or nearing retirement. No other state government showed any sign of similar interest and, on the national level, a solution was a long way off.

In March 2001, the broad Australian insurance industry, including medical indemnity insurance, was badly shaken up when HIH Insurance, one of Australia’s largest insurers, sought voluntary liquidation. Later in the year, it was reported that UMP had not recorded about $455 million of incurred but not reported (IBNR) claims which it expected to pay over the next years. (IBNRs result from the long period that can occur between when an injury happens and when an MDO receives a claim for it, the effect being that MDOs cannot assess what funds they will need to hold in reserve to meet these claims.).

Meanwhile, a consultancy report was being prepared for the Australian Health Ministers Advisory Council (AHMAC) that showed that “the difficulties faced by UMP were of a kind which may well have been identified and acted on earlier if there were a regulatory regime in place”. IBNRs were a particular problem. The report would be released early in 2000. A significant part of the problem was of the Government’s own making. It could not look the other way now. On 19 December 2000, the Prime Minister announced that a summit would be held early in the new year to seek solutions to the crisis.

Dr Phelps put a plan to that summit, which took place in April, that included a commitment by doctors to safety and quality programs to minimise claims in return for which the Commonwealth would support MDOs, ensure that Medicare rebates reflected actual costs and set up a national “community-funded” scheme to care for and rehabilitate injured patients. The plan called on the other jurisdictions to carry out legal reforms and deal with “the activities of contingency fee lawyers”. Senator Coonan confirmed that the Commonwealth would amend tax legislation when the Parliament met in the winter to make structured settlements “more attractive and available”, but she said that tort law reform was a matter for state and territory governments.

Unhappily, on the same day as the summit, the media reported that the Government had rejected a request from UMP for more assistance for AMIL so that it could continue providing insurance cover. Six days after the summit, UMP applied for provisional liquidation. Dr Phelps met Senator Coonan and advisers to the Prime Minister on the following day, 30 April. It was agreed (among other things) that the Commonwealth would give priority to developing the care and rehabilitation scheme that the AMA had proposed, that in consultation with the AMA it would draw up and (before the end of June) introduce legislation to guarantee the security of claims incurred between 29 April and 30 June, and that the outstanding issue of IBNRs would be dealt with “at the earliest opportunity”.

On 31 May, the Prime Minister offered to extend the UMP/AMIL guarantee to the end of 2003. He called on state and territory governments to continue tort and legal system reform and to maintain indemnities for doctors in public hospitals and in rural areas. He said that MDOs would be brought into a new regulatory framework administered by Australian Prudential Regulation Authority. The Australian Competition and Consumer Commission would monitor premiums to determine whether or not they were actuarially and commercially justified. The Government would fund IBNR liabilities.

The AMA’s immediate reaction was that there were still plenty of unanswered questions about the detail in the package, which was incomplete in any case without law reforms by the states. Bringing MDOs into the regulatory framework for general insurers meant that doctors would be able to buy only ‘capped’ cover, which would expose them to amounts granted by courts over the cap – the so-called ‘blue sky’ amounts. The AMA was particularly wary about the levy. In October, the Government added extras to its May rescue package. Among other things, it offered to set up a scheme to fund IBNRs that were currently unfunded. This would be financed by the levy on doctors in MDOs with unfunded IBNRs. The AMA welcomed all this, but it still insisted that it would not even discuss the levy until this reform had been implemented.

It was now mid-December. The Federal Parliament had passed the legislation to enable the structured settlements proposal but half of the doctors in Australia had to renew their indemnity insurance by 1 January, and no progress had been made on important elements of the rescue package. And the AMA still had another particular concern: that retired or disabled doctors might have to pay premiums for years after they had left practice to cover incidents that might not attract claims for years into the future. It was impossible for doctors to estimate or buy insurance for such claims, Dr Phelps said. The Government was unmoved, but the AMA continued its public campaign into 2003. In March, the Prime Minister came back with adjustments to the Government’s October rescue package, following “further consultations with relevant stakeholders”.

The changes included a pledge to extend its guarantee to prop up UMP/AMIL until the end of 2003. It would pick up 50 per cent of the costs over $2 million for long-term care. It would raise prudential and disclosure standards for MDOs to those governing general insurers with effect from 1 July. The Medical Indemnity (Prudential Supervision and Product Standards) Bill would provide that minimum levels of retirement cover were available and the Government would commission a study of options to examine the retirement issue further, in consultation with the AMA and MDOs. The AMA was pleased, but hardly overjoyed. The package still left doctors in a precarious position, especially because of the rare but inevitable threat of ‘blue sky’ claims. It organised a rally in Sydney early in April at which doctors would protest about “the uncertainty surrounding the medical indemnity and their careers”. This was the first such reaction to what Dr Bill Glasson, who had succeeded Dr Phelps as Federal President, called “the roller-coaster ride that is medical indemnity”. It would not be the last.

Towards the end of May, the Government had another crack at completing its rescue package, in particular dealing with the ‘blue sky’ problem. It involved a scheme to assume liability for 100 per cent of any damages payable against a doctor that exceeded a specific level of cover by the doctor’s indemnity provider. The Prime Minister said that rapid progress by the states and territories on tort law reform and in developing “effective damages regimes” would reduce the likelihood that the scheme would be needed. The Government would review the scheme after three years and it would also closely monitor progress on tort law reform by the states and territories. Dr Phelps welcomed the extra commitment, which had come after “a very long, tortuous, complicated but ultimately . . . very rewarding process”. Two issues remained: the national medical accident scheme and the levy.

The reformed rescue package came into effect in July 2003, but it was still a mess. Premiums were still rising beyond the ability of many doctors to afford them. The levy remained a special problem. It had been legislated for but would not come into effect until November, but it was already creating great uncertainty: a tax that would be imposed on some doctors but not on others; that discriminated against doctors in new practice and doctors leaving practice. The legal reforms that would reduce its uncertainty were still not in place. So, early in July, the AMA Medical Professional Indemnity Task Force formally withdrew any AMA support for it. The Government made some changes to it soon afterwards to reduce its effect on retiring doctors but the AMA still opposed what it started to call Patterson’s Curse (after the Health Minister), both because of its surviving discrimination and the effects it was going to have on healthcare costs. At a meeting early in September with the AMA, the Prime Minister agreed (in the words of Dr Glasson, the new Federal President) “to look at specific strategies that were raised to see whether we can move forward . . . as quickly as possible”. Further meetings held soon afterwards with Ministers Patterson and Coonan were followed almost immediately by the Health Insurance Commission issuing levy demands on doctors. The reaction of the AMA and members was furious: huge rallies in Sydney and Brisbane, write-in campaigns to MPs and (with the 2004 election in sight) in marginal electorates. Two weeks later, Senator Patterson had been moved on, to be replaced by Mr Tony Abbott.

Three days after that, on 10 October, Mr Abbott and the AMA had produced a plan to bring an end to the crisis. The levy demands would be withdrawn. Any levy payments would be refunded. Doctors leaving or planning to leave their practices would continue working. Mr Abbott would chair a policy review group, which would include Senator Coonan, two doctors and two insurance experts. The group would report to the Prime Minister in December. Among other elements in the plan, exemptions from any levy were given to doctors aged 65 and over (regardless of practice income), doctors who needed to retire early because of disability and doctors working in public hospitals. The long-term viability of the medical indemnity scheme was still a cause of concern, but the immediate crisis was solved. Early in November, legislation was introduced to give effect to the plan. The Government, having received the policy review report, agreed to a package of measures in December that included caps on premiums and the levy. It did not quite meet all that the AMA had requested (or, according to reports, what Mr Abbott had proposed) but the AMA judged that it would provide certainty, security and affordability to allow doctors to continue working. The Government gave the package 18 months to prove itself. Dr Glasson said that the AMA would go along with that, so that any shortcomings could be dealt with. With that, the 15-year saga came to an end.