Dr SOUTHCOTT (8:13 PM) —Even prior to the collapse of HIH and the terrorist attack on the World Trade Centre, it was evident that there were problems in the field of general insurance. Within Australia, FAI and HIH had priced their premiums unrealistically without regard to risk and, in addition, there had been a worldwide problem in reinsurance. All of these factors contributed in some way to the problems in medical indemnity insurance, which was demonstrated dramatically this year by the collapse of UMP.

Medical indemnity is provided by the medical defence organisations. In Australia these include UMP, the Medical Defence Association of Australia, Medical Indemnity Protection Society, MDASA, MDAWA, the Medical Protection Society of Tasmania and the Queensland Doctors Mutual Ltd. It is important to understand that they are not insurers; they are not-for-profit mutuals. They do not issue insurance contracts; they protect their members in return for subscription income, and they rely on reinsurance to do this. Since 1999, four of the main MDOs have had to make a call on their members for additional funds.

I will outline some of the recent events that have occurred this year. On 3 May 2002 a provisional liquidator was appointed to UMP and its subsidiary. UMP covers 60 per cent of doctors in Australia for professional indemnity cover. We have seen subscriptions to MDOs increase dramatically. We have also seen that the MDOs have not provided for their incurred but not reported claims. In response to the collapse of UMP, on 31 May the government announced that it would assist UMP to cover payment for claims finalised and incidents between 29 April and 30 June. This was then extended to 31 December 2002.

On 23 October 2002 there was a joint announcement by the Prime Minister, the Minister for Health and Ageing and also the Assistant Treasurer that: firstly, the guarantee would be extended to 31 December 2003; secondly, there would be government funding for the incurred but not reported liability at 30 June 2002 where the IBNRs are unfunded; thirdly, there would be government reimbursement for medical indemnity providers, either MDOs or medical indemnity insurers, on a per claim basis for 50 per cent of the insurance payouts over $2 million for incidents notified on or after 1 January 2003—this is the high-cost claim section; fourthly, there would be provision of premium subsidies for obstetricians, neurosurgeons and procedural GPs—this measure is conditional on these practitioners attending incident management and quality assurance programs; fifthly, there would be a cost recovery which would consist of a levy on members for the unfunded incurred but not reported liabilities and payments would be made by members of the MDOs to the Commonwealth to cover the cost to the Commonwealth of payments in relation to those unfunded IBNR liabilities; and lastly, medical indemnity insurance providers would have prudential supervision from APRA and would act more commercially in future. Changes in accounting standards will require the MDOs to include IBNRs on their balance sheets and provision for them.

This legislation comprises four bills which implement the measures which were announced on 23 October 2002, except for the prudential supervision by APRA. I welcome the announcement of 23 October as a good, commonsense outcome and a good approach to the vexed question of professional indemnity insurance and medical indemnity insurance in this case.

The Medical Indemnity (IBNR Indemnity) Contribution Bill 2002 and the Medical Indemnity (Enhanced UMP Indemnity) Contribution Bill 2002 are both taxation bills. To satisfy section 55 of the Constitution, which states that laws imposing taxation shall only deal with the imposition of taxation and any provision therein dealing with any other matter shall be of no effect, they are separate bills. But the main bill is the Medical Indemnity Bill 2002, which is under debate at the moment along with the other ones.

I will now refer to the IBNR indemnity scheme. Where MDOs have not provided for the incurred but not reported liabilities, the Commonwealth will meet the liabilities as they fall due but they will also levy doctors to cover the cost. This will allow the MDOs to continue without being burdened by past IBNRs. It allows in essence a fresh start. Division 1 of part 2 of this bill provides that, if MDOs do not have enough money to fund their IBNRs, the Commonwealth will pay money to the MDOs providing that the MDOs are participating MDOs. Whether they are participating MDOs is subject to ministerial discretion. If, for example, an MDO does have sufficient funds to pay their IBNR then the minister can determine that the fund is non-participating. This covers incidents occurring before 30 June 2002 but notified after 30 June 2002. The MDO will make the payment and will then be reimbursed by the Commonwealth. The Commonwealth may pay all or a percentage of the claim. This is covered in clauses 21 to 23 of this bill. The proportion of the payment will be assessed by the Australian Government Actuary to reflect the proportion of the participating MDO's IBNR liabilities which are unfunded. There is an important exception to this: IBNR payments will not be made for an incident relating to a public patient in a public hospital. I presume that is because the coverage is provided by the state governments in that case.

I turn to the part of the bill which relates to high-cost claims. The Commonwealth's partial coverage of high-cost claims will improve the affordability of premiums, it will improve the bottom line of the medical defence organisations, and it may even encourage new entrants to come into the market—which at the moment, without these changes, is not an attractive market to be in.

Clauses 29 and 30 in division 2 of the bill provide that the Commonwealth will pay 50 per cent of insurance payments over $2 million. The 50 per cent figure can be changed by regulation. This will apply to a claim in Australia which is notified after 1 January 2003 and is greater than $2 million or an amount which can be changed by regulation and where the medical defence organisation has paid the amount or is liable to pay. Once again, there is an exception for incidents involving public patients in public hospitals and I assume that is for the reason that their liability is covered by the state governments.

Clause 43 of the bill, dealing with the medical indemnity subsidy scheme, states that the minister can determine medical practitioners who will receive a subsidy for the medical indemnity premiums. On 23 October, the Prime Minister stated that this would apply to obstetricians, neurosurgeons and GP proceduralists, and there are good reasons why those professional groups are included. This measure will help to make premiums more affordable for these groups. These groups have major affordability issues relative to their incomes and relative to their professional peers in the specialties for obstetricians and neurosurgeons, but also for GP proceduralists.

The subsidy will be 50 per cent of the difference between the premium and the incurred but not reported levy for the obstetricians, neurosurgeons and procedural GPs, relative to those of gynaecologists, general surgeons and non-procedural GPs. So we will be looking at the difference between the risk premiums of an obstetrician and a gynaecologist, a neurosurgeon and a general surgeon, and a procedural GP and a non-procedural GP. Obstetricians and neurosurgeons are high-risk subspecialties and are associated with high premiums. They are not high income for a specialist group, and they spend up to one-third of their Medicare income on premiums. Neurosurgeons pay high premiums and have limited capacity to earn income from private practice, and so another section of the Medical Indemnity Bill 2002 provides that the subsidy will be 80 per cent for the premium plus the levy where it is over $50,000. Obstetricians, neurosurgeons and orthopaedic surgeons are often included in the three specialties that pay the highest premiums, but orthopaedic surgeons are not included here. An examination of their premiums showed that around the states their premiums are much lower than those of obstetricians and neurosurgeons: approximately $25,000 in 2001-02.

I move to procedural GPs. In general, this group most commonly practises in rural and remote areas and has a low volume of procedural services, so it is difficult to recoup the cost of the medical indemnity for services such as obstetrics. But they provide a very important service, and without having this sort of cover we would lose the procedures these general practitioners are able to perform in rural and remote areas.

Part 3 of the bill deals with financing the schemes. Division 1 sets out that all members of a participating MDO as at 30 June 2000 are required to make a contribution unless they have died, retired before 31 December 2000, were a student at 30 June 2000 or have alternative insurance. The rate is based on the indemnity premium or subscription paid by the members. This will only apply to doctors who belong to an MDO with an unfunded incurred but not reported liability as at 30 June 2002. Doctors who are members of an MDO that has funded its IBNR liabilities will not need to pay a levy. Paying the levy is a more affordable option for the medical profession than the past method, which was the MDO making a call on its members or introducing higher premiums. We saw that several times with UMP. The levy can be paid in a lump sum or by instalments, or it can be deferred for a year—for example, if the members take time out of the work force or go overseas. The levy is expected to run for five years to make it affordable. The annual amount will be limited to 50 per cent of a doctor's 2000-01 premium, and the levy is also tax-deductible.

Division 2 of part 3 of the bill sets out that members of the UMP as at 1 July 2002 must pay a contribution to cover the cost of the Commonwealth guarantee to the provisional liquidator of UMP, AMIL, covering 1 July 2002 to 31 December 2003. With regard to the UMP indemnity contributions, UMP members are required to pay the levy if UMP goes into liquidation, under the deed of indemnity between the Commonwealth, UMP and the provisional liquidators. I turn to the financial impact of the bill. It is estimated that the annual cost of high-cost claims is $19 million to $35 million, although this depends on the progress and nature of state tort law reform. The other impacts have already been included in the 2001-02 budget impact.

The Royal Australasian College of Surgeons has proposed a single medical defence organisation. There is nothing to stop any of the seven existing MDOs merging with another; that is really a matter for them. It is of course also subject to the Trade Practices Act and the ACCC. However, size is not everything; UMP shows us that. They had a 60 per cent market share but still were not able to price their premiums properly.

This bill provides an important response to the collapse of UMP and also to the difficulties medical defence organisations have. There are also some long-term measures, which the opposition spokesman on health spoke about and which are being addressed by the government. First of all, tort law reform is the subject of negotiations with the states. We are already starting to see some cases in the state court systems overturning previous cases in terms of medical negligence and the definitions thereof. Also, long-term care costs will be helped by the high-cost claims scheme. That scheme covers high-cost claims greater than $2 million. It is important to make the point that the number of catastrophically injured as a result of medical negligence is very small compared with the whole population. Motor vehicle accidents, for example, are much more common. This is an area of direct responsibility for the states. They have the infrastructure in place to assist people with catastrophic injuries. So it is up to the states to explore the feasibility of allowing a victim of medical negligence access to the services provided under these schemes. We want to see access to services rather than a new bureaucracy. While I sympathise with those who have family or friends who have been catastrophically injured, there is, as I said, existing infrastructure in the states.

I turn to the issue of clinical risk management. Any doctor receiving a subsidy—and that includes that group of obstetricians, neurosurgeons and GP proceduralists—must do quality and service safety activities as a result of the Commonwealth assistance. There are other initiatives of the government which are operating on a much wider systemic scale—for example, the Australian Council for Safety and Quality in Health Care, chaired by Bruce Barraclough, which is promoting improvement in safety issues. They divide it into priority areas: one, supporting those who work in the health system; two, improving data and information for safer health care; three, involving consumers in improving health care safety; four, redesigning systems to facilitate a culture of safety; and, five, building awareness and understanding of health care safety. Some of the practical things the council are focusing on are, firstly, reducing patient harm associated with medication use; secondly, reducing patient harm resulting from health care associated infections; thirdly, coordinating national action to learn from serious events; and, lastly, developing national standards to support more open disclosure to patients and their carers.

Last of all, the high-cost claims scheme will help to reduce reinsurance costs. This could encourage new entrants. By improving the market conditions, our medical defence organisations would be in a good position to negotiate their reinsurance contracts because of the high-cost claims scheme. We think it is more important for us to make this a more attractive market than to negotiate on behalf of the MDOs. Our expertise is not in insurance. We are not in the insurance business. This legislation has been introduced in response to a crisis in medical indemnity, but we believe it is more important to improve market conditions than to represent the MDOs in the reinsurance treaties. We are not in the insurance business.