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Tuesday, 25 November 2003
Page: 22742


Ms GILLARD (4:28 PM) —I rise to speak in the second reading debate on the Medical Indemnity Amendment Bill 2003 and its cognate bill, the Medical Indemnity (IBNR Indemnity) Contribution Amendment Bill 2003. I will start by saying we should not be here. We should not be here debating these bills in this House, because the medical indemnity crisis for which they are a desperate patch-up should never have occurred.

The former Labor government commissioned a report into medical indemnity issues. It was completed by a woman called Ms Fiona Tito and is consequently referred to as the Tito report. When the Howard government came to office in 1996, the Tito report would have been sitting on the desk of the incoming Minister for Health and Family Services, Dr Michael Wooldridge. The Tito report said quite explicitly that there would be a problem, a potential crisis, to do with medical indemnity issues unless the government acted and changed policy settings. The former minister for health, Dr Michael Wooldridge, is proud, ironically, of his record of inaction having received this report. At a conference at the University of Melbourne earlier this year, Dr Michael Wooldridge—who was minister for health for nearly six years after receiving this report—said:

... I was accused of doing far too little on medical indemnity. That's completely unfair. I did absolutely nothing whatsoever.

So there we have Dr Michael Wooldridge, who is out of politics now, making a frank admission that he, as the Howard government's minister for health, did absolutely nothing to address the emerging medical indemnity crisis. As a result of that record of inaction, we moved to a situation where the Howard government was finally spurred into action after medical indemnity issues became a crisis and after doctors—particularly doctors in hospitals in New South Wales—signalled their intention to resign and to abandon the public system and the treatment of their patients unless the government acted. That is how we got to this point: a record of inaction.

Once it became a crisis, the Howard government scrambled around with a desperate patch-up job. The bills before the House are the manifestation of that desperate patch-up job. Labor will not be opposing these bills, though we do believe that it needs to be noted as they are debated in this House that it never should have been like this. A competent government that cared about the health system, a competent government that cared about medical indemnity issues, a competent government that cared about having doctors doing what they do best—treating patients—and a competent government that cared about patients' access to quality care would never have let this situation get to where it is. Of course the one clear truth we know about the Howard government is that its record in health is littered with incompetence, with neglect and with an inability to run the system. Every intervention it makes is destined to try and make the system worse—and we have that on grand display with the incoming Minister for Health and Ageing's `Medicare Minus' package.

Let us go through the record of how we got here. The immediate events which gave rise to the need for these bills before this House started in November 2001 with the collapse of the United Medical Protection medical defence organisation, better known as UMP. When it collapsed it had an estimated liability of $460 million of incurred but not reported claims—those are the now famous IBNRs—for which proper provision had not been made. Incurred but not reported claims are claims where the adverse medical event has occurred but the matter has not been reported yet and consequently the existence of a sum-certain claim is not known. Consequently all modelling of incurred but not reported claims requires some guesswork—some guesstimates about what the liability is. The estimated liability for incurred but not reported claims at the date of the collapse of UMP was $460 million.

The Howard government, faced with a medical indemnity crisis—the responsibility for which it could no longer shirk—agreed to take responsibility for UMP's IBNR liabilities. It agreed that the cost of this bailout was to be passed directly onto UMP's members and former members via the now infamous IBNR levy. That scheme of arrangements was passed into law urgently and without much scrutiny in an atmosphere of crisis—like everything else that has been done in the medical indemnity area by this government. That scheme of arrangements was passed into law through the Medical Indemnity Act 2002 and the Medical Indemnity (IBNR Indemnity) Contribution Act 2002. According to the plan and this legislation, the Howard government would recoup $580 million over 10 years from doctors who were members of UMP as at 30 June 2000. It should be noted that the difference between the $460 million bailout and the amount to be recouped occurs because of the need—if you are recouping money over 10 years—to recoup additional amounts in order to give a net present value of $460 million.

It was the first batch of the IBNR levies stemming from this scheme of arrangements thudding on doctors' desks a few months ago that triggered the recent very public mass resignations of doctors from public hospitals. You will recall, Mr Deputy Speaker, that that crisis centred on New South Wales. The reason for that is that, disproportionately, UMP's membership base was in New South Wales. The vast majority of doctors in New South Wales were members of UMP and consequently received the levy notices. The IBNR levy bills arrived with very little in the way of courtesy or even information from the Howard government. I have spoken to doctors in New South Wales who—or whose partners—literally ripped open the mail one day to find a 10-year levy account presented with very little information. For some in high-risk specialties, the number in the corner for the 10 years was $150,000 to $200,000. No wonder people got a bit of a shock. No wonder they reacted adversely when they opened up something that said they owed a six-figure sum without much explanation.

After they recovered from the shock, the doctors obviously disputed the calculations. They said that the outstanding liabilities of UMP had been figured at a time prior to the recent amendment of tort law and negligence law in New South Wales and that if the impact of the tort law and negligence law reform was properly modelled into the calculations, that should have brought the IBNR liabilities down and made the bill they had to pay cheaper.

Despite the relevant Government Actuary's document being supplied to Laurie Oakes of Channel 9, the government never publicly released to members of parliament or to doctors the way in which those calculations were done. The doctors were aggrieved firstly by the manner in which these levy notices arrived and secondly by the fact that there was no way they could check whether or not their liability was right, whether or not the calculations had been done correctly. Thirdly, doctors were aggrieved that if they paid the 10-year liability up front—which they could do, getting a 22.5 per cent discount for paying it in a lump sum instead of year by year—and it was subsequently revealed they had paid more than they should have, because the IBNR liabilities had been overestimated, there was no mechanism for repaying to them the amount they had paid in excess of what they should have paid. Lastly—but by no means least—doctors were aggrieved that, whilst this might be some form of resolution to the IBNR crisis, it certainly was not a long-term resolution of medical indemnity issues.

As we know from questions asked in this House by the opposition, there were grand absurdities in the levy notices that were sent to doctors. Plenty of examples have been put before this parliament of doctors who were working part time, or who were working for very limited hours for the Royal Flying Doctor Service, yet got IBNR levy notices to pay which would have eaten up the lion's share of the income they were actually receiving.

In October 2003 the doctors' discontent led to threats of mass resignations from public hospitals, particularly in New South Wales. As I have noted, that is the centre of the crisis because most doctors in New South Wales were members of UMP. Faced again with a medical indemnity crisis, faced again with the consequence of its many long years of neglect of this area and the fact that it never did anything until there was a crisis which made it do something, the Howard government went into crisis management mode. The incoming Minister for Health and Ageing, Minister Abbott, even before he was sworn in dumped on his colleagues, most particularly the former Minister for Health and Ageing, Senator Kay Patterson, and Senator Helen Coonan, who had been dealing with these matters. He swept them aside with a grand wave of his arms and decided to walk in to see if he could resolve the medical indemnity crisis. One can only wonder why it is, if Senator Patterson and Senator Coonan were not dealing with these matters competently, they were allowed to deal with them for so long or, if in truth they were dealing with them competently, why the minister is dealing with them differently. One can only conclude from these circumstances and events that there was great incompetence in the way in which these matters were being dealt with—but that is what happens when you do not deal with public policy issues in a timely way and you allow them to become a crisis. We know, of course, that the Howard government's record of competence in the health area is very low indeed.

The incoming minister for health, Minister Abbott, brokered a crisis deal with the Australian Medical Association in order to ensure that doctors continued treating patients, particularly in New South Wales. The crisis deal had two elements which are reflected in these bills and a third element which is not. The two elements reflected in these bills are the withdrawal of the current IBNR levy notices, which were the spark that caused all the trouble, and an exceptional claims scheme. The third element, which is not in these bills, was Minister Abbott's agreement to create a medical indemnity policy review panel, which he would personally chair and which would report to the Prime Minister by 10 December 2003. The panel is supposed to be consulting widely before reporting on ways to ensure that medical indemnity arrangements in Australia are financially sustainable; are transparent and comprehensible to all parties; provide affordable, comprehensive and secure cover for all doctors; enable Australia's medical work force to provide care and continue to practise to its full potential; and safeguard the interests of consumers and the community. We are yet to see what comes out of the panel process, and the Labor Party will respond to what does come out. There is nothing about the Howard government's record in this area which would reassure you that they will work their way to a competent solution. Maybe this time they will blunder across the right solution, but it certainly will not be because of competent policy development over the life of the Howard government.

The legislation we are debating this week gives effect to the two patch-up jobs agreed in an atmosphere of crisis in an eleventh hour deal with the AMA to try to get doctors back to work. One patch-up job is the withdrawal of all IBNR levy notices. They are to be withdrawn, and the moratorium on payments over $1,000 is to last for 18 months. Doctors have been advised that their levy notices will be withdrawn, that in this financial year they will get a new levy notice which will not be for more than $1,000, and that for the first six months following this first financial year—it is an 18-month moratorium, and you obviously get odd results when you pick an 18-month figure when everything is factored in years—they will not be required to pay more than $500. Current levies have been withdrawn, and there are moratoriums on amounts over $1,000 and then over $500.

If there were not a new scheme of arrangements in place at the end of the moratorium period—and that would occur if the panel process failed or if what came out of the panel process was not capable of being implemented—then, under this scheme of arrangements put before the House by the government, the situation would revert to the IBNR levy arrangements as we have known them. People would go back onto the old payments they were required to make, and there would be a catch-up process to make sure they paid, over the 10-year period, the total amount they should have paid according to the first levy notice. But, for the first financial year and the six months thereafter, their liability would be limited to $1,000 and then $500. It is a moratorium. If all else falls away, doctors will end up paying basically the amounts they got notices for in October this year. If a new scheme of arrangements can be entered into, then at least doctors have a guarantee under this legislation that they will not pay more than $1,000 in this financial year and they will not pay more than $500 for the six months after the end of this financial year.

Given that all this was conceived and developed and put on as a patch in an atmosphere of crisis, obviously there are all sorts of collateral issues that this legislation needs to deal with, like the circumstance of a doctor who has paid the 10 years up front and now needs to be repaid because of the moratorium arrangements. The legislation is effective to deal with such a circumstance. We have got the IBNR moratorium in this legislation, and it at least includes an annual review of IBNR arrangements. So, should there be no new arrangement come out of Minister Abbott's panel, at least doctors will have the reassurance that their outstanding levy will be recalculated each year so that the full impact of tort law reform can be taken into account.

The second major thing in terms of the patch-ups that are dealt with in these bills is the Commonwealth's Exceptional Claims Scheme, previously known as the Blue Sky Scheme. This is a scheme of arrangements where if a doctor sustains a claim above $20 million—that is, a claim above an amount for which the doctor has insurance—the Commonwealth will step in and pay the difference between the $20 million and whatever the claim is. I accept that that is a reassurance to doctors, but it is largely a theoretical reassurance to doctors in the sense that there never has been a medical negligence claim in Australia that exceeded a $20 million quantum of damages, and it is very unlikely that one would occur, particularly in an environment where tort law is being revised to limit, not extend, rights. But, in the unlikely event that such a claim should occur, the Commonwealth will take on the liability.

Before moving on, I note at this point that one of the very unsatisfactory elements of the information that has been provided by the government on these bills is its failure to provide clear and appropriate costings. I accept that the likelihood of there being a claim the quantum of which is over $20 million—which would then enliven some Commonwealth payment under the exceptional claims arrangements—is so close to zero, so negligible, that it was probably not possible for an actuary or someone in Finance or Treasury to model the costs and include them in the explanatory memorandum. But the costs of having the IBNR arrangement—that is, the withdrawal and the limitation of liability to $1,500 over the next 18 months—must be known. The Commonwealth routinely calculates the cost of revenue forgone. That is what this, properly assessed, is. There ought to have been a frank disclosure of what the costs to the Commonwealth are through these arrangements, and we have not seen anything like that frank disclosure. I remind the Howard government that, at the end of the day, Commonwealth revenue is not its revenue; it is revenue that Australian taxpayers have worked hard for and given to the government for the provision of vital services. If the revenue is going to be used to fund patch-up arrangements because of policy incompetence, then Australian taxpayers are entitled to know what the bill they are paying is—and they do not know.

Once this patch is in place we will of course be waiting for what long-term arrangements come out of the medical indemnity panel. No-one wants to see a medical indemnity crisis in Australia, and it would be my hope that the panel finds the long-term solution. But I want to say that a way to find a real solution is to have all of the players around a table and to work consultatively with them. Disturbingly, the government—a government that has blundered and blundered again in this area because of quick fixes born out of crisis management—appears to be well on its way to repeating its past errors by refusing to encompass the right people in the process.

Clearly, state governments control two of the most important levers in this debate. Firstly, state governments control the tort law environment and, secondly, they effectively indemnify doctors for their work in public hospitals. Over the past 18 months, most state Labor governments have acted by making major reforms to the laws of negligence on civil and medical liability. Anecdotal evidence suggests that these reforms are having a substantial impact on the number of claims against doctors for negligence. This is only one part of resolving the medical indemnity problem; after all, there is only so much that can be done through active claims management and tort law reform. But what Minister Abbott is now failing to do is to effectively engage the state governments and work with them to develop options to resolve this issue.

I note that the Medical Indemnity Policy Review Panel makes no mention of working with the states on pulling together the data on these claims—the data about medical negligence claims and the tort law experience in the new environment—and that data is obviously needed to develop options for effectively managing this complex and difficult issue. If you do not have the data to understand the problem, how can you develop options to solve it? This is quite clear to me. In my home state of Victoria, the Bracks government now has probably the most comprehensive set of data on medical indemnity claims of most, if not all, governments in Australia as a result of working with the Medical Indemnity Protection Society. This is exactly the type of database that the federal government needs to work towards establishing in cooperation with state governments and medical defence organisations. The process needs to be inclusive of state governments if it is to work. I would urge the Commonwealth, before it blunders again in an area where it has blundered so often before, to bring the states to the table as part of resolving the medical indemnity crisis.

I now want to touch briefly on elements that federal Labor believe need to be in the mix to resolve the long-term medical indemnity crisis. Clearly one of those elements is increasing quality of care and avoiding, insofar as it is possible, adverse medical incidents. We will never get treatment that is perfect; obviously everybody involved in the process is a human being, and human beings make errors. But we do know that there are currently occurring, in our hospitals in particular, preventable deaths, and a number of those would be associated with events which would equal negligence. To the extent that those preventable deaths occur, we need to improve the quality of the environment.

I note that Professor Jeff Richardson, the Director of Monash University's Health Economics Unit, presented work at the health summit which was held here in Canberra. He looked at 1995 data and quantified it, showing that there were 470,000 adverse events, 18,000 deaths per annum and 50,000 people with a permanent disability as a result of quality issues in our medical sector. Of the 18,000 deaths, he assumed that 25 per cent—or 4,500—were preventable. On this basis, we have the equivalent of 13 jumbo jets crashing each year, each with 350 passengers. People might choose to argue about the merits of Professor Jeff Richardson's figures. Clearly that will happen in an area like this, but I do not think anybody would assert that we are at the end of improving the quality environment and that we ought not to be making a more dedicated effort to do that. That flows into the medical negligence area, because if you do not have adverse incidents you do not have negligence claims.

I suggest a second policy that requires clear focus in order to change the environment in which we are working is focusing on open disclosure. This requires changing the practice patterns of providers such as hospitals or medical practitioners so that they do disclose errors. For parties who in the first instance might be seeking something as simple as an expression of regret or a factual statement about what has happened to their loved one, it enables that to occur. That in and of itself can prevent claims being filed for negligence. So we would stress with the Commonwealth the need to be looking at open disclosure policy as a way of reducing the risk of litigation.

I think that there is an unresolved issue about the appropriate claims structure for medical indemnity. We have, as a result of the flurry of activity post the UMP crisis, migrated the medical indemnity model from a discretionary medical defence organisation model to an insurance model. One will hit different views in the medical defence community about whether or not this was an appropriate change. But the impact of that change means that we have moved from offering doctors `claims incurred' insurance—so that they know that they are covered for every event that occurs when they are in practice, whether or not it is notified while they are in practice—to `claims made' insurance, which means that through paying their insurance policies they are only covered for claims actually notified during the period.

The migration to the `claims made' model is what causes the IBNR tail. You did not have IBNR tails in this sense—you did not have the need to separately insure for IBNR tails—when you had `claims incurred' policies. The advent of `claims made' policies means that, when a doctor retires, ceases to practice, becomes medically incapacitated or even dies, they need ongoing protection because the insurance they paid for when they were in the work force will not give them cover for claims which are notified after they have moved out of the medical work force for whatever reason.

I think doctors are entitled to certainty that, if they retire or if they become medically incapacitated or permanently disabled, a claim will not rise out of the past and come and bite them. Equally, a patient is entitled to certainty that, if they become aware that they have been adversely affected by a negligence incident and, within reasonable time of becoming so aware, they take action, but they did not have that knowledge until after the time that their doctor had left the medical work force, they are still entitled to make a claim. They have to have somewhere to go in those circumstances.

The risk is that, if we do not resolve the consequences from having moved to `claims made' insurance, we will see doctors leave the medical work force, asset-strip themselves, give their assets to their partners or whatever and not fund an insurance policy for any claims that come up in that period. If a claim is then made, the patient would be without the ability to have recompense against an insurer and they would be suing an assetless doctor. This needs to be resolved from the point of view of doctors and patients. In earlier speeches that I have made on this matter, I have floated the idea that the Commonwealth needs the equivalent of an incorporated nominal defendant that would be the entity that you sue in those circumstances, and I trust that this matter is at the forefront of what the medical indemnity panel is seeking to resolve.

There are some in the medical defence community who would say that we could maintain or go back to the `claims incurred' model. You will get different advice about that. That issue also needs to be worked through and to be on the table. But if we cannot move back to `claims incurred' models then we need to be dealing with the logical consequence of that, which is the question of what happens to doctors and patients after leaving the medical work force.

I conclude by saying that the area that needs to be looked at to resolve this problem is the question of long-term care costs for the catastrophically injured. Currently, for those who are injured in medical negligence events, those costs are borne by the insurance system. Those who are injured in other circumstances end up with an inappropriate style of care—certainly not the sort of care that I believe we in this place ought to support. I trust that one of the things that are being looked at in this process is better models of care for the catastrophically injured. That would be good for the medical indemnity problem. It would also be good for the people involved.