Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
A new medical indemnity insurance framework.



Download PDFDownload PDF

A NEW MEDICAL INDEMNITY INSURANCE FRAMEWORK

Today I am announcing the Government’s package of measures to address rising medical indemnity insurance premiums and ensure a viable and ongoing medical indemnity insurance market.

To allow time for the new measures to take effect, the Government will offer to extend the existing guarantee to United Medical Protection and Australasian Medical Insurance Limited (UMP/AMIL) to 31 December 2003. Subject to approval by the New South Wales Supreme Court, this will allow UMP/AMIL members to continue to practise during that period in the knowledge that claims will be met.

The package aims to ensure key private medical services, including in rural and regional areas, are maintained. It also provides a new national and comprehensive medical indemnity insurance framework.

Pressure on premiums and associated affordability issues will be reduced through a range of initiatives including:

• direct financial support for groups of doctors - obstetricians, neurosurgeons and GPs performing procedures - who pay relatively high premiums;

• a scheme to meet 50 per cent of the cost of claims payments greater than $2 million (up to the insured amount) made by medical indemnity insurers;

• the funding of Incurred But Not Reported (IBNR) liabilities for those Medical Defence Organisations (MDOs) that have not set aside money to cover these liabilities, and recouping the cost of that funding through a levy on their members payable over an extended period; and

• enhanced risk management approaches.

I also call on State and Territory governments to continue tort and legal system reforms, and to maintain indemnities for doctors working in public hospitals and existing support measures for doctors in rural areas.

PRIME MINISTER

MDOs will be brought into a new regulatory framework administered by the Australian Prudential Regulation Authority and will be subject to a range of prudential safeguards to mitigate insolvency risks. Under the new framework, health practitioners will benefit from product safeguards to ensure continuity of cover. The Australian Competition and Consumer Commission will monitor medical indemnity insurance premiums to determine whether they are actuarially and commercially justified.

In developing this package the Government was assisted by extensive consultations with a wide range of medical and insurance groups on the proposals outlined in my statement of 31 May 2002. These consultations were very helpful in ensuring the Government’s package is effective and well thought out, and I would like to thank those groups who took part in the process.

Details of the package are attached. Where appropriate, the design of individual initiatives will be developed further in consultation with relevant stakeholders.

I consider these measures will allow current participants and potential entrants to the medical indemnity insurance market to make informed and timely decisions.

The Commonwealth will continue to review the need for the direct financial support and high cost claims arrangements as State law reforms and other elements of this package impact on the availability and cost of medical indemnity insurance. The appropriateness of Commonwealth support for development of a commercially viable market will also be reviewed in light of broader insurance market developments, including stabilisation of global reinsurance markets and removal of NSW premium caps (which the Commonwealth will be requesting).

I call on State and Territory Governments, medical practitioners, insurers and the legal profession to move quickly to play their part in implementing this comprehensive new framework.

The Department of Health and Ageing has established a telephone information line to provide doctors with information about the package.

The Medical Indemnity Information Line telephone number is 1800 007 757.

Information is also available on the Department's website at www.health.gov.au. This website will continue to provide up to date information on the implementation of the package of measures.

ATTACHMENT

A NEW MEDICAL INDEMNITY INSURANCE FRAMEWORK

Extension of the Guarantee

The Commonwealth will offer to extend the term of the current guarantee to UMP/AMIL to 31 December 2003. This offer of a 12 month extension will be subject to the New South Wales Supreme Court allowing UMP and AMIL to continue in provisional liquidation and authorising the Provisional Liquidator (PL) to accept the extension of the guarantee.

Extension of the guarantee will protect provision of medical services and provide a significant benefit to members of UMP/AMIL. It will allow time for the PL to fully explore options for restructuring the business, and for other measures to take effect.

The offer will be on similar terms to the existing guarantee and will provide Commonwealth financial support to allow UMP/AMIL to meet the following payments under the cover provided to its members:

• amounts payable in the period 29 April 2002 to 31 December 2003 in respect of claims notified or finalised prior to 29 April 2002; and

• amounts payable in respect of claims notified in the period 29 April 2002 to 31 December 2003, whenever the claim is finalised (including after 31 December 2003).

This further extension of the guarantee until 31 December 2003 will also be funded, if necessary, via the IBNR levy (see below). However, by allowing additional time the PL will be able to explore a broader range of options for restructuring the businesses and maximising the value of UMP/AMIL’s assets, and thus minimise any cost of the guarantee. At present, the provisional liquidator has not called on the Commonwealth guarantee.

Premium Subsidies

In my press release of 31 May 2002 I indicated that the longer-term strategy for medical indemnity insurance would encompass developing arrangements, including consideration of direct financial support, to ensure premium affordability for practitioners undertaking high-risk specialties.

Premium affordability, and the consequent impacts on service provision, was a key issue raised by medical practitioner groups during consultations.

From January 2003, the Commonwealth will provide a premium subsidy to obstetricians, neurosurgeons and GP-proceduralists (most of whom work in rural and regional areas).

• The subsidy will be provided to obstetricians, neurosurgeons and GP-proceduralists who undertake Medicare billable procedures. It will be equivalent to 50 per cent of the difference between the cost of their premiums plus the IBNR levy (if applicable) and the corresponding cost for gynaecologists, general surgeons and non-procedural GPs respectively in the relevant State and Territory.

• For neurosurgeons, in light of the particularly high premium costs faced by some neurosurgeons combined with their relatively limited scope to derive income from private practise, the subsidy rate will increase to 80 per cent on that portion of their premium plus levy (if applicable) that exceeds $50,000.

• Accessing the subsidy will be conditional on medical practitioners participating in quality and safety programmes designed to protect patients and minimise the incidence of injuries. Approaches will be examined to minimise the need for rural doctors to be absent from their practices.

The subsidy will apply to the premium paid net of GST (as GST on the premium is eligible for an input tax credit) and State and Territory stamp duties. State stamp duties where applied can exacerbate concerns regarding premium affordability. The Commonwealth calls on State and Territory governments to remove existing stamp duties on medical indemnity insurance premiums. This will be important so that medical indemnity premiums are exempt from stamp duty as medical indemnity providers are brought into the general insurance regulatory arrangements.

High Cost Claims

The Commonwealth will introduce a scheme (known as the High Cost Claims Scheme) to address the issue of high cost claims related to medical incidents. The scheme should, all other things being equal, lower premiums by reducing the potential cost of large claims to insurers.

Insurance markets currently have little appetite for taking on large and uncertain risks. This is especially the case in the medical indemnity insurance market where it is difficult to actuarially assess risk and to price premiums appropriately.

By meeting 50 per cent of the cost of payouts by medical indemnity providers in relation to high cost claims, the Commonwealth is working to ensure, among other things, that adequate cover is available where incidents result in catastrophic injuries to patients. This scheme is also an effective way to address the exposure and uncertainty associated with high cost claims in medical indemnity insurance.

The Commonwealth will reimburse medical indemnity providers, on a per claim basis, 50 per cent of the insurance payout over and above $2 million for claims notified on or after 1 January 2003.

The scheme will exclude claims relating to the provision of public hospital services or that are otherwise already covered by State and Territory Governments. The Commonwealth expects the State and Territory Governments to continue to meet those obligations.

Legislation will be introduced to give effect to the scheme later in 2002.

Where a claim comes within both the High Cost Claims scheme and the IBNR scheme (see below), it will be covered by the High Cost Claims scheme first, and then by the IBNR scheme. Details will be settled in consultation with affected stakeholders.

The Commonwealth will continue to participate in State and Territory processes to examine the current, and possible alternative, arrangements for providing long-term care to those who have suffered catastrophic injury.

• Medical negligence and misadventure account for only a small proportion of catastrophic injuries; most result from motor vehicle and workplace accidents that are covered by State and Territory statutory insurance schemes.

The IBNR Scheme

In my press release of 31 May I also outlined the broad parameters of an assistance measure to help MDOs meet unfunded ‘incurred but not reported’ (IBNR) liabilities. The IBNR scheme consists of two parts:

(i) the Commonwealth providing funding for MDO IBNR liabilities that are unfunded as at 30 June 2002, with payouts beginning in early 2003; and

(ii) recouping the cost of funding those liabilities through a levy on members of the MDOs with unfunded IBNRs (members of MDOs whose IBNRs are fully funded as at 30 June 2002 will not pay the levy).

This scheme is important in giving affected MDOs, and UMP/AMIL in particular, the chance of a “fresh start”, unencumbered by past unfunded claims incurred liabilities. The Provisional Liquidator of UMP has reported to the NSW Supreme Court that UMP’s unfunded IBNRs are likely to be between $368.6 million and $500.8 million. Other MDOs are thought to have substantially lower unfunded IBNRs.

The IBNR scheme is also important for affordability. On 31 May I announced that the levy would be payable over an extended period, making it more affordable to medical practitioners. Without the IBNR scheme, these unfunded amounts would need to have been raised by MDOs through higher premiums and/or capital calls on members, most likely over a period of less than five years.

• The IBNR levy will be payable by any person who, on 30 June 2000, was a member of an MDO that is assessed as having unfunded IBNR liabilities as at 30 June 2002.

• Exemptions from the levy will apply to the estates of deceased members, members who retired before 31 December 2001 and student members as at 30 June 2000. Special arrangements are being considered for part-time practitioners.

Medical practitioners who belong to an MDO that has fully provisioned for its IBNRs will not be subject to the levy. For those practitioners who are liable to pay the levy, it will be set as a proportion of their medical indemnity premium paid in the 2000-01 financial year. This means that it will reflect the risks borne by different practitioner groups, an approach that is strongly favoured by medical organisations.

Legislation will be introduced later in 2002 to give effect to the IBNR scheme, with levies to become payable in 2003-04.

The duration and/or rate of the levy will vary according to the size of each MDO’s unfunded IBNR liabilities. Levy commitments in respect of each MDO will be determined once their unfunded IBNRs have been assessed.

Members of relevant MDOs will not pay a higher levy amount in any year than the amount they pay in the first year. If an MDO’s estimated IBNR liability is revised down, the levy for members of that MDO will be reduced. If the MDO’s estimated IBNR liability is revised up, the period of the levy will be extended for members of that MDO. For UMP members, the levy will be spread over at least 5 years. If the unfunded liabilities for a particular MDO are relatively small, the levy may only need to be paid for a year or two.

The income tax law will be amended to provide a specific deduction for all practitioners (including retirees) who are required to pay the IBNR levy, regardless of whether a deduction would otherwise be available.

Placing Medical Indemnity Providers on an Appropriate Regulatory and Commercial Footing and Policyholder Safeguards

Medical indemnity insurance providers will be placed on an appropriate regulatory footing. This will encourage a more commercially sustainable focus. Enhanced policyholder safeguards will also be introduced.

• MDOs will be brought into the regulatory framework that applies to general insurers (and will become ‘authorised insurers’), which incorporates a range of prudential safeguards to mitigate insolvency risks.

• This framework will apply to business written after 1 July 2003.

• Transitional arrangements will be developed as appropriate. They will include consideration of the need for a period of 3 to 5 years to meet prudential capital requirements on business written after commencement of the framework.

• Medical indemnity cover will be required to be offered to practitioners in the form of a contract of insurance, rather than as ‘discretionary assistance’. This will provide certainty about what is covered and facilitate appropriate prudential supervision.

• Minimum product standards will be developed, in consultation with affected stakeholders. Medical indemnity providers issuing claims made cover will be required to offer suitable and ‘tail’ and ‘run-off’ cover at a fair price. This will ensure that continuous protection is available where medical practitioners switch insurers or retire. Appropriate product disclosure rules will assist medical practitioners to better understand the nature of their cover.

• Authorised providers of medical indemnity cover will be required to submit claims data to government along with all other general insurers, consistent with the new arrangements being developed in the context of public liability reform. The Government welcomes the recent release by MDOs of historical claims data.

• Officials will continue to hold consultations with relevant parties to discuss implementation issues.

Reducing Injury caused through Adverse Events and Enhanced Clinical Risk Management

The measures in this package address structural problems in the medical indemnity insurance market. The Government also recognises the importance of improving clinical risk management, reducing adverse events and improving patient safety. We must not lose sight of the fact that medical litigation usually starts at the point of service with consumers experiencing an unexpected outcome. Measures that focus on quality and safety improvement are important in themselves. They bring enormous

benefits to the provision of health services. They may also flow through to medical indemnity issues in the longer term.

I am pleased that in consultations, medical colleges and allied health groups indicated a willingness to play a role in improved clinical risk management aimed at reducing patient injuries and encouraging practitioners to be more open with patients when things go wrong.

Improved handling of incidents and adverse events will contribute greatly to improved health service provision. This can also assist in reducing patients’ distress when something goes wrong. To this end the Commonwealth will be asking doctors who have received a subsidy for their medical indemnity premiums to participate in safety and quality activities. The Commonwealth is currently working with State and Territory Governments in the area of quality and safety through the Australian Council for Quality and Safety in Health Care. Medical and allied health professional groups and MDOs also have a role in improving clinical risk management. The Commonwealth will work in partnership with these groups to identify suitable existing programs in which doctors can participate, and to explore options for improved room based procedures.

In relation to improved handling of incidents and adverse events I also call upon State and Territory Governments and the medical profession to work with medical consumer groups to consider how State Health Complaints Commissioner arrangements can be made more effective.

It is known that some individuals begin litigation just to establish what went wrong and to elicit an apology. The Australian Council for Safety and Quality in Health Care is leading national action to work towards greater openness in communicating with patients and carers when things go wrong in health care - the Open Disclosure project.

Considerable progress has been made in the development of a national open disclosure standard.

A draft standard was released for public comment (30 September was the closing date). The input received is now being considered. Field testing is currently taking place in three hospitals (Royal Adelaide, Royal Brisbane and Westmead Childrens’).

The national standard is due to be finalised by the end of this year.

The Commonwealth continues to be committed to the important work being undertaken jointly with the States and Territories through the Australian Council for Safety and Quality in Health Care towards systemic improvements in the safety and quality of health care services. Joint Commonwealth-State funding of $55 million over 5 years has already been provided towards the Council’s work.

State and Territory Initiatives

Comprehensive reform of the medical indemnity insurance market also requires complementary action on the part of the States and Territories.

Tort and Legal System Reform

While it is noted that significant progress has been made, it is vital that all States and Territories continue with effective and substantial tort law and legal system reforms. Such reforms will provide greater certainty to insurers in determining the number and size of likely claims, while at the same time having due regard to ensuring fair and reasonable compensation for victims. This will have flow-on effects in terms of the availability and affordability of medical indemnity cover over the longer-term.

Despite the good progress being made, by NSW in particular, more needs to be done. Furthermore, it is vital that such progress be nationally consistent, where possible.

The Commonwealth seeks a broader commitment to urgent reforms by other States and Territories, and encourages harmonised reform efforts.

The Commonwealth will continue to facilitate whole-of-government consideration of reform.

The 2 October Ministerial meeting on public liability insurance, coordinated by the Minister for Revenue and Assistant Treasurer, considered the findings of the Ipp Review of the Law of Negligence.

• Ministers have instructed officials to prepare a report on those recommendations of the Review and related issues, including professional and medical liability insurance, which should be implemented on a nationally consistent basis. The officials’ report is to be delivered to Ministers by the end of October 2002 and Ministers will consider this report prior to the Fourth Ministerial Meeting on Public Liability Insurance, to be held in November.

I will also be taking stock of a range of insurance issues with State and Territory leaders at the COAG meeting planned for late November.

NSW Premium Caps

The Commonwealth will ask the NSW Government to remove caps on premiums in NSW by the end of 2003. This is an important element of the new framework as removal of these caps would allow medical indemnity providers to set premiums according to risk and so operate on a commercially sustainable basis.

Since the caps were introduced, the NSW Government has indemnified medical practitioners for their public work in NSW public hospitals. The Commonwealth’s High Cost Claims Scheme and the premium subsidy announced today will assist practitioners in high-risk categories who undertake private practice.

Ensuring that the Benefits of Reforms are Passed On

It is important that the benefits of reforms are passed on to practitioners, to patients and to the community.

The Government expects medical indemnity providers to factor into premiums the reduced risk exposure resulting from the range of initiatives taken by the Commonwealth, State and Territory Governments.

The ACCC will monitor medical indemnity premiums to determine whether they are actuarially and commercially justified.

23 Oct 2002