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Opening statement at Stakeholder Forum, Medico-Legal Conference 2004

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25 February 2004

Good morning ladies and gentlemen.

I welcome the invitation and opportunity to participate in this important forum about a topic which has evolved into a key part of my portfolio responsibilities since I began this job in November 2001.

As all of those involved in this debate know only too well, health care is vitally important to the Australian community. And of course, without effective indemnity cover which protects doctors and consumers, our health care system would simply not function.

To put the issues in context, I’d like to give a brief background on how the medical indemnity issue leapt into the public consciousness, how the Government responded, and most importantly some indication of possible future directions.

At the outset I should say that I regard medical indemnity as a work in progress.

There is a need to balance the competing rights and obligations in the legal system and a need to keep the reforms that have been made under review to ensure they are having the intended effect.

Over the last two years, the Australian Government has been steadily developing and implementing a series of reforms to put our medical indemnity industry on a financially viable footing, and at the same time, ensure that doctors’ medical indemnity cover is affordable and that claims will be met.

In 2002, when Australia’s largest medical indemnity provider in Australia, UMP, went into provisional liquidation, the Australian Government intervened to prevent the immediate collapse not only of UMP but of our medical indemnity industry in Australia.

Australia was facing a decidedly unhealthy situation - unregulated and discretionary insurance cover … spiralling insurance costs… and thousands of doctors frightened of the future and threatening to withdraw from practice.

The Government announced a short-term guarantee of UMP’s claims liabilities later taking on all of UMP’s incurred-but-not-reported liabilities to enable the insurer to continue trading and recapitalise.

But the Government knew it was not enough to patch up the immediate problems and hope that the situation would resolve itself. We did need to go much further to develop a balanced series of reforms which meet the needs of doctors, patients and the broader community in the long-term.

The Assistant Treasurer - Speech - Opening Statement at Stakeholder Forum - Medico-Legal Conference 2004 [25/02/2004]

One of the most fundamental reforms, although not one the media have particularly focused on, was moving medical indemnity insurance off a discretionary footing and bringing the system into the prudential net, applying consumer protections for doctors to the cover they were offered and putting the industry on a sound financial footing.

Through a series of announcements, the Government has outlined a comprehensive policy response.

On 17 December 2003, together with the Minister for Health and Ageing Tony Abbott, I announced the last instalment of this policy response, after consulting widely through the Medical Indemnity Policy Review Panel.

I am sure I don’t need to remind the participants in today’s debate of the measures the Government announced in response to the panel’s findings, nor of the suite of measures already in place which have been endorsed and continue to operate.

Suffice it to say that the response was a comprehensive one and involved taxpayers providing more than $600 million support over four years.

But I should point out that long-lasting relief for the medical profession and others will not be found just through targeted Government support, but through an approach which both restores balance to the compensation system, and uses risk management to attack the problem at its source.

I am happy to say that significant progress has been made in relation to returning some balance to a legal system that has got out of whack, especially in regard to medical negligence claims.

In fact, in two days’ time, I will chair the seventh in a series of ministerial meetings on insurance issues with my state and territory counterparts.

To the great benefit of all Australians, these meetings have been characterised by a willingness from all jurisdictions to roll up their sleeves and make positive reforms to the tort law.

The Government commissioned an expert Panel, chaired by Justice David Ipp, to review the law of negligence as it applies to claims for bodily injury, and to provide a blueprint to Governments for reform.

The Panel made 61 recommendations on specific changes that could be made to the law of negligence including a critical recommendation to modify the standard of care to be applied to doctors and other professionals in assessing negligence, the so-called modified Bolum test.

Turning the Ipp vision into reality required strong leadership from the Commonwealth, State and Territory governments.

I’m pleased to report that States and Territories have substantially responded to the call. All jurisdictions have either implemented - or announced their firm intention to implement - the majority of the Ipp recommendations.

Although it must be said that the willingness of some states to grasp the nettle of streamlining statutes of limitations has been underwhelming.

And the Australian Government is playing its part by amending the Trade Practices Act to underpin State and Territory law reform.

As Ipp pointed out it is essential to amend the TPA to ensure that it is not used as an alternative way to frame a cause of action in circumstances where a common law action for negligence may be prevented by State law reform.

To ensure such matters do not undermine the reform undertaken by States and Territories, the Government has introduced, among other Bills, the Trade Practices Amendment (Personal Injuries and Death) Bill 2003 which has unfortunately been stymied in the Senate by the Opposition parties.

On this issue Federal Labor are badly out of step with their State and Territory colleagues, with expert opinion and with the needs of the community to balance an affordable medical indemnity system with a fair compensation regime.

As a result, a range of professionals, including doctors will continue to be under threat of litigation, regardless of whether they were at fault.

The position taken by the Opposition and minor parties in the Senate can only be described as misconceived, and I would urge everyone with an interest in seeing through practical tort reform to contact the Opposition and make their views known.

I now want to make some observations about the climate of litigation and the culture of blame that has become an ever present threat to medical practice.

Don’t get me wrong, there are horrific and regrettable instances of medical negligence that cause severe injuries, require ongoing care and demand redress and compensation. But experience tells us not every adverse outcome or instance of medical misadventure amounts to negligence.

Those here who have seen the film The Sweet Hereafter will be familiar with it’s touching portrayal of the aftermath of a school bus crash on a small Canadian town and exploration of the desire to sheet home blame.

And you will remember the disturbing quote by the lawyer in the film who says, “There's no such thing as an accident - the word means nothing to me”.

That is an attitude that was once seen as being typical of the United States but alien to Australia. Not any more. To paraphrase recent comments by the Chairman of Lloyd’s of London, Lord Levene, American culture is not only over-prescriptive and over-lawyered, it is also over here.

It is an attitude that damages us all while providing benefit only to a minority of injured people who are hurt in such a way that compensation is available - of course the vast majority of people who are injured are not in such a position.

Law reforms must balance the interests of individual consumers with the interests of the community as a whole, and must not be seen as a solution crafted to help the few.

Reforms already undertaken and the programs in place to support the medical indemnity industry through its transition to prudential regulation should be seen as the first steps - an early incarnation of a work that is still very much in progress.

Many of you would be familiar with what has been achieved so rather than gaze in the rear-view mirror, I would like to take a minute to look forward and discuss some of the continuing challenges.

From material presented to the Medical Indemnity Policy Review Panel it was clear that through risk management activities insurers could make a significant difference to the money paid out in claims.

UMP outlined a review of an intense risk management intervention carried out on 48- high risk members between 1998 and 2000.

The insurer compared their claims experience before and after active risk management intervention and a simple analysis of total claims revealed quite startling results -

Between January 1990 and December 2000, this group of members accounted for almost $15 million in claims costs - an annual average cost of $1.36 million.

Between January 2001 and June 2003, this same group attracted total costs of only $60 000 - an annual average of $24 000.

That is a 99.5 per cent reduction in claims costs. Claim frequency fell around 90 per cent. Although the results may be more apparent at the high risk end of the scale, effective risk management will always be worthwhile for insurers and doctors and will certainly benefit consumers if they are not injured in the first place.

Whenever we stop patients coming to harm, we prevent a potential court case, or negligence payout. The patient, the doctor and the community all win.

A number of medical indemnity insurers offer doctors significant discounts of up to ten per cent if they take part in risk management programs and activities. I heartily applaud these actions and hope they are continued and expanded.

As some here will know there is also the possibility of a building a system of risk management and alternative dispute resolution for doctors through professional standards schemes which could allow doctor’s liabilities to be capped.

I will encourage my counterparts from the States and Territories to consider the implementation of professional standards legislation for medical practitioners. Professional Standards Schemes could offer compulsory insurance and alternative dispute resolutions, alongside improved risk management, in return for capped liability.

I will also raise with my counterparts an issue in which I am keenly interested and have raised with the other members of the Medical Indemnity Policy Review Panel, with my Ministerial colleagues in Government and with many others.

That is, the possibility of innovative improvements to legal processes such as medical assessment panels to assess the clinical basis of claims and hopefully lead to early settlements prior to claims entering the pipeline of legal proceedings heading to court.

Innovative solutions are possible and we should be looking carefully at what is working elsewhere and what we may be able to achieve here.

For example, in the UK a pilot scheme called Resolve was launched in December 2001 with the support of the Government, the NHS Litigation Authority and a group representing victims of medical accidents.

The scheme was designed to speed up the handling of small claims and involved lawyers and jointly-instructed medical experts, selected from a pre-approved panel, who agree to turn around reports and paperwork within strict timeframes and for a capped overall fee.

An evaluation of the first 100 cases through the scheme found that claims were resolved in an average of 18.4 weeks and less than half of claims were judged to have a valid claim.

This process does not shut plaintiffs out of pursuing their rights in court, it simply provides a timelier, quick and more cost effective way of handling claims in a fair way.

It clearly demonstrated with the right settings it is possible to simplify and speed up the handling of small claims, which must be to the benefit of all involved.

It should also be remembered that in eighteen months’ time, the Government will convene a new working

group, including senior medical representation, to consider the effectiveness of the revised package of medical indemnity measures.

I am confident that the consultative process already undertaken has resulted in a sensible and sustainable outcome and has delivered a market-assisted model to take the industry through this difficult transitional period. But we should always be alive to possible improvements.

In closing, I’d like to stress that the need for medical indemnity reform is by no means unique to Australia.

If I told you a story of thousands of doctors walking out of their practices, and marching on the capital to protest soaring medical indemnity premiums it may bring to mind the situation in New South Wales not so many months ago.

But in fact this is the situation that faced the Government of New Jersey early last year, with 4000 doctors closing down all but the most vital services. Their doctors were struggling with the same issues that were hurting the medical profession and Governments in Arizona, Georgia, Iowa, Kentucky, Mississippi, Ohio and Texas. Soaring claims costs, capacity leaving the market and premiums going through the roof meant patients were at risk of being without vital medical care.

On 26 January, President Bush decried the increasing levels of medical litigation facing doctors in the United States. He went on to describe the practice of “defensive medicine”, in which practitioners perform unnecessary procedures, and prescribe unnecessary drugs, in order to avoid lawsuits.

The direct costs of medical indemnity insurance in the United States, plus the indirect costs of “defensive medicine”, are estimated to cost at least $US28 billion dollars a year.

Other countries are grappling with the same situation as Australia and I am pleased to say we are very much at the forefront of reform.

A medical liability reform package - along the lines of our model - is currently before the United States’ Senate.

As President Bush summed up, “We can have balance in our society when it comes to having a good legal system and a good medical system. It’s not that way today. The pendulum has swung way, way too far.”

Here in Australia, we’re getting that pendulum back into equilibrium.

© Commonwealth of Australia 2000