Bills Digest No. 65 2003-04
Medical Indemnity (IBNR Indemnity) Contribution
Amendment Bill 2003
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
Medical Indemnity Amendment Bill
2003
Medical Indemnity (IBNR
Indemnity) Contribution Amendment Bill 2003
Date Introduced:
6 November 2003.
House: House of Representatives.
Portfolio: Health and Ageing.
Commencement:
Medical Indemnity
Amendment Bill 2003: Schedule 1, items 1, 2, 4, 9-11, 14-17, 19, 20
are taken to have commenced on 1 July 2003. Schedule 1, items
3, 5-8, 12, 13, 18, 21-26 commence on the day on which the Act
receives the Royal Assent. The items in schedule 2 commence on the
day in which the Act receives the Royal Assent. The Medical
Indemnity (IBNR Indemnity) Contribution Amendment Bill 2003 is
taken to have commenced on 1 July 2003.
This Bill has two key purposes. Firstly it
makes amendments to the incurred but not reported (IBNR) indemnity
scheme which was legislated for by the Medical Indemnity Act
2002. In the short term, these amendments lessen the financial
burden placed on doctors under the IBNR scheme. Secondly the Bill
puts in place arrangements for an Exceptional Claims Scheme
(formerly known as the Blue Sky Scheme ).
Background
The provision of medical indemnity cover to
doctors in Australia has been in crisis since early 2002.
The medical indemnity crisis contains three
key elements:
- the appointment of a provisional liquidator to Australia s main
Medical Defence Organisation (MDO), United Medical
Protection/Australian Medical Insurance Limited (UMP/AMIL) in May
2002
-
-
before entering into provisional liquidation, UMP/AMIL provided
indemnities to approximately 60% of medical practitioners
nationally
-
on 14 November 2003, the Supreme Court of New South Wales
released UMP/AMIL from provisional liquidation thereby allowing
business operations to return to normal
- MDO s have not made sufficient provision for incurred but not
reported claims
-
-
historically, MDO s provided their members with claims incurred
cover. Under a claims incurred policy, doctors were insured against
injuries to patients brought about through conduct which took place
during the term of the policy. The patient s claim could be
notified to the MDO at any time; ie during the term of the policy
or once the policy has lapsed (for example, five years after the
policy has lapsed)
-
incidents which occur during the term of the policy giving rise
to a claim that is reported to the MDO after the policy has lapsed
are referred to as incurred but not reported (IBNR) claims
- UMP/AMIL had unfunded IBNR s approximating $460 million,
- significant increases in medical indemnity premiums for
doctors.
The Government has put in place a range of
measures to address the elements of the medical indemnity crisis,
including the following:
-
The Commonwealth acting as guarantor for claims arising out of
medical procedures provided by doctors covered by UMP/AMIL
-
Commonwealth
funding for the IBNR s of doctors that were members of MDO s at 30
June 2000, where the IBNR s were unfunded
-
-
Commonwealth reimbursement to providers of medical indemnity
insurance of 50 per cent of insurance payouts that exceed $500,000
where the incident has been notified on or after 1 January 2003
(this is known as the High Cost Claims Scheme)
-
Premium
subsidies to obstetricians, neurosurgeons and procedural general
practitioners who undertake medicare billable procedures, and
-
Measures to ensure that providers of medical indemnity insurance
are subject to the same prudential regulatory requirements as other
general insurers. This includes prudential supervision by the
Australian Prudential Regulatory Authority.
In addition to these Federal measures, the states
and territories have made significant changes to the laws of
negligence that are designed to reduce the number of claims and the
level of damages payouts in negligence.
One of the factors that contributed to
UMP/AMIL entering into provisional liquidation in May 2002 was the
fact that the MDO had unfunded IBNR s approximating $460 million.
As noted above, the Government announced that it would put in place
arrangements to ensure that money was available to pay for the
unfunded IBNR s of UMP/AMIL. This was a significant element in
bringing the company out of provisional liquidation.
The elements of the scheme were put in place
through the Medical Indemnity Act 2002, and the
Medical Indemnity (IBNR Indemnity) Contribution Act 2002.
Essentially, under the scheme, the Government would indemnify UMP
for their unfunded IBNR s, where the incident giving rise to the
claim occurred before 30 June 2003. A large part of the indemnity
would be funded through a levy imposed on members of the MDO.
Essentially the levy was worked out using the following
formula:
-
The first annual contribution would be equal to 50% of the
members annual subscription for the financial year that commenced
on 1 July 2000. In subsequent years the contribution may vary but
it will never exceed 50% of the annual subscription for the year
commencing 1 July 2000.
-
It is expected that contribution would be paid for 10 years.
The legislation imposing the levy commenced
operation on 1 July 2003. The doctors who were subject to the levy
expressed strong opposition to its imposition. Some of the
complaints were due to the unfair application of the levy on
certain groups of doctors, such as those who were members of UMP
but did not receive indemnities from the organisation. Other
doctors argued that the levy was too high.
As a response to this opposition, the
Government announced a number of changes to the scheme. On 3
October 2003 the Government agreed to an eighteen month moratorium
on IBNR levy payments above $1000 per year. The Government also
stated that doctors who had already paid a levy in excess of $1000
per year would have their money refunded. The Government also
announced that it would set up a policy review process to further
consider the medical indemnity issues.(1)
In a media release put out on 10 October 2003,
the Minister for Health and Ageing, the Hon. Tony Abbott, announced
the following further refinements to the scheme:
-
Exempt from the IBNR levy all doctors either employed by public
hospitals or who have their private medical incomes returned to
those hospitals
-
Exempt all doctors aged 65 and over from the IBNR levy,
regardless of practice income
-
Exempt all doctors from the IBNR levy who need to retire early
because of disability or permanent injury, and
-
Exempt doctors and their estates from the IBNR levy liability
due in the year of their death.
The Bill makes amendments to the Medical
Indemnity Act 2002 and the Medical Indemnity (IBNR
Indemnity) Contribution Act 2002 to put in place the
moratorium arrangements for the IBNR levy.
One of the consequences of subjecting MDO s to
the same regulatory requirements as providers of other forms of
general insurance is that the insurance cover provided to doctors
now contains a cap on the amount of damages that may be paid under
the policy. The majority of indemnities currently in the market
have a cap of $20 million (although some are now being capped at
$25 million). Prior to the changes to the regulatory arrangements,
MDO s did not place a cap on the indemnities.
As a result of these new regulatory
arrangements, doctors are concerned that they will be at financial
risk if claims against the doctor exceed the capped amount. Doctors
argue that they are not covered by insurance for claims in excess
of the capped amount and therefore may have to pay for claims out
of their own financial assets.
In May 2003, the Federal Government announced
details of its Blue Sky Scheme , (now known as the Exceptional
Claims Scheme) to deal with this problem.(2) The scheme
provides that where a claim is made against a doctor, and that
claim exceeds the level of cover as set out in the legislation
(either $15 million or $20 million), the Government will indemnify
the doctor for the amount of the claim that exceeds their level of
cover.
At the time the scheme was announced, the
Government stated that:
The Government will assume liability for amounts
above the insured limit with any payments made under this
arrangement funded by the doctor s insurer after the funds have
been paid by the Commonwealth.(3)
It now appears that the Government intends to
fully fund the scheme.
The Explanatory Memorandum to the Bill states
that:
The Commonwealth will expense the assumption of
Exceptional Claims Scheme liability in the Additional Estimates
outcome for 2003-2004. The rate at which the expense will be met as
cash payments is unknown, as the timing of the applications for and
payments under the Scheme will be over a number of
years.(4)
The Bill amends the Medical Indemnity Act
2002 to put in place arrangements for the exceptional claims
scheme.
A media release addressing the introduction of
the Bill into Parliament stated the following:
AMA President, Dr Bill Glasson, today welcomed the
introduction of the Medical Indemnity Amendment Bill, which was
drawn up in response to concerns raised at the AMA s recent rally
in Sydney.
While the Bill addresses some of the AMA s
short-term concerns, Dr Glasson reminded the Government that a
number of long term issues must be addressed well before the next
election.
The AMA has concerns about the timeframe of the
Government s 18 month moratorium on the IBNR levy, outlined in Tony
Abbott s media release today, Dr Glasson said.(5)
Schedule 1 of the Medical Indemnity Amendment
Bill 2003 (MIAB) and the Medical Indemnity (IBNR Indemnity)
Contribution Amendment Bill 2003 (MICAB) makes amendments to
implement the IBNR levy scheme moratorium. These amendments will
apply to members of UMP/AMIL who are required to pay the IBNR
levy.
The Bill puts in place arrangements so that
for the first 18 months of the IBNR levy arrangements (commencing
on 1 July 2003) the maximum amount of an IBNR levy that a doctor
will need to pay will be $1000 per annum [Item 2 Schedule 1
(MICAB)].
From 1 January 2005, the IBNR scheme
arrangements will revert to the arrangements that are currently set
out in the Medical Indemnity Act 2002.
The Bill also puts in place arrangements so
that payments made by doctors under the IBNR levy scheme that
exceed the new arrangements, can be refunded. [Item 1
Schedule 1 MICAB, Item 19 and 20 MIAB].
Schedule 2 of the MIAB puts in place
arrangements for the exceptional claims indemnity scheme.
Under the exceptional claims indemnity scheme,
the Commonwealth will assume liability for 100% of the damages that
are payable that exceed the doctor s insurance cap.
Medical indemnity cases may take years to
finalise and in the intervening period, a doctor may wish to know
that their claim will be covered by the scheme. The scheme has been
set up so that a doctor will be able to apply for and receive a
determination as to whether they will be entitled to receive an
exceptional claims indemnity. The doctor will be notified of their
eligibility through being granted a qualifying claims certificate
.
To be eligible to receive a qualifying claims
certificate the following criteria must be met:
-
a claim needs to be against a doctor for compensation or damages
in relation to the medical service provided by the doctor
-
the incident
needs to have occurred in Australia
-
the doctor and the incident needs to be covered by a contract of
insurance
-
the cover provided by the insurer needs to equal or exceed the
contract threshold ($15 million for a claim notified between 1
January 2003 and 1 July 2003 and $20 million for a claim notified
after 1 July 2003 or any other amount as specified in the
regulations)
-
the insurer
needs to be a general insurer within the meaning of the
Insurance Act 1973, and
-
the insurer
needs to have entered into the contract in the ordinary course of
business (section 34E).
The application for the exceptional claims
indemnity may be made by the doctor or a person acting on the
doctor s behalf and must be in accordance with section
37A, in particular, it must be in writing using a form
approved by the HIC, be accompanied by the relevant information and
made within the timeframes set out in the section.
In relation to the final decision to issue a
qualifying claims certificate, the HIC must decide whether to issue
the certificate within 21 days of receipt of the application
(sub-section 34I(1)) and the decision of the HIC
is appealable to the Administrative Appeals Tribunal
(sub-section 34K(6)).
The final size of the damages claim against
the doctor will not be known until the case has been finalised. It
may take years for a final determination to be made. In the
intervening period, the cover provided by the doctor s insurance
policy ($15 million or $20 million) may have been exceeded and the
doctor may be required to pay ongoing costs associated with the
case (eg the patient s medical expenses, legal fees etc). To ensure
that a doctor does not have to personally finance a claim prior to
a final determination being made regarding damages, a doctor will
be able to receive preliminary payments from the HIC, where the
qualifying claims certificate has been issued.
The HIC will make a final determination as to
the doctor s eligibility under the scheme, once a final decision
regarding the size of the claim against the doctor is known.
Proposed section 34L sets out where the
exceptional claims indemnity is payable. In particular the section
states that the indemnity will be payable provided the:
-
qualifying
claims certificate has been issued
-
the claim is valid, that is the liability is
-
under a judgment or order of a court
-
under a settlement of the claims, or
-
another form of liability of the practitioner that relates to
the claim
-
if the
liability is under a settlement of the claims or a consent order by
the court, the legal practitioner has given a statutory declaration
certifying that the amount of the liability is reasonable
(section 34M),
-
the defence of the claim against the practitioner was conducted
appropriately. The legislation states that the defence of a claim
is conducted appropriately if the defence is conducted prudently
(see paragraph 34(2)(b)). Interestingly the
legislation does not specify what constitutes prudence , and
-
the size of the claim exceeds the contract limit (ie $15million
or $20 million).
If there has been an overpayment by the HIC in
the preliminary payment stage, the doctor will be required to repay
to the HIC the overpaid amount.
In relation to the decision to make an
exceptional claims indemnity payment, the HIC must make a final
decision regarding the doctor s eligibility within 21 days of
receiving the application. The decision to pay an exceptional
claims indemnity is appealable to the AAT (section
34L(5)).
The legislation sets out:
-
that payments may be reduced where contribution from a third
party is made in relation to the compensation claim
(sections 34S, 34T, 34U)
-
that the responsibilities of the doctor and the doctor s
representatives (such as the MDO) in relation to the appropriate
way to handle the payment of the exceptional claim indemnity from
the HIC (section 34Q)
-
how the exceptional claims scheme interacts with the High Cost
Claim Scheme (section 34D), and
-
a mechanism for determining a protocol so that the HIC can pay
ongoing costs for managing and defending a claim and the Minister
can set out the conditions for the payments (section
34X).
In relation to the scheme the HIC has
information gathering powers item 27-31. In
particular, the HIC has the power to request that a person give the
information to assist in determining whether a qualifying claim
certificate should be given, changed or revoked and whether an
exceptional claims indemnity should be paid. Failure to provide the
information is an offence.
This Bill puts
in place revised arrangements for the IBNR levy scheme and
legislates for the exceptional claims scheme.
The operation of the initial IBNR levy
scheme, which was legislated for by the Medical Indemnity Act
2002, commenced operation in July 2003. Once doctors realised
the size of the levy they were required to pay under the scheme,
they expressed strong opposition to the proposal. In response to
this opposition, the Government has placed a moratorium on the IBNR
levy so that doctors will not be required to pay more than $1,000
annually under the arrangements. This moratorium will be for 18
months. At this point in time, the legislation provides that the
previous arrangements will re-apply once the 18 month time period
has lapsed. It is expected that these arrangements will be
considered during the Government s policy review
process.
The Bill also
puts in place an exceptional claims scheme for doctors so that they
will be covered for claims against them that exceed the limit on
their insurance policy (generally either $15 million or $20
million). It is unclear how frequently these new arrangements will
be used bearing in mind that the largest medical insurance
judgement to date has been the decision in Diamond
v
Simpson(6) where
the court awarded damages of $10,998,692. The recent changes to
tort law may also mean that the size of the damages awards will
decrease. Nevertheless under the current arrangements, doctors may
potentially be financially at risk and as a result the exceptional
claims scheme is necessary. This scheme will be funded by the
Commonwealth.
-
Media Release, Mr Tony Abbott , Minister for Health and
Ageing, 3 October 2003:
[http://www.health.gov.au/medicalindemnity/statement.htm],
24 November 2003.
-
Medical Indemnity Package Finalised, Media Release,
Senator Hon Helen Coonan, Minister for Revenue and Assistant
Treasurer,
[http://assistant.treasurer.gov.au/atr/content/pressreleases/2003/039.asp],
24 November 2003.
-
ibid
-
Explanatory Memorandum Medical Indemnity Amendment Bill
2003, Medical Indemnity (IBNR Indemnity) Contribution Amendment
Bill 2003, p. 2.
-
AMA challenges changes introduced in Medical Indemnity Amendment
Bill Media Release, Dr Glasson, 7 November 2003.
[http://www.ama.com.au/web.nsf/doc/WEEN-5T327S].
-
2003 ATPR 81-965.
Susan Dudley
27 November 2003
Bills Digest Service
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