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Focus: Health

4 December 2002

In this issue: We look at the recommendations of the National Review of the Law of Negligence, issues surrounding the patentability of methods of medical treatment, the ALRC report on the use of genetic information, the effect of the new privacy legislation on the private sector, advertising and health funds, and the issue of medical indemnity insurance reform. 

Public Liability reform

Throughout 2002 the Commonwealth, State and Territory governments have discussed various initiatives to arrest what has become known as the 'public liability insurance crisis' in Australia. Senior Associate Luisa Uriarte examines the final recommendations of a national review of the law of negligence that could have an impact on the health industry.

National Review of the Law of Negligence

In May 2002, the Commonwealth, in consultation with the States and Territories, agreed to jointly appoint an expert panel to conduct a national review of the law of negligence (the Review). The framework for the Review, according to its terms of reference, was that the award of damages for personal injury has become unaffordable and unsustainable as the principal source of compensation for those injured through the fault of another. The Review was directed to examine a method for legal reform that would effectively limit liability and the amount of damages arising from personal injury and death.

The final report from the Review was released on 2 October 2002 and contained 61 recommendations covering various topics affecting personal injury law in Australia.

If the recommended changes are implemented and achieve a reduction in the number and size of personal injury claims, they are clearly beneficial to health service providers. Below are some of the key recommendations relevant to the health industry.

Recommendations
Standard of care - treatment of patients

The Review recommended that a medical practitioner (but not necessarily all health care professionals) should not be found to be negligent in the provision of treatment to a patient if that treatment was in accordance with the then current opinion widely held by a significant number of respected practitioners in the field, unless the Court considers that the opinion was irrational.This replaces the current law whereby courts are never required to defer to medical opinion as to the reasonable standard of treatment.

Standard of care - information to be provided to patients

The Review distinguished the standard of care in relation to provision of information from the standard of care for treatment and concluded that the court should be the ultimate arbiter of the standard of care in relation to giving of information by medical practitioners.

It was recommended that the duty to inform should be restated to confirm a practitioner only has a duty to exercise reasonable care in giving information, and does not have a duty to give whatever information can be obtained. However, reasonable care includes the provision of information necessary to enable the patient to give informed consent, not information that the reasonable practitioner would consider necessary for this purpose.

Two types of duties to inform were identified: a proactive duty and a reactive duty.

The proactive duty to inform requires the medical practitioner to take reasonable care to give the patient such information as a reasonable person in the patient's position would, in the circumstances, want to be given before making a decision whether or not to undergo treatment. This is to be determined by reference to the time at which the relevant decision was made. This proactive duty to inform however, is not breached by a failure of the medical practitioner to give information about a risk that would have been obvious to a reasonable person in the position of the patient, unless that information is required to be given by statute.

The reactive duty to inform requires the medical practitioner to take reasonable care to give the patient such information as the medical practitioner knows or ought to know the patient wants to be given before making the decision whether or not to undergo the treatment.

Restriction on damages

The review made a number of recommendations in relation to limiting damages awards in personal injury claims including:

  • a cap of $250,000 damages for pain and suffering (commonly referred to as 'general damages');
  • a cap on damages for loss of earning capacity set at twice the average full-time adult ordinary time earnings.

Further, it was recommended that exemplary and aggravated damages should be abolished.

Limitation periods

The Review acknowledged that the relevant limitation periods for personal injury and death actions differ from jurisdiction to jurisdiction and, within each jurisdiction, from one cause of action to another. The Review determined that the limitation rules should be reformed so that, as far as possible, they are of general application and have national effect.

It was recommended that all claims for damage for personal injury or death resulting from negligence be subject to a three-year limitation period commencing on the 'date of discoverability' (which is the date when the plaintiff knew or ought to have known that personal injury or death had occurred and was attributable to negligent conduct of the defendant and in the case of personal injury, was sufficiently significant to warrant bringing proceedings).

Further, the review recommended that claims should then become statute barred on the expiry of the earlier of the limitation period or the 'long stop' period of 12 years after the events on which the claim is based.

The running of the limitation period would be suspended during any period of time in which the plaintiff is a person under a disability (including a minor who is not in the custody of a parent or guardian).

Implementation of reforms

The Review considered that the recommendations for reform should be incorporated into a single statute, to be enacted by the Commonwealth and each State and Territory, which would apply to all personal injury claims whether brought in contract, tort, under statute (eg Trade Practices Act ) or any other cause of action. The relevant Ministers from each jurisdiction agreed in principle to the development of nationally consistent legislation.

These legislative initiatives are directed to reducing the number and cost of personal injury claims. In general, there appears to be some consensus on issues such as:

  • awards for general damages and loss of earning capacity should be capped (although the caps vary between the jurisdictions);
  • 'good Samaritans' and volunteers should be granted indemnity from liability in certain circumstances;
  • a limitation period of three years is appropriate;
  • structured settlements (as opposed to lump sum settlements) should be allowed.

No jurisdiction has yet adopted all recommendations made by the Review.

Ministerial meeting

However, the Ministers have instructed officials to prepare a report on the recommendations made by the Review that should be implemented nationally.

At the Ministerial Meeting on 15 November 2002, the Ministers agreed on a package of reforms implementing the key recommendations of the Review. It was further agreed that the key recommendations that go to establishing liability should be implemented on a nationally consistent basis. Each jurisdiction agreed to produce the necessary legislation as a matter of priority.

It appears that the various jurisdictions have agreed that the NSW Civil Liability Amendment (Personal Responsibility) Bill 2002 forms a suitable model for the development of nationally consistent reform.

A further Ministerial Meeting is scheduled for early April 2003 in order to continue to move reforms forward.

Patentability of Methods of Medical Treatment

Australian patent law provides considerable incentives for medical research and development. Australia, along with the United States - in contrast with more conservative jurisdictions such as New Zealand and Europe - recognises that methods of treatment of the human body should be patentable. Lawyer Claire Cunliffe reports.

History

The Patent Office (and affirmed by the Courts), provides protection for innovators in medical research, whether their inventions relate to methods of medical treatment or products suitable for treatment regimes.

It is well established that products for medical treatment should be patentable. For a long time, however, the patentability of methods of medical treatment was more uncertain. Between the 1930s and 1994, Australian Courts occasionally touched on the issue, but only in passing.

Despite judicial suggestion to the contrary over the years, the patentability of methods of medical treatment has been accepted by the Australian Patent Office since the early 1970s. The Manual of Practice and Procedure of the Patent Office states:

The Patent Office is obliged to accept patents unless these are clearly invalid...Since there is no clear precedent to find that methods of medical treatment are invalid, the Patent Office will continue its long standing practice of accepting claims to methods of treatment.

The issue was judicially considered in 1994 by the Full Bench of the Federal Court. In Anaesthetic Supplies Pty Ltd v Rescare Ltd (Rescare), a case concerning a patent for the treatment of sleep apnoea.

While the patent for a method of treatment of the human body was found to be invalid on other grounds, the Court decided that there was no justification in law, logic or principle why a method of treatment of the human body was not a 'manner of manufacture' and therefore a proper subject for a patent. The judges were influenced by the fact that Parliament had not enacted a legislative prohibition against patenting methods of medical treatment (although prohibitions existed against patenting human beings and the biological processes for their generation). The Court also said that the Patent Office as a matter of practice regularly granted patents of this kind, seemingly without detriment to the public. The Court concluded as a matter of policy that innovators of medical treatment should be rewarded for their endeavours.

This issue was further revisited in 2000 by the Full Bench of the Federal Court on appeal in Bristol-Myer Squibb v F H Faulding Co Ltd (BMS), where a patent for a new method of using a known anti-cancer drug, Taxol, was in dispute.

In that decision, all judges affirmed that methods of medical treatment are patentable. The judges' conclusion was influenced by two considerations:

  • the perceived logical inconsistency of allowing patentability of products for medical treatment but denying patentability for methods of medical treatment; and
  • the fact that Parliament chose not to prohibit patents for methods of medical treatment when drafting the Patents Act 1990.

The decision in BMS has firmly established that methods of medical treatment are patentable subject matter in Australia and has provided clear support for the existing practice of the Patent Office in granting these patents.

Implications

Businesses and individuals in the medical field should take note of the following considerations in relation to the availability of patent protection for medical methods in Australia:

  • Protect your IP: The Australian Courts have recognised the economic value in medical treatment and the need to reward innovators. If you are developing new methods of medical treatment, consideration should be made to protect those methods so that you can fully reap the rewards of your innovation.
  • Be aware of third party rights: The field of medical research and development is moving at a rapid pace and information is readily available on new advances. If you are considering adopting methods of medical treatment developed by others, enquiries should be made as to whether those methods are subject to patent protection. If so, it is prudent to seek approval for use of the methods to prevent any risk of unauthorised use of third party rights.

ALRC report on use of genetic information

After an 18 month Inquiry into the protection of genetic information, the Australian Law Reform Commission and the Australian Health Ethics Committee of the National Health and Medical Research Council recently released Discussion Paper No. 66 (DP 66) on the issue. From a health perspective, the Inquiry's recommendations are likely to have far-reaching implications for genetic testing and human research laboratories, and for the provision of health services and health administration generally. Lawyer Erica Davis reviews the discussion paper.

Basis of the Inquiry

The Inquiry was set up to consider what type of regulation may be needed to protect the genetic privacy of individuals, to prohibit genetic discrimination and to ensure the ethical oversight of medical research and clinical practice, in light of rapid advances in genetic technology. New legislation and regulations are just one part of the integrated package of reforms proposed by the Inquiry, which includes industry codes and best practice standards, education and training programs and most notably the establishment of a Human Genetics Commission of Australia (HGCA). The principal role of the proposed HGCA is to provide high-level technical advice to Australian governments about the impact of continuing developments in human genetics.

Implications for genetic testing

The Inquiry proposes greater controls over the collection and use of genetic information. The need for consent to genetic testing was of particular concern to the Inquiry. One of the Inquiry's suggestions was to introduce a criminal offence in relation to non-consensual genetic testing without lawful authority. Non consensual testing may be authorised where, for instance, the Human Research Ethics Committee (HREC) approves testing of samples for research purposes.

Also, there are currently no compulsory accreditation requirements for genetic testing laboratories in Australia. The Inquiry proposes that the voluntary accreditation program overseen by the National Association of Testing Authorities (NATA) be mandatory for laboratories conducting DNA parentage testing.

Implications for human genetic research

The paper uses the term 'human genetic research' to refer to any research that uses genetic samples or genetic information of humans. The Inquiry considered the adequacy of the National Health and Medical Research Council's (NHMRC) National Statement on Ethical Conduct in Research Involving Humans (the National Statement), which provides for the formation of HRECs within institutions or organisations and requires human genetic research to be reviewed, approved and monitored by HRECs in accordance with specific requirements. The National Statement also generally requires consent from research participants for the use of human tissue samples, genetic material and genetic information, except in certain circumstances.

The Australian Health Ethics Committee (AHEC) audits the activities of HRECs to ensure compliance with the National Statement. However, there is currently no obligation upon wholly private research bodies to adhere to the provisions of the National Statement.

The Inquiry's major proposals in relation to control of human genetic research are:

  • enforcing compliance with the National Statement by amending the National Health and Medical Council Act 1992 (Cth) (NHMRC Act) to prohibit any human genetic research that does not comply with the National Statement.
  • making changes to the National Statement to provide more guidance on the requirement for consent and to tighten reporting requirements of HRECs in respect of waivers of consent.
  • developing model AHEC research protocols and consent forms as a 'best practice' guide to HRECs, researchers and participants and
  • strengthening ethical review of human genetic research by HRECs.
Implications for genetic databases

The Inquiry proposes the following reforms to the existing patchwork of regulation of human genetic databases:

  • extending the National Statement in relation to the ethical operation of human genetic databases;
  • introducing a licensing or registration system for genetic databases; and
  • establishing a 'gene trustee' to act as an intermediary responsible for holding codes and linking genetic samples or information with identifiers.

These proposals are likely to significantly affect the obligations of entities such as hospitals, public and private research organisations and pathology laboratories using genetic databases for research purposes.

Implications for the provision of health services

The Inquiry considered how health professionals and their patients should collect and use genetic information about genetic relatives, given that such information may have important health implications. Currently, for the disclosure of such information to be authorised under the Privacy Act 1988 (Cth), the genetic risk must be imminent. The Inquiry also recommends amendments to the Privacy Act to authorise disclosures where the failure to disclose such information could place the genetic relative at significant risk of serious illness or death.

The Inquiry also recommends the development of nationally consistent policies and practices in relation to population genetic screening programs, particularly in respect of consent, privacy protection, and the provision of counselling and support.

Other key recommendations
  • In the context of insurance, the Inquiry makes a number of proposals to promote fair underwriting practices, including assigning the HGCA the role of approving particular genetic tests for particular purposes and placing obligations on insurers to provide comprehensive reasons for refusing insurance on the basis of genetic information.
  • In the context of employment, the Inquiry proposes that employers should only be able to collect and use genetic information in relation to potential and existing employees where it is reasonable and relevant within the terms of anti-discrimination and occupational health and safety legislation. The final recommendations of the Inquiry are due to be delivered by 31 March 2003.

The changing health privacy landscape: some tips (and traps)

Since the private sector provisions of the Privacy Act came into force in December 2001, most Australian businesses have begun to adjust to the new climate of privacy consciousness. Special Counsel Karin Clarke looks at the various issues involved.

The current health privacy scenario

Numerous publicity campaigns have alerted consumers to their new rights and most businesses are now familiar with the 10 National Privacy Principles (NPPs) that have changed the way they collect and handle personal information.

But the privacy landscape has also recently been complicated by other moves made by State parliaments as well as the Australian Competition and Consumer Commission (ACCC).

Businesses that handle health information have also had to factor into their compliance programs separate legislation such as the Victorian Health Records Act (in force from July 2001) and the ACT Health Records (Privacy and Access) Act 1997. While most of the Health Privacy Principles (HPPs) under the Victorian Act impose similar obligations to the NPPs, there are also significant differences: for example, there are no exemptions for employee records or for small businesses under the Victorian Act.

In addition, health service providers sometimes also have to consider the impact of state specific laws regarding confidentiality and in some situations, common law duties of confidentiality as well.

New NSW privacy law adds to complexity

The health information privacy landscape in Australia became one step more complex in late September, when the NSW Parliament passed the Health Records and Information Privacy Act 2002. Due to come into effect in 12 months, the Act will apply to public and private sector organisations that hold 'health information'. This will cover not just traditional health service providers but many other businesses in the pharmaceutical, health education and alternative health care industries, as well as those providing associated welfare services.

When the new NSW Act comes into force, businesses that operate in Victoria, NSW and ACT could be subject to four different laws governing the privacy of health information. Unfortunately, there are differences not only between the state and Federal legislation but even between the state privacy laws. For example the new NSW Act (unlike the Victorian and the ACT Acts) does contain the exemptions for employee records and small businesses (that are present in the federal Privacy Act ).

While (not surprisingly) different views about the constitutionality of some of the provisions of the state and Federal privacy laws have been expressed in the media, businesses currently have little practical option but to comply with all applicable legislation.

The ACCC's interest in privacy

Earlier this year, the ACCC entered into a Memorandum of Understanding with the Office of the Federal Privacy Commissioner (OPC) under which they will help enforce each other's legislation. The ACCC has announced that it will be focussed on the privacy policies of organisations and whether they contain statements that might be misleading and breach section 52 of the Trade Practices Act. This is significant because of the wide range of remedies which may be granted by a court for engagement in misleading or deceptive conduct under the Trade Practices Act, particularly when compared with remedies available for breach of the NPPs under the Privacy Act.

Some compliance tips

Given issues just outlined, most businesses handling significant amounts of health information (particularly in NSW, Victoria and the ACT) need advice that is specifically tailored for them. However, there are some relatively simple tips that may be useful across the board.

How you say you will comply is as important what the law says

The representations in a privacy policy and privacy statement can be as binding as the NPPs (or HPPs) themselves. Privacy statements about how particular personal information is used or disclosed must be carefully considered before being published and once published, should be adhered to strictly.

A common mistake is to copy or adapt the privacy statements of another organisation without thinking through the implications. You need to remember that another business, even if in the same industry, may not market in the same way as your business or not be able to rely on the same kinds of statutory exemptions as your business. It also may not have considered the implications of future outsourcings, or the sale of parts of the business, on privacy representations.

Put in place systems that can track the collection statements you made

Tailor your forms of consents and collection statements for the different circumstances in which you collect personal information. Once the information is collected, it is important that systems are in place that can associate or 'tag' the information with the right consent or privacy statement. Otherwise, staff may find it hard to ensure that the information is used and handled in accordance with the right documents.

At the same time, if someone requests access to all the information you hold about them, you also need systems that enable you to collect that information quickly and efficiently across different databases, in order to provide access.

Ensure that you have good complaints handling systems

It is essential to have a good complaints handling system, supervised by staff who understand the key elements of the applicable law and your business' compliance program. This is not only because much of current privacy law is 'complaints based', but also because while privacy law is new to Australia, there will be legitimate differences of view on how the law should be applied.

Pay special attention to electronic databases

Given the ease with which health records and databases can be transferred electronically, it is particularly important that your personnel are aware of the restrictions imposed on data transfer by the NPPs and the HPPs. For example, an electronic transfer of health information overseas (or even outside Victoria or NSW ), even to a related company, can be a breach the NPPs or HPPs.

So, is there any 'up side'?

Surveys suggest Australians do care about privacy. A business that handles health information carefully and that has privacy policies that are clear and friendly, as well as demonstrated procedures that follow these policies through, is in a good position to differentiate itself and win customer trust. This will increasingly be the case as consumer awareness of privacy rights continues to grow in Australia and internationally. Investing in good privacy practices, including educating staff and personnel about handling this important issue well, can be considered a worth while investment in the goodwill of the business.

Advertising & health funds

AAR's Jeremy Chase reviews two recent judgements concerning misleading or deceptive conduct in relation to health insurance. Of particular interest in these cases was the role of advertising agencies involved in preparing the advertisements that were found to have breached the law.

The cases

Both cases concerned advertising campaigns for health insurance products. The misleading or deceptive conduct in both cases related to representations regarding products offered to consumers, which were qualified by fine print exclusions. In the one case, the Federal Court decided that an advertising agency could be held liable as an accessory for misleading or deceptive conduct, while in the other case, the court found that an advertising agency was not liable as principal for an ad it had prepared.

The MBF Case 2002

In Cassidy v Medical Benefits Fund of Australia (No 2), the ACCC brought proceedings against MBF and John Bevins advertising agency. MBF was pursued as a principal, while proceedings were also instituted against the advertising agency as an accessory.

The representations in this case concerned television, newspaper and billboard advertisements that were qualified by small print disclaimers stating '12-month waiting periods such as pre-existing conditions and obstetrics still apply' and '*Conditions apply. There is a 12-month waiting period for some services including pregnancy and cover for in-patient hospital services only...' and appearing at the end of the advertisement.

The Federal Court made the following findings in relation to MBF:

  • The TV ads were misleading and deceptive, as they created a first and dominant impression that the waiting period for obstetrics would be waived 'Join Now. Claim Tomorrow'. This was not offset by the qualifying statement in small text at the end of the ads or in other related written materials available to customers.
  • The print ads were not misleading or deceptive, as a reader would have had time to study the full advertisement, including the qualifying statement relating to waiting periods.
  • The billboard ads were misleading and deceptive, because a reader, sighting the billboard from a passing train, would not have had time to study the qualifying statement relating to waiting periods.

With regard to the liability of John Bevins advertising agency as an accessory, the Federal Court found that John Bevins was 'knowingly concerned' in MBF's breach because it had knowledge of the 'essential elements of the conduct that constituted the breach'. It was no defence that:

  • John Bevins would not benefit from misleading the public;
  • there was no intent to mislead the public;
  • the advertisements complied with guidelines issued by Commercials Advice Pty Ltd (the commercial arm of the Federation of Commercial Television Stations); or
  • MBF's legal advisers had approved the advertisements.
Further Update....

MBF and John Bevins subsequently appealed these findings to the Full Federal Court. MBF contended that the primary judge had erred in law in finding the television and billboard advertisements breached the ASIC Act, and also that the relief ordered (corrective advertising) was not appropriate. MBF argued that the advertisements were not misleading and deceptive or likely to mislead or deceive, due to the presence of disclaimers, the absence of any expressly misleading statements concerning waiver of the waiting periods, and the nature of the services advertised and disclosures that are generally made to consumers upon making further enquiries.

Justice Stone, with whom Justices Moore and Mansfield agreed, held that the primary judge's conclusion regarding the deceptive and misleading nature of the television and billboard advertisements was correct and upheld Hill J's declarations of contravention. The Full Federal Court held that the order for corrective advertising made by Hill J was made in the exercise of the primary judge's discretion, and that there was a 'sufficient nexus' between MBF's conduct and the corrective advertising ordered for it to be within his Honour's power to make the order. The Full Federal Court only departed from Hill J's conclusions in finding that MBF did not have to undertake corrective television advertising. Justice Stone felt that corrective newspaper advertising would instead be sufficient to convey the message accurately. Otherwise the MBF appeal was dismissed.

The Full Federal Court allowed the advertising agency's appeal, finding that the agency was not knowingly concerned in MBF's contravention.

The ACCC subsequently applied for special leave to appeal to the High Court on the issue of proving accessorial liability. On the 30th of November 2004 the High Court dismissed the application on the grounds that it was not a suitable case for determining the TPA section 52 accessorial liability issues raised by the ACCC.

The NRMA Case 2002

This year, Cassidy v NRMA Health Pty Ltd [2002] case, orders were made by consent against NRMA Health Pty Ltd that advertisements in relation to waiting periods for obstetric services were misleading.

The ACCC also brought proceedings against Saatchi & Saatchi Australia Pty Ltd (Saatchi) who prepared the advertising campaign. Unlike in the NRMA case, the proceedings were brought against Saatchi as a principal, that is, alleging that it was Saatchi that was making the representation. There was a small Saatchi logo at the bottom of the advertisement. Saatchi admitted that the advertisements were misleading, but denied that the misleading representations were made by Saatchi.

The court accepted the arguments of Saatchi that it did not make the misleading representations, finding that 'Saatchi did not disseminate the advertisement because it carefully structured its role so that, at each stage, it went back to the client, the NRMA companies, leaving them to make the ultimate decision to go forward with the act of dissemination of the advertisement.'

Implications for the health industry

The ACCC has been particularly active in prosecuting misleading or deceptive conduct in the health sector. This year, it has also commenced proceedings against:

  • Western District Health Fund Limited (trading as Westfund) relating to advertising that Westfund would pay all hospital and medical expenses related to operations when in fact by law, Westfund could not pay all such medical expenses. Although the advertisements were qualified by disclaimers, the ACCC instituted proceedings on the basis that the advertisements were misleading; and
  • Medibank Private Ltd alleging Medibank Private made misleading representations in relation to the waiver of waiting periods and price increases on certain products.

The degree of activity in relation to misleading or deceptive conduct by health insurers is indicative of the ACCC's interest in ensuring that consumers are given full and complete information on which to base their choice of health insurer. Accordingly, health insurers should be careful that advertisements do no mislead consumers. Special care should be given to advertisements qualified by fine print disclaimers to ensure that they do not create a misleading impression overall.

Medical Indemnity Insurance reforms

On 13 November 2002, the Medical Indemnity Bill 2002 was introduced into Federal Parliament. If passed, this Bill will reform the medical indemnity insurance industry by introducing a number of measures to bring about market stability and ensure that private medical services in rural and regional areas are maintained. AAR's Rachael Patterson reports.

The Medical Indemnity Bill 2002 (the Bill) forms part of a package of reforms announced by the Commonwealth for the medical indemnity insurance market. These reforms are in response to the various problems that have troubled the industry and include regulatory change and premium subsidisation.

The IBNR Scheme and Levy

The Provisional Liquidator of United Medical Protection Ltd (UMP) has estimated that between $368.3 million and $500.8 million of its 'incurred but not reported' (IBNR) liabilities are unfunded or under reserved. Although largely in response to the UMP position, the Bill covers all Medical Defence Organisations (MDOs). In order to give MDOs a fresh start and to assist with the restructuring of UMP, the Commonwealth Government has committed to pay certain unfunded IBNR liabilities of MDOs.

The IBNR scheme indemnifies unfunded amounts that an MDO is likely to have to pay in respect of claims relating to incidents occurring before 30 June 2002 (covered by an incident-occurring based cover) in the course of the practice of a medical profession by a member of the MDO that the MDO had not been notified of on or before 30 June 2002. Under this scheme, the amount payable by the government to each MDO is worked out by applying a formula as set out below.

IBNR Indemnity
IBNR Indemnity (amount payable) = (the unfunded IBNR factor) x (the adjusted amount payable).
  • Where the adjusted amount payable for each MDO in respect of a claim is the amount paid or payable by the MDO or insurer to the claimant less any amounts paid or payable to the MDO in respect of the payment it makes (such as that owing by a reinsurer) at the time the IBNR indemnity is determined.
  • Where the unfunded IBNR factor for each MDO is an amount between 0 and 1 determined by the Minister.

Note: Insurer to insurer payments and payments of claims arising from incidents occurring in the provision of treatment to a public patient in a public hospital are not covered under the IBNR scheme.

Funding for this scheme will be derived from a levy called the IBNR levy. This levy will be payable by any person who was a member on 30 June 2000 of an MDO assessed at this date as having unfunded IBNR liabilities. Members of an MDO who retired before 31 December 2001, student members (as at 30 June 2000), deceased members and members who earn less than $5,000 per annum are exempted from paying this levy.

Premium subsidisation

The Commonwealth will provide a premium subsidy from January 2003 to obstetricians, neurosurgeons and procedural GPs who undertake Medicare billable procedures. The subsidy will be equivalent to 50% of the cost of their premiums plus the IBNR levy (if applicable) minus the corresponding premium and IBNR levy costs incurred by gynaecologists, general surgeons and non-procedural GPs respectively. For neurosurgeons the subsidy rate will increase to 80% on the portion of their premium plus levy exceeding $50,000.

Since most doctors who work in the public hospital system are indemnified by their employer, these subsidies will be of greatest significance for specialists in obstetrics and neurosurgery, and procedural GPs who undertake private work.

High Cost Claims Scheme

The Commonwealth has undertaken to meet 50% of the cost of payouts by medical indemnity providers for high cost claims over $2 million. Funding will be provided for high cost claims that the indemnity provider is notified of on or after 1 January 2003. Claims that arise out of incidents occurring in the provision of treatment to a public patient in a public hospital, however, will not be covered by the scheme.

Regulatory change

The Commonwealth reform package proposes regulatory change, although the proposed changes have not yet been released or introduced to Federal Parliament.

In the first instance, MDOs will be brought under the regulatory framework now applicable to all general insurers and overseen by the Australian Prudential Regulatory Authority (APRA). This framework will apply to business written after 1 July 2003.

Under the new regulatory framework administered by APRA, MDOs will be subject to a range of prudential safeguards to mitigate insolvency risks. In addition to this, minimum product standards will be developed and medical indemnity providers will be required to provide suitably priced 'tail' and 'run off' cover for healthcare professionals who retire or switch cover. MDOs will also be required to provide medical indemnity cover in the form of a contract of insurance rather than as 'discretionary assistance'.

In addition to this authorised providers of medical indemnity cover will be required to submit claims information to the Federal Government consistent with the new arrangements being developed for general insurers in the context of public liability reform.

Medical Indemnity Agreement

Under the Medical Indemnity Agreement, the Commonwealth agreed to meet claims made on UMP and Australian Medical Insurance Ltd (AMI), both now under provisional liquidation, by their members. This agreement will be made binding on the Commonwealth with the passage of the Medical Indemnity Agreement (Financial Assistance - Binding Commonwealth Obligations) Bill 2002. As announced earlier this year by the government, this guarantee has been extended until 31 December 2003.

Clinical risk management

A draft Open Disclosure Standard has been developed aims to improve clinical risk management and promote greater openness in communications between patients and carers when things go wrong. Other joint projects with state and territory governments are planned through the Australian Council for Safety and Quality in Health Care with the aim of making systematic improvements to health care provision.

State and territory initiatives

The Commonwealth reform measures are intended to complement ongoing state and territory initiatives including tort and legal system reform.

The Government will also be urging states and territories to remove existing stamp duties on medical indemnity insurance premiums and will request the NSW government to remove caps on insurance premiums by the end of 2003. The removal of NSW premium caps will allow medical indemnity providers to set caps according to risk and should allow the indemnity insurance market to operate on a more commercially sustainable basis.

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