How the crisis unfoldedMay 12, 2017
The turning pointMay 12, 2017
FOCUS: MEDICAL INDEMNITY
At the height of the medical indemnity crisis, the financial threat of the IBNR levy forced many doctors to consider leaving the profession.
Enough is enough!
Those were the final words of an open letter published in The Sydney Morning Herald on 5 May 2003, written by former Federal President Dr Kerryn Phelps and former AMA (NSW) President Dr Choong-Siew Yong.
The letter expressed the anxiety and anger doctors were feeling at the time, as they faced the financially crippling IBNR levy.
The levy was proposed by the government to cover the cost of Incurred But Not Reported (IBNR) liabilities.
When first proposed, AMA lobbied against the IBNR levy calling it an unfair tax on doctors. While the medical indemnity crisis affected all medical professionals, it was particularly devastating to private practitioners. At the start of the medical indemnity crisis, some VMOs, particularly those in high risk specialties, initially felt they would be better off switching to full-time salaried positions in public hospitals. However, after the introduction of the levy, many found themselves in an even worse position, as they now had to pay a huge IBNR tax while earning a reduced income. For an obstetrician, this was estimated to be as high as $146,000.
The levy was also a considerable impost to doctors in the 55 to 65 year age group. Typically these doctors would be thinking about retirement. However, the levy – combined with the necessity to take out “run off” cover for a period of five years after retirement – meant many would be forced to use their superannuation to protect themselves from future litigation. And in 2003, some specialists – particularly obstetricians, neurosurgeons, procedural GPs and paediatricians, that run off period could be as long as 24 years.
As the 1 November 2003 deadline for payment of the first IBNR tax contributions, many doctors resigned or changed their practice.
An AMA (NSW) survey conducted in 2003 revealed 27% of respondents indicated they would retire because of the cost of the levy and the continuing uncertainty about the future of medical indemnity insurance.
The survey also found 71% of respondents planned on increasing their fees, while 20% said they would reduce bulk billing and another 20% indicated they would cease bulk billing altogether.
A considerable number of respondents also responded that they would consider leaving the public hospital system.
According to former Federal AMA President Dr Bill Glasson, not only did the threat of the IBNR levy affect doctors already in the profession, but it impacted the junior doctors at the time, who chose to steer away from high risk specialties.
“It directed them away from professions like obstetrics and neurosurgery, so they went for safer options,” Dr Glasson said. “At one stage obsteticians were paying $100,000 for premiums. Well, if you’re a young obstetrician starting off well you’re saying I’m not going to generate that sort of money just to pay my premium, why in the hell would you go into it?”
Because the IBNR levy was directed at doctors who had indemnity cover from companies that did not charge enough to cover future claims, it had a much greater impact on doctors in Queensland and NSW. In both states, approximately 90% of doctors were members of UMP, the insurer that was pushed to insolvency in 2002.
“I had doctors in tears, families in tears, the stress amongst the profession was massive,” said Dr Glasson. “We lost 28% of obstetricians in Southeast Queensland out of that period, we lost a huge number of our neurosurgeons as well who just retired. And those in obstetrics, just said I’m not doing anything in obstetrics anymore, I’ll just do gynaecology.
According to Dr Glasson, doctors felt the levy was the final slap in face, after years of increasingly high cost legal suits.
“They were trying to practice medicine to a certain level and do the right thing by their patients, but despite doing that they were getting all these legal suits,” Dr Glasson said. “I remember a story about an obstetrician being sued for a particular event for this baby, the mother got a pay out, and then she came back to the obstetrician for the second baby and said, ‘don’t take it personally, I was just getting some money.’
“But as doctors, we take this very personally. As a result, we started practicing very defensive medicine. So instead of using your clinical skills to make a decision, you often over investigate patients. It’s a huge cost and it undermines the training we get and it undermines good medicine.
“And when it came to the crisis point, doctors didn’t go on strike – we made that very clear to the government and very clear to the Australian people. This wasn’t doctors going on strike, this was doctors closing their doors and saying I am not going to practice anymore, it’s not worth it, because they had been demoralised by this whole event, and they had had enough.”
WHAT IS IBNR?
IBNR stands for Incurred But Not Reported – it is also known as ‘the tail’. These are adverse medical outcomes that have happened, but not yet been reported. As such, they are unknown liabilities. The Insurer UMP (now Avant) failed to include these liabilities in its financial statements and did not have sufficient cash reserves to adequately cover estimated future claims. This was the reason it almost collapsed in 2002. The Federal Government agreed to cover these liabilities, but threatened doctors with a levy to gain back these monies. At the height of the crisis, doctors were unsure of the full extent of the levy, but understood it could be as much as $450 million and last for 10 years. This caused considerable angst among doctors, particularly those on the cusp of retiring.