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MEDICAL INDEMNITY LEGISLATION AMENDMENT BILL 2006

                          2004-2005-2006




 THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA




                HOUSE OF REPRESENTATIVES




MEDICAL INDEMNITY LEGISLATION AMENDMENT BILL 2006




               EXPLANATORY MEMORANDUM




   (Circulated by authority of the Minister for Health and Ageing,
                 the Honourable Tony Abbott MP)
MEDICAL INDEMNITY LEGISLATION AMENDMENT BILL 2006

OUTLINE

The Medical Indemnity Legislation Amendment Bill 2006 amends existing medical
indemnity legislation: the Medical Indemnity Act 2002, and the Medical Indemnity
(Prudential Supervision and Product Standards) Act 2003.

The purpose of the changes is to align the Run-off Cover Scheme (ROCS) with the current
industry practice and ensure the smooth ongoing operation of the scheme.

ROCS, which began on 1 July 2004, is designed to provide secure insurance for doctors who
have left private practice, at no cost to them. (The scheme is funded through a levy on
medical indemnity insurers.) The intention was that medical indemnity insurers would
provide cover to doctors who are eligible for ROCS on the same basis as the cover that was
provided to them in the workforce and the government would reimburse medical indemnity
insurers for the cost of any eligible claims incurred.

The Bill is intended to increase the level of certainty around the provision of run-off cover for
doctors who have left the medical workforce, and simplify the administration of the scheme,
following concerns raised by medical indemnity insurers and medical practitioners.

The principal change concerns doctors who for various reasons, may have had gaps in their
medical indemnity cover during their career. Many of them have subsequently addressed this
situation by purchasing retroactive cover for those periods. Under present legislation, they
would not be covered under ROCS for incidents that occurred during these uncovered
periods - even if these claims were covered under their last contract of insurance.

Also, in discussions with medical indemnity insurers it became clear that they would not
always be able to determine whether a doctor had purchased appropriate medical indemnity
insurance cover at the time of the incident due to movement of doctors between insurers.

It is proposed to address this by removing the requirement for a doctor to have had medical
indemnity cover at the time of the occurrence of an incident for that incident to be covered by
ROCS. This amendment will mean that the terms and conditions of cover provided under
ROCS will be equivalent to those of the doctor's last pre-retirement contract.

This will make the system simpler to administer for medical indemnity insurers, and
eliminate any uncertainty for doctors about their eligibility for ROCS which may arise out of
the limitations of historical records of indemnity cover.

The Bill also amends the period for medical indemnity insurers to report if a doctor becomes
eligible for ROCS or ceases to be eligible for ROCS to 61 days. Some medical indemnity
insurers have indicated that they find the current 28-day time limit is unduly restrictive and it
would be administratively convenient to have the ability to batch these data items and send
them to Medicare Australia on the same day each month.




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The Bill also clarifies that the Government should only pay medical indemnity insurers for
claims under ROCS when:
    � such a payout would be made in the ordinary course of business of the insurer;
    � it corresponds to the type of cover the doctor is entitled to; and
    � the doctor was eligible for ROCS when the insurer was notified of the claim.

The Bill also amends the requirement to receive a written response to a compulsory offer of
retroactive cover when a regulated insurance contract is entered into, comes into effect or is
renewed. The amendment will provide, in effect, that where doctors refuse the retroactive
cover, they must do so in writing, but where doctors accept the retroactive cover, there is no
requirement for consent to be in writing and they can simply pay the invoice for the policy.

FINANCIAL IMPACT STATEMENT

The Australian Government Actuary advises that there will be no financial impact resulting
from this Bill.




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MEDICAL INDEMNITY LEGISLATION AMENDMENT BILL 2006

NOTES ON CLAUSES

Clause 1: Short Title

Clause 1 provides that the Act may be cited as the Medical Indemnity Legislation Amendment
Act 2006.

Clause 2: Commencement

Clause 2 provides that Schedule 1, Items 1, 19 and 20 will commence on 1 July 2004. These
items will ensure that the ROCS status of medical professionals and potential claims is
clarified from the date of commencement of ROCS. Any possible retrospective effect of this
provision will be in the direction of conferring a benefit on medical professionals and
medical indemnity insurers. The remaining provisions in the Bill will commence on the day it
receives Royal Assent.

Clause 3: Schedules

Clause 3 provides that the substantive provisions of the Bill are included in Schedules 1
and 2.

Schedule 1: Principal amendments

Item 1

Item 1 repeals the requirement in the Medical Indemnity Act 2002 for a medical practitioner
to have had medical indemnity cover at the time of an incident for it to be covered by ROCS.
The effect is that eligible medical practitioners will receive cover under ROCS which
replicates that provided under their last contract of insurance.

Item 2

Item 2 provides for consequential renumbering of the Medical Indemnity Act 2002.

Item 3

Item 3 is intended to clarify that the date which determines whether an incident is covered by
ROCS is the date at which the MDO or medical indemnity insurer is first notified of a claim
in relation to the incident. (Under the Medical Indemnity Act 2002 a claim, in relation to
ROCS only, may include a notification by a medical professional to a medical indemnity
insurer of an incident.)

This Item ensures that claims which were notified while the relevant medical professionals
were eligible for ROCS would remain covered by ROCS, and claims which were notified
while the relevant medical professionals were not eligible for ROCS would remain outside
ROCS.



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Items 4 - 7

Items 4 to 7 amend the Medical Indemnity Act 2002 to strengthen the link between that Act
and the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 in
relation to the payment of indemnities reimbursing medical indemnity insurers for the cost of
ROCS claims.

In addition, Item 4 provides that payments must be made in the insurer's "ordinary course of
business". Similar provisions are included in relation to the other medical indemnity
schemes.

This approach strengthens the link between the cover provided under ROCS and that
provided under the last contract of insurance, which it mirrors. It clarifies that medical
indemnity insurers must treat claims against a medical practitioner that fall under ROCS in
the same way as claims under the insurance cover they provided to the medical professional
before they became eligible for ROCS. Such an approach allows for the payment regime to
take account of the particular business practices of individual insurers, rather than attempting
to prescribe every possible payment in detail, in advance.

Item 8

Item 8 mirrors the effect of Item 4, linking the Medical Indemnity Act 2002 to the Medical
Indemnity (Prudential Supervision and Product Standards) Act 2003 by inserting reference to
sections of the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003
into the Medical Indemnity Act 2002, but in relation to the amount of the ROCS indemnity
payment, which is linked explicitly to the amount which would be payable under the
compulsory ROCS cover in the insurer's ordinary course of business.

Item 9

Item 9 extends the period of notification for persons ceasing to be eligible for ROCS from
28 days to 61 days, or such greater number of days as the Minister determines.

This addresses the concern of medical indemnity insurers that it would be more convenient to
send the notifications in a batch on a given day of the month.
The Ministerial determination provision is included to cover the possibility that after the
scheme is well established, it may be found that less frequent reporting is necessary.

Item 10

Item 10 inserts the correct paragraph number (1)(e) under which the determination by the
Medicare Australia CEO is made.

Items 11 - 17

Items 11 to 17 replace abbreviations which are not defined in the Medical Indemnity
(Prudential Supervision and Product Standards) Act 2003 with the terms they represent.



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Item 18

Item 18 limits the existing offence provision in Section 22 (2)(c) of the Medical Indemnity
(Prudential Supervision and Product Standards) Act 2003, which presently makes it an
offence for an insurer to provide medical indemnity cover (with or without a retroactive
component) before the doctor has provided a "written response" to the offer of medical
indemnity (which must include a retroactive component). This amendment will mean that the
offence of providing a contract of insurance before the doctor has provided a written response
only applies if the contract does not include a retroactive component.

The effect of this will be that where doctors refuse the retroactive component, they must do
so in writing, but where the doctor accepts the retroactive component, there is no requirement
for consent to be in writing. (In practice this will often be indicated by payment of the
invoice.)

This will ensure that doctors who take out medical indemnity insurance without a retroactive
component do not do so inadvertently.


Item 19

Item 19 is a consequential amendment following from Item 18 above, recognising that where
medical professionals are not required to provide a written response to medical indemnity
insurers, insurers are not required to provide a copy of a written response to Medicare
Australia.

Items 20 and 21

Items 20 and 21 mirror the effect of Item 1 in the Medical Indemnity Act 2002. It deletes the
requirement in the Medical Indemnity (Prudential Supervision and Product Standards) Act
2003 that a medical practitioner must have had medical indemnity cover at the time of an
incident for it to be covered by ROCS, so as to ensure that the Acts remain consistent.

Items 22 and 23

Items 22 and 23 mirror the effect of Item 9 above, extending the notification period for
persons entering ROCS in the same way that Item 9 does for persons leaving ROCS.




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Schedule 2: Technical amendments arising from the enactment of the Legislative
Instruments Act 2003.

Items 1 - 14

Items 1 - 14 are consequential amendments to the Medical Indemnity Act 2002 following the
enactment of the Legislative Instruments Act 2003.

These amendments are not intended to affect the continuity of any instrument in force
immediately prior to the commencement of this schedule.

Items 15 - 20

Items 15 - 20 are consequential amendments to the Medical Indemnity (Prudential
Supervision and Product Standards) Act 2003 following the enactment of the Legislative
Instruments Act 2003.

These amendments are not intended to affect the continuity of any instrument in force
immediately prior to the commencement of this schedule.




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