10th Greek Australian Legal and Medical Conference
Mykonos, Greece 2005

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MEDICAL INDEMNITY CRISIS:
A CRISIS FOR PRACTITIONERS AND PATIENTS

D. A. Wheelahan QC
Jack Shand Chambers

1. May and June 2001 saw an unusually high number of medical negligence claims being lodged at the court registries across NSW. This state-wide surge of legal activity was in anticipation of the new Health Care Liability Act which commenced on its date of assent - 5 July 2001. By lodging medical negligence claims prior to this date legal practitioners were able to escape the retrospective claws of the Act which, under clause five, provides for its application to awards of damages relating to injuries received or to deaths resulting from injuries received, whether before or after the date of commencement unless proceedings have been commenced in a court before that date.

2. The retrospective nature of the legislation is, sadly, but one of its many egregious and disturbing flaws - but now, 4 years later, little more than an historical oddity.

3. Of other significant concern are the following:

(a) A threshold of 15% of a most extreme case must be established by victims of medical negligence before they will be eligible for compensation for pain and suffering

(b) The exclusion of awards of interest for non-economic loss

(c) The application of a discount rate of 5% on economic loss which represents a 2% increase on the presently applicable rate of interest at common law

(d) The total provision of immunity from negligence claims for doctors and nurses who provide health care in an emergency situation at or near the scene of an accident, if done in good faith and on a voluntary basis

4. The Health Care Liability Act represents an unsurprising and wholly uninspired addition to NSW's statutory compensation scheme family tree. Like the Motor Accident Compensation Act (which it closely resembles) it is founded on artificial constructions such as degrees of 'impairment' which have no place in clinical medicine, which exclude adequate compensation for all but the very serious injuries, and which deny victims of accidents in NSW equality with assessments made in other but not all, jurisdictions.

The arrival of tort reform in this area was expected and its delivery, considering the many years for which medical negligence law has been a hotly debated subject, was, if anything, overdue from the perspective of the medical profession. It was conceived around the time of what was perceived to be a 'medical indemnity crisis' which threatened, among other things, to result in a scandalous lack of health care providers in rural Australia. Thus it was a relatively painless delivery, as, riding on the back of this 'medical indemnity crisis' the government managed to avoid the kind of consultation and debate which may have ultimately resulted in a reform package that would not only have addressed the real problems plaguing the health care industry but also would have done so without the sacrificial offering of innocent victims of medical negligence.

The Health Care Liability Act: what it aims to achieve and how the scheme differs from the common law

5. The Act aims to ensure "fair and sustainable compensation for persons who sustain severe injuries from the provision of health care", sustainable medical indemnity premiums, and the continued viability of a full range of health services for the community, whilst offering a means of regulating the medical professional indemnity insurance industry (s3). There is nothing undesirable about these objects nor could there be any doubt that the flow-on effect from the escalating costs of professional indemnity insurance (this being the dwindling availability of certain specialist medical services, especially in rural and remote areas) had created a situation that warranted critical attention. Less certain is whether the legislation will in the long term prove to have been appropriate, whilst what is inevitable is that many who have suffered as a result of negligently administered health care will be deprived of just compensation.

6. The Act consists of five Parts and a schedule and adopts a similar framework to that of the Motor Accident Compensation Act 1999 (NSW). Under s4, a health care claim is defined as "any civil action for damages against a health care provider in respect of an injury or death caused wholly or partly by the fault of the health care provider in providing health care". A health care provider is defined as a medical practitioner, a public health organisation or the licensee of a licensed facility. Under this definition, a medical practitioner is a health care provider if he or she is covered by approved professional indemnity insurance.

7. Part two of the Act dealt with the awarding of damages in health care claims. It has been repealed and replaced by part two of the Civil Liability Act 2002 (_CLA_) which provides the mechanism by which awards of damages may be constructed. References in this part of the paper are to sections of the CLA.

* S12 fixes the maximum weekly rate for damages for loss of earnings at net $2,423, which is the rate applicable under the motor accidents scheme and not very satisfactory if your income is $10,000 per week. This weekly cap is indexed in line with the maximum applying under the motor accidents scheme.

* Future economic loss predictions, under s13, must be based on assumptions that accord with the claimant's most likely future circumstances, but for the injury.

* S14 brings the discount rate for medical and hospital claims into line with the rate applying under the motor accidents and workers' compensation schemes - that is, 5% which represents a 2% rise upon the common law discount rate. This seemingly insignificant increase will substantially reduce lump-sum awards for long-term claims.

* In relation to attendant care services and gratuitous attendant care services, s15 merely states that damages cannot be awarded unless the court is satisfied that there was a reasonable need for the services, which has arisen solely because of the injury, and that the services would not otherwise have been provided to the claimant but for the injury

8. S15A is entitled "Damages for loss of superannuation entitlements".

9. The clear intention of the draftsman was to deprive successful plaintiffs of the benefits of the investment and growth of their superannuation contributions as was established in Cremona v RTA. Instead of permitting the court to receive and act upon evidence of the historical and projected performance of a well managed superannuation fund in order to determine the extent of an investor's loss, the legislation has limited recovery to the loss of employer superannuation contributions (i.e. the pre-Cremona methodology).

10. To ensure that no stone is left unturned to punish the victim and enhance the profitability of insurers the percentage is calculated on _damages payable (in accordance with this Part)_. _Damages payable_ in respect of economic loss are calculated net of tax. It seems to follow that one's superannuation loss is calculated (at the current rate) of 9% on the net weekly earnings whereas the employer contributions in the real world are 9% of gross.

11. S17 permits a court to refer to earlier decisions of that or other courts for the purpose of establishing the appropriate award in the proceedings. This creates the justification for the application of a tariff. Although the principle has been the subject of some criticism it has been accepted in this community for more than three decades that the application of a tariff is contrary to principle.

* S18 excludes the provision of interest on non-economic loss damages.

In relation to other past losses, interest is calculated by reference to the Commonwealth Government ten-year benchmark bond rate or as may otherwise be specified by regulation. The benchmark bond rate is significantly less than the rates available under the Supreme Court Act. This clause does not affect post-judgment interest.

* S19, like the motor accidents scheme, enables damages in a health care and other claims under the Compensation to Relatives Act to be reduced where there has been contributory negligence on the part of the deceased person. This is a callous amendment to a law that has operated in this state since 1965 (The Law Reform (Miscellaneous Provisions) Act 1965 Section 104). As Luntz says: "This retrogressive step was introduced in the Motor Accidents Act as a cost saving exercise for the motoring public". It is a measure whereby the sins of the father are visited on the children and widow (see Luntz 3rd Edition page 446).

* S21 abolishes exemplary and punitive damages for health care claims, just as s 144 of the Motor Accidents Compensation Act ruled out exemplary damages for motor accidents. As no exemplary or punitive damages have been awarded in NSW in medical negligence cases this measure is not likely to reduce insurance premiums.

* S22 establishes a mechanism to allow for the payment of damages other than in the form of a lump sum (_The Jackson Stubbs Amendment_), but this only applies where the parties agree to settle the claim by making a structured settlement and apply to the court for such an order.

12. It is unlikely that all other States and Territories will be introducing similar legislation in the near future. The disparity that will result between the compensation available for victims of medical negligence in NSW under the Act and victims of medical negligence throughout the rest of Australia under the common law is immediately apparent, as is the injustice of this disparity, an injustice which is heightened by the sobering fact that NSW recorded Australia's highest number of surgical and medical misadventures in 1998-1999.

13. The Act prevents adequate compensation for less severe injuries in order to ensure that the very severe injuries - the 'extreme' cases - may be appropriately compensated. However, those extreme cases such as the recent case of Simpson v Diamond [2001] NSWSC 925 (which resulted in an award of $12.9 million - the highest damages award in a medical negligence case to date) are few and far between whilst conversely the less severe cases constitute the majority of claims against health service providers.

14. Part three (CLA) concerns itself with mental harm. It appears to codify the law as it stands after Tame and Annetts.

15. Part five deals with liability with public and other authorities and does relate to a public health organization within the meaning of the Health Services Act 1997.

16. In no practical way does the part which touches upon the financial and other resources available to a public authority affect the subject of this paper.

17. Part eight of the CLA provides immunity from negligence compensation claims for a medical practitioner or nurse providing care in circumstances of an emergency at or near the scene of an accident, in good faith and on a voluntary basis (s56 CLA). This protection from liability is supposed to provide the incentive for health service providers to give assistance in emergency situations without fear of litigation. However, there has been no reported Australian case where a health service provider has been held liable for providing such assistance in good faith, and so, as with the exclusion of exemplary damages in part two, this clause can have no impact on insurance premiums.

18. Other jurisdictions around the world have introduced laws that prevent a person from suing a health care provider for injuries resulting from a good Samaritan act. Most states in the United States of America have some form of good Samaritan legislation that prevents victims from suing their rescuer provided the same two conditions stipulated in s55 are satisfied. In Queensland, s16 of the Law Reform Act 1995 provides an almost identical form of immunity from liability at law with the critical exception that it limits protection to situations where there has been no gross negligence. S57 of the CLA excludes any civil action, liability, claim or demand in respect of the provision of that health care. Why the NSW government did not simply adopt the Queensland equivalent when formulating this part is anybody's guess and the NSW legislation is the poorer for it.

19. While tort reform in medical negligence law was being discussed, a number of medical groups petitioned the government for a legislative codification of the law of negligence by reference to a breach of a standard of care accepted by a responsible body of medical opinion. Essentially, these medical groups were asking for a return to the pre Rogers v. Whitaker era when the Bolam principle reigned supreme. The Bolam principle was succinctly expressed by Lord Scarman in Sidaway v. Governors of Bethlem Royal Hospital:

The Bolam principle may be formulated as a rule that a doctor is not negligent if he acts in accordance with a practice accepted at the time as proper by a responsible body of medical opinion even though other doctors adopt a different practice. In short, the law imposes a duty of care: but the standard of care is a matter of medical judgment.

20. In 1992, the High Court of Australia in Rogers v. Whitaker finally resolved that the Bolam principle does not apply in relation to the provision of information or warning and is of limited use in cases involving negligent diagnosis and treatment. Instead, legal liability in those cases is based on whether, on the balance of probabilities, the health service provider has met his or her duty to take reasonable care.

21. In addition to the problems already addressed there is a substantial lack of certainty as to how the Act will apply in certain circumstances. For instance, the Act applies to claims against public but not private hospitals, yet it is unclear how actions will be resolved when they involve health care provided on a co-located public/private hospital campus. Similarly, it has not been established how the Act will apply to claims involving cross-border health care provision to NSW residents or to interstate residents by NSW doctors.

22. Part ten deals with apologies which are defined as "an expression of sympathy or regret, or of a general sense of benevolence or compassion in connection with any matter whether or not the apology admits or implies an admission of fault in connection with the matter". S69 is a curiosity. It provides that an apology made does not constitute an express or implied admission of fault or liability, is not relevant to the determination of fault or liability and evidence of the apology is not admissible.

23. In his second reading speech it was acknowledged by the Minister that the reform was taken in order to achieve " immediate cost containment and the direction of that saving to support indemnity cover for the higher risk specialties". 'Immediate cost containment' was how the government sold the legislation, but it is unlikely that this cost containment will be sufficient. What the government did achieve was immediate appeasement of the members of the medical profession who were understandably concerned by the real problem of escalating insurance premiums. However, as The Law Society correctly observed, the Government chose to reform the field of medical negligence law by "directing its energies against the 'soft targets', namely the injured, and shied away from dealing effectively with the field's underlying problem, (to wit) the health-care providers' 'structural difficulties'". While the Act attempts to regulate medical defence organisations, in a manner which may slowly begin to contain the rise of insurance premiums, these attempts will not produce immediate cost containment. Conversely, denying adequate compensation to victims of medical negligence will not have a large impact upon insurance premiums but it will provide for immediate cost containment. Thus it is all too tempting to conclude that the crisis which most concerned the government was not medical insurance premiums, not dwindling medical services in rural areas and not medical defence organisations' business ethics. Rather the crisis was about its own popularity. It alleviated this crisis at the expense not only of a long term solution for rising medical insurance premiums, but also of those that have suffered at the hands of negligent health providers.

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Copyright 2005. Greek/Australian International Legal and Medical Conference.
For more information contact Jenny Crofts at jennycrofts@ozemail.com.au