3.1.1. For the purpose of preparing this report, certain data was collected from the MIIs by the Department of Human Services (DHS) during late 2018 including:
- details of practitioners who were identified as having become eligible for membership of the Scheme before 30 June 2018;
- details of claims (including incidents) notified to MIIs and MDOs by 30 June 2018 which might eventually become eligible for reimbursement under the Scheme;
- details of ROC support payments;4
- actuarial estimates of that part of the future claims cost of medical incidents projected to be notified during the 2018-19 to 2022-23 financial years which is expected to be reimbursed under the Scheme; and
- actuarial estimates of that part of the future claims cost of medical incidents occurring during 2018-19 which is expected to be reimbursed under the Scheme.
3.1.2. This report also utilises other data and information including that which was previously provided to DHS for the purpose of section 34ZW of the Medical Indemnity Act.
3.2.1. The results in this report rely on information provided by MIIs. This information is regarded as the most suitable information available for the current purpose.
3.2.2. Steps were taken to ensure, as far as practicable, that the information provided was prepared on a basis suitable for the purpose. Despite this, it is not possible to guarantee that the information provided is free from material error. The information was not independently audited. As was the case in previous years, there were some notable disparities in the data provided. This means that figures and estimates provided in this report need to be treated with some caution.
3.2.3. Historically, MIIs/MDOs have not maintained data in a form which is directly amenable to ROC analysis. For example, it has not been possible to establish a comprehensive list of medical practitioners who were eligible for the Scheme on 1 July 2004. This is not a criticism of the MIIs. It simply reflects that their business and information systems were not developed with a scheme like the Run-Off Cover Scheme in mind. However, in order to monitor the operation of the Scheme effectively, accurate and timely data is obviously important.
3.2.4. Certain information was sought from industry actuaries. Guidance was provided as to the nature of the data, calculations and information required.
3.2.5. A range of assumptions were used by industry actuaries. Although some significant assumptions differ by only a few percentage points between actuaries, substantially different estimates of Scheme costs are produced. This is indicative of the highly uncertain nature of estimates of the costs of the Scheme.
3.2.6. It is to be expected that many of the data issues encountered will diminish in time. However, until data issues subside, Scheme projections will be subject not only to the considerable inherent uncertainty which surrounds medical indemnity insurance business, but also to additional uncertainty associated with the amount and quality of the available data.
3.2.7. In general, the results in this report are based on both the estimates provided by industry actuaries and the data provided by the DHS. We have also had regard to a model developed within this office.
3.3.1. Appendix 1 sets out the test of eligibility for the Scheme and the process of issuing and notifying compulsory run-off cover to eligible practitioners. Eligible practitioners are entitled to receive notification of the terms and conditions of compulsory run-off cover from their MII. MIIs are also required to notify DHS of the details of the compulsory run-off cover provided.
3.3.2. Practitioners performing private practice become eligible for the Scheme by means of permanent retirement at age 65 years or older, cessation of private practice for three years, death, permanent disability or maternity leave. In addition, medical practitioners from overseas who have worked in Australia under an appropriate visa become eligible for the Scheme when they have permanently ceased medical practice in Australia and ceased to reside in Australia.
3.3.3. There are inherent lags involved in notification of the details of eligible practitioners to DHS. As a result, it is only possible to estimate the number of practitioners who have become eligible for the Scheme at any given time. For example, there will often be a delay between the time that a practitioner becomes eligible for the Scheme and the time when the insurer becomes aware of this. It is also likely that an insurer is unsure of the eligibility status of a practitioner from year to year. For example, a practitioner that has not renewed their insurance for three years may, or may not, be eligible for cover. For these reasons, the numbers of eligible practitioners reported by insurers needs to be treated with caution. This report summarises the number of practitioners that have become eligible for the scheme as reported by the insurers. We have also attempted to estimate the total number of practitioners currently eligible at 30 June 2018 by removing the practitioners whose eligibility subsequently ceased and removing multiple entries. Multiple entries are usually associated with maternity leave taken at different time periods.
3.3.4. The number of practitioners who have become eligible for the Scheme in this report is based on:
- data provided to DHS by the medical indemnity industry relating to practitioners identified as having become eligible between 1 July 2004 and 30 June 2018; and
- industry estimates of practitioners eligible for the Scheme as at 1 July 2004, provided for the purpose of the 2004-05 report.
3.3.5. We have relied almost entirely on the eligibility data provided by the industry. As has been the case in all previous reviews, data changes from year to year and inconsistencies within data undermine the reliability of the information. Table 1 summarises the data provided by the industry with minor adjustments.
Table 1: Run-Off Cover Scheme eligible practitioners
3.3.6. We estimate that 15,706 practitioners are currently eligible for ROCS at 30 June 2018. If a practitioner had multiple entries, we have used the most recent eligibility start date in Table 1. All practitioners whose eligibility is shown as subsequently ceased in the data have been excluded from the above counts. In addition, we have excluded around 130 practitioners who became eligible between 1 July 2004 and 30 June 2017 but appear to have returned to private practice during 2017-18 as evidenced by their material ROCS contributions during the year. This is the same approach as last year and is more closely aligned with the requirement of the Medical Indemnity Act.
3.3.7. The estimated number of currently eligible practitioners is subject to considerable uncertainty. On one hand, it is reasonable to expect that a small proportion of the practitioners eligible at start-up have returned to private practice as at 30 June 2018. On the other hand, the delay between the time that a practitioner becomes eligible for the Scheme and the time when the insurer becomes aware of this means that the data is likely to be incomplete.
3.3.8. Table 1 shows that that the number of eligible practitioners reported at 30 June 2017, in respect of certain years, decreased by 30 June 2018. Apart from data changes from year to year, this is mainly attributable to a proportion of the eligible practitioners returning to private practice. For example, around 200 practitioners who became eligible in 2016-17 through maternity leave (as shown in Table 2) appear to have ceased eligibility during 2017-18. This is not inconsistent with our assumption that each doctor takes one year of maternity leave for each child.
3.3.9. Table 2 illustrates the breakup of new entrants by reason of eligibility, based on the data provided by the MIIs. The numbers are not directly comparable with Table 1 as they include practitioners whose eligibility has subsequently ceased and they include multiple entries in different time periods. Note that while the numbers of practitioners who became eligible for the Scheme in 2017-18 through maternity and resignation were higher than historical averages, the movement is within an acceptable range given the volatilities we have observed in the past. Thus, we have not adjusted any of the eligibility assumptions this year, especially given major changes were implemented last year including higher maternity and resignation assumptions. The eligibility assumptions are subject to review each year, and we will continue to monitor and review the experience.
Table 2: Run-Off Cover Scheme new entrants by reason of eligibility
(a) Overseas trained medical practitioners who had permanently ceased practice in Australia under an appropriate visa.
3.4.1. Appendix 2 describes claims which meet the criteria for reimbursement from the Australian Government through Run-Off Cover indemnity payments. Broadly, MIIs and MDOs are entitled to reimbursement from the Australian Government for the costs of claims which:
- are first notified to the MII or MDO on or after 1 July 2004;
- relate to a practitioner who is eligible under the Scheme at the date of notification;5 and
- meet the other requirements for ‘payable claims’.6
3.4.2. As at 30 June 2018, MIIs and MDOs had reported 681 medical incidents relating to eligible medical practitioners since the commencement of the Scheme. 323 of those were shown as “closed” or “finalised” with null case estimate7 attached to them, and 41 were shown as “open” with null case estimate. This leaves 317 claims where an amount has been, or is expected to be paid.
3.4.3. Table 3 illustrates the breakup of the reported incidents by the year in which the medical practitioner became eligible for ROCS, based on the data provided by the MIIs in late 2018. Only claims with a positive estimate are shown. Note that the variations between the data provided in 2017 and 2018 are significant. This highlights the difficulty in using this data for claim projections. 40 new claims have been reported since 2017 (that have a positive case estimate).
Table 3: Reported incidents by year of eligibility
3.5.1. ROC indemnity payments are the payments made by the Australian Government to MDOs and MIIs as reimbursement of the costs of eligible claims.
3.5.2. Table 4 illustrates the progress of ROC indemnity payments (including indirect claims handling expenses) since the beginning of the scheme. We have relied on the data provided by DHS.
Table 4: Run-Off Cover indemnity payments by year of eligibility
(a) This excludes a total of $0.3m recovered from MIIs and $0.74m where the medical practitioner's eligibility date was missing.
(b) This excludes a total of $0.3m recovered from MIIs and $0.41m where the medical practitioner's eligibility date was missing.
3.5.3. ROC indemnity payments totalling $31 million (including indirect claims handling expenses) have been made up to 30 June 2018, all of them since 1 July 2007. Specifically during 2017-18, $4.9 million in ROC indemnity payments were made which included payments of $0.4 million in respect of medical practitioners who became eligible in 2017-18.
3.5.4. The Scheme also provides for payments in respect of compliance costs under the ROC Claims and Administration Protocol (section 34ZN of the Medical Indemnity Act). Around $17 million in compliance cost payments have been made to MIIs up to 30 June 2018, and based on applications received by DHS we have estimated that a further $2.1 million relating to periods prior to 30 June 2018 is payable. This excludes potential payments to Guild and Berkshire Hathaway as they are not allowed under the current legislation which is under review. Table 5 shows the historical compliance costs paid by the Scheme as provided by DHS.
Table 5: Historical compliance cost payments
3.5.5. The Commonwealth’s own administration costs are Budget-funded and so are not considered in this report.
3.6.1. ROC support payments are paid to DHS in the form of an annual lump sum imposed as a tax on each MII from 1 July 2004 under the MI ROCSPA.
3.6.2. The amount of the ROC support payments is calculated using a method set out in the MI ROCSPA. Appendix 3 describes the calculation in detail. Very briefly, it is based on:
Applicable rate × (premium income less taxes and charges) ÷ (1 + applicable rate).
3.6.3. In 2017-18, the applicable rate was 5 per cent for all insurers.
3.6.4. Table 6 summarises the ROC support payments received. The amounts include minor amendments that were made during the relevant year. The total amount received in 2017-18 increased from the previous year. This was consistent with a slight increase in the number of contributing doctors as well as a slight increase in the average premiums during 2017-18. Some MIIs continue to collect membership fees in addition to medical indemnity premiums. In total, the amount of membership fees collected represents around 9 per cent of the amount of medical indemnity premiums collected across the industry. ROC support payments are not payable on membership fees.
Table 6: Run-Off Cover support payments
Note: MIGA includes historical payments from Invivo (QBE) and Avant includes historical payments from AMIL and PIICA.
3.6.5. In order to provide full transparency for practitioners, MIIs are required to attribute ROC support payments to individual policyholders. Each premium notice specifies the amount that has been included in the policyholder’s invoice to meet the MII’s ROC support payment obligations. All amounts are reported to DHS, which maintains a record of each practitioner’s total run-off cover credit. Interest is applied to this balance annually at the short term bond rate in accordance with section 34ZS of the Medical Indemnity Act.
3.6.6. Part 2, Division 2B, Subdivision E of the Medical Indemnity Act provides for certain payments, should the Scheme ever be wound up without alternative arrangements being put in place. Medical practitioners who are still practising at the time of the wind up of the Scheme would be entitled to have an amount not exceeding their total run-off cover credit paid to their nominated medical indemnity provider. Practitioners who are eligible for the Scheme at the time of its wind up would not be entitled to any refund but would continue to be covered for any future claims that might emerge.
3.6.7. Figure 2 summarises the contribution to ROC support payments by age of practitioner. Note that age and gender were not available for a minority of medical practitioners. The chart is based only on practitioners who paid at least $1,700 in respect of both medical indemnity premium (net of discounts and loadings) and membership fees during 2017-18. We refer to these practitioners as ‘at-risk’ medical practitioners. The proportion of ROC support payments is greater than the proportion of practitioners for medical practitioners aged between 40 and 60. This is consistent with this age group being at the peak of their career. For younger practitioners, the chart shows a lower proportion of ROC support payments, reflecting relatively lower risk taking at the start of the career. The chart also reflects a slightly lower level of premiums for older medical practitioners who may tend to wind down their practice hours and possibly perform fewer risky medical procedures (for example, surgery) as they reach more advanced ages.
Figure 2: Contribution to Run-Off Cover support payments by age
3.6.8. Figure 3 summarises the contribution to ROC support payments by area of specialty. Specialty codes were not available in relation to a small minority of medical practitioners. Similar to Figure 2, this chart only includes ‘at-risk’ medical practitioners.
3.6.9. Medical indemnity insurance premiums tend to be risk-based. Thus, practitioners operating in higher risk areas of specialty are likely to incur the highest premiums and, accordingly, the highest ROC support payment liabilities. The largest ROC support payments are for obstetricians, gynaecologists, neurosurgeons, cosmetic/plastic/reconstructive surgeons, orthopaedic surgeons, and general surgeons. General practitioners — non-procedural have the smallest average ROC support payments. Note that most medical practitioners not otherwise classified (including interns and trainees) are not shown in this chart as they are not included in the ‘at-risk’ group.
Figure 3: Contribution to Run-Off Cover support payments by specialisation
4 A database of ROC support payments is maintained by DHS.
5 Refer Appendix 1.
6 Refer Appendix 2.
7 Estimate of likely cost to the insurer.