Why don’t we create a no-fault scheme for medical injuries?

A no-fault compensation scheme is already widely used for third-party motor vehicle accident claims. Paul Hocksenar/Flickr, CC BY-NC-SA

Lost among the many provocative recommendations of last week’s National Commission of Audit report was a proposal to phase out the Commonwealth’s A$100 million subsidy of medical indemnity insurance premiums.

The federal subsidy scheme started in 2003, in response to insurance market failure in the preceding years, particularly the stunning collapses of HIH Insurance in 2001 and United Medical in 2002. These threatened the continued delivery of medical services, especially in areas at risk of high-cost claims.

In keeping with the general tenor of the report, which considered the cost of everything and the value of nothing, it found the insurance market was sufficiently recovered for federal subsidies to cease.

Unfortunately, no consideration was given to root-and-branch reform of the current fault-based approach for compensating people injured in the course of medical treatment, nor whether the existing system works effectively and efficiently in the interests of patients, doctors and the society at large.

Changing our approach

Australians have long accepted no-fault compensation schemes for injuries in the workplace and from motor vehicles, it’s time we did the same for medical injuries.

A no-fault compensation scheme is one in which accidents and injuries are regarded as inevitable, and the emphasis is on compensating victims for related expenses – without anyone having to enter the civil justice system and proving another party is liable for damages. This system is already widely used for third-party motor vehicle accident and workers compensation claims.

Despite a recommendation for this kind of insurance by the Woodhouse Committee 40 years ago, and a mention in the 2011 Productivity Commission report heralding the national disability scheme, there hasn’t been serious recent examination of the desirability of introducing a comprehensive no-fault compensation system for medical injuries.

Other developed countries, including New Zealand, Sweden, Finland, Norway, Denmark and France, and some American states, already have such systems. Australia could learn from their experiences to design an effective and efficient system that would benefit patients, health professionals and the health-care system.

Bad for the injured

Our current fault-based system for handling claims of alleged medical injury requires people pursuing damages to prove negligence in the courts. The process is inefficient and stressful for all concerned, and the costs are estimated to represent half of the final court settlements.

Cases can take years to be settled or decided, denying claimants early access to necessary care and rehabilitation. Expert hired witnesses, some of dubious professional status, are called upon because the busiest specialists are reluctant to become involved in what can be a time-consuming and intimidating exercise.

And these aren’t the only weaknesses in the existing system. Someone who has clearly suffered a medical injury may be unable to identify the individual or entity legally responsible, or be unable to prove negligence in court.

What’s more, the final outcome may be unsatisfactory even if a claimant succeeds. Lump sum damages (the usual form settlement) may not cover the long-term costs of care and other expenses because of inaccurate actuarial predictions, poor investment, mismanagement or misuse.

Bad for medical care

While it’s sometimes argued (paywalled) that the threat of negligence claims helps reduce medical errors and maintain high standards of clinical care, there’s no objective empirical evidence for this.

Indeed, other researchers have pointed out that since medical errors are rarely intentional, it’s unlikely the threat of negligence claims act as a deterrent.

But there’s clear evidence that the threat of a law suit increases medical costs by promoting defensive medicine and over-servicing, leading to higher health-care costs.

There’s also evidence that the threat of legal action discourages doctors from reporting adverse events.

Advantages for professionals

The potential benefits of a no-fault insurance system includes more complete coverage of all injured persons regardless of the particular circumstances of injury, predictable care and support over a person’s lifetime, and a more efficient system overall.

Only a small number of negligence claims actually involve poorly performing doctors. Peter van Marion/Flickr, CC BY-NC

Such a scheme could change doctors’ mindset around issues of patient safety, learning from mistakes (their own and others) and preventing error, by routinely collecting information about medical injuries and feeding it back through education programs.

As any model chosen is likely to be non-adversarial and involve panels of experts, a no-fault scheme will also do away with the problem of hearing from poorly qualified or biased expert witnesses.

Potential pitfalls

Those opposed to the scheme sometimes argue (paywalled) there’s a risk of creating an expensive bureaucracy. And that system administrators may be susceptible to direction from government to reduce benefits or alter coverage.

While these are valid concerns — and have been manifest in some state workers compensation systems — they can be addressed by designing a system that builds on the experience of other nations.

There’s also some concern that such a scheme may lead to more claims. Whether this happens will depend on precisely what it covers, why people make and do not make claims and the national culture of seeking compensation. A properly designed scheme would guard against this as well.

A no-fault scheme could potentially prevent or delay the identification of problem doctors, but only a small number of negligence claims actually involve poorly performing doctors.

Similarly, only a small proportion of disciplinary actions by medical tribunals concern physical harm to patients, even in jurisdictions that require all negligence cases to be notified to the medical board.

While the long-standing Scandinavian systems are not identical, they have all abandoned the notion of negligence and instead make decisions based on the concept of “avoidability” — that is, whether an injury could have been avoided by good medical practice. Allegations of poor professional performance are dealt with by separate assessment and disciplinary procedures.

A better way

Moving to a no-fault system will not be simple, of course. Difficult judgements will need to be made about whether it should compensate for pain and suffering, whether any or all common law rights should be extinguished and whether there should be upper and lower limits.

The exact nature of any scheme, its governance, and controls to minimise waste and fraud will need close and continuing attention. Fortunately, these are all matters about which we can learn from the experiences of other countries.

Whether an injury results from a motor accident, an accident at work or an accident in the course of medical treatment, any insurance system should focus on the ensuing needs of the injured person, without requiring litigation to prove that negligence was involved.

With our increasing emphasis on patient safety and the need to encourage doctors to report adverse events and “near misses”, the time is surely right to move to a no-fault system.

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