As detailed in the discussion paper, the Commonwealth Government became involved in medical indemnity insurance following a series of unfortunate events in the early 2000s, which saw the largest medical defence organisation (MDO) placed into provisional liquidation. As a consequence members of that MDO had significant concerns as to whether their Incurred But Not Reported (IBNR) matters would be covered. Other MDOs that remained in the market were unable to absorb the sudden increase in demand, and were also forced to significantly increase the value of their premiums in response to rising claim costs.

At the time many Fellows of RACS were placed in the untenable situation of either having no indemnity insurance cover for their IBNR's or other patient interactions, or being unable to continue operating in private practice due to the escalating cost of premiums. The series of reforms that were implemented to address this situation helped to deliver much needed financial and regulatory stability to the sector.

Prior to the release of the Review, RACS was contacted by Fellows and like-minded organisations regarding the announcement in the December 2016 Mid-Year Economic and Fiscal Outlook to cut $36 million to indemnity funding.

Concerns were expressed that the decision to reduce funding reflected a predetermined notion that the Review would be primarily designed as a savings exercise, without due consideration given to the history or the purpose of the scheme. RACS is pleased that the Terms of Reference of the Review do not appear to reflect this view.

Nevertheless, we believe it is important to emphasise the necessity of ensuring that affordability underpins any revised framework.

The increasing costs associated with providing health services in Australia, including surgery, is already a significant challenge for the government and the health sector. In 2014-2015 Australia's health expenditure was $161.6 billion, with the share of the economy (GDP) represented by health reaching 10 per cent for the first time.

In 2013-2014 public hospitals provided approximately 29 elective admissions involving surgery per 1,000 population and private hospitals provided approximately 57 per 1,000. At the same time an increasing number of Australians are cancelling or reducing their private health insurance cover, citing value for money as a key factor influencing their decision making.

When considered in conjunction with an ageing Australian population, improving life expectancy and increasing prevalence of chronic disease, a stable medical insurance industry is essential in ensuring we are able to continue meeting the challenges of providing universal public health care.

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