Saving the country billions - and a few lives too

ACC has made big efficiency gains under Garry Wilson. Picture / Mark Mitchell

If ever an ounce of prevention was worth a pound of cure it is in the field of injuries.

One of the things Garry Wilson has done in his eight years as chief executive of the Accident Compensation Corporation is lift spending on schemes to foster injury prevention 10-fold to $40 million a year.

"And we are starting to see a significant drop at the severe end of the accident spectrum."

Even in monetary terms, the stakes are high.

"If a youngster breaks his neck playing rugby it costs $5 million in lifetime costs at least. There used to be 12 or 14 a year, now we are down to one or two."

"That is for a paraplegic. For a tetraplegic, the lifetime cost could be $20 million."

On Wilson's watch, which ends this month, the number of long-term claimants on ACC's books fell to under 13,000 from about 33,000. And the average time someone spends on the scheme has been halved.

Without those changes, the net present value of ACC's liabilities would be $4 billion to $5 billion higher than its present $11.4 billion.

And employers, who have seen their levies more than halved, would be paying about $400 million a year more for workers' compensation.

"When I started, we used to sit at the same level as Australia in terms of the cost of workers' compensation. Now it's about a third. And for motor vehicle [accidents], it's about half."

Spending on prevention is part of the reason but so is working with doctors to foster the use of best practice in treatment and with employers to encourage earlier return to work.

"Take backs," Wilson said. "We found doctors trained 20 or more years ago used to tell people to go to bed and take muscle relaxants. More recently trained ones used to say 'take a few painkillers and keep active'. They got better outcomes."

Visiting GPs and keeping them abreast of best practice in the treatment of injuries to necks, shoulders, ankles and so on has been hugely effective.

More gains have been made by persuading employers not to insist people are 100 per cent fit before taking them back to work.

ACC has also shortened the time people draw compo by buying them "front of the queue" treatment.

"We use public and private hospitals. Both can expand their operations if they have additional funding. We have been prepared to provide that additional funding to get better outcomes."

Those sorts of efficiency gains have offset the mounting cost of health care enough to keep the employers' levy steady, on average, over the past five years.

"We have halved the time people spend on the scheme by having really effective rehabilitation. That has taken out about 30 days over a six-year period. But you can't keep doing that. We have to assume it will get down to a one or two days change [a year]."

In other respects too, ACC's finances are becoming more challenging.

That was crystallised by a hefty $2 billion increase in ACC's claims liability in its latest annual accounts, to $11.38 billion from $9.35 billion in June 2004.

The claims liability is an actuarial estimate of the present value of future costs of injuries which have already occurred.

Most of it is covered by ACC's reserves, which make it one of the country's largest institutional investors. And one of the most successful: its fund managers delivered investment income of $776 million in the past year, a 13.4 per cent return and higher than market benchmarks.

ACC has an unfunded liability of $4.2 billion as it is still in the process of transition from a pay-as-you-go to a fully funded scheme.

About half of the $2 billion increase in the liability in the 2004/05 year reflects provision of higher medical and support costs.

"Health care for the severely injured is much better than it used to be and they are living longer," Wilson said.

"And we can do more for them by way of computer-assisted devices to make life a bit easier and so on."

Finally, there was last year's substantial increase in the pay of nurses and other health professionals, the ongoing impact of which is also reflected in the overall claims liability. Some $800 million of the $2 billion increase in the claims liability just reflects lower interest rates compared with the year before. Lower interest rates mean a larger lump sum has to be invested to deliver the same annual sum paid out; as interest rates rise again that effect will reverse out.

The $2 billion adjustment to the claims liability meant that ACC's bottom line was $793 million in the red, despite an operating surplus of $460 million and $776 million in investment income.

That takes a bite out of the Government's operating surplus.

Wilson's time at ACC's helm included the year, 1999/2000, when the workplace accident insurance part of its business was privatised.

"The average cost came down to around $1.25 [per $100 of earnings]. We now run at less than 90c," Wilson said.

"Would it also have come down under privatisation? We will never know. But I do know that we are now a hell of a lot more efficient than the private market was when it had that opportunity.

"There will always be a group of folk who believe choice is important, private is better than public and competition is better than monopoly.

"ACC has worked on the assumption that we have to be as efficient as we can, regardless. That's in the national interest and it is also in ACC's interest if we ever get tipped into a competitive environment."