Change in the wind

Nick Smith says changes to ACC are necessary because of huge cost blowouts. Photo / Mark Mitchell

Nick Smith has really just started with his overhaul of ACC.

Everything is on the table, including privatisation of parts of the state funded compensation scheme.

The ACC Minister also confirmed that every extension Labour made would be reviewed.

Smith says National is committed to a 24-hour no-fault scheme and would honour the Woodhouse principles community responsibility, comprehensive entitlement, complete rehabilitation, real compensation and administrative efficiency - named after the scheme's architect Sir Owen Woodhouse.

But from that point major changes were planned. The minister said these were necessary because of cost blowouts driven by wider entitlement to ACC and therefore an increasing number of claims (up 4 per cent last year compared to population growth of 1 per cent), a gradual increase in the average time on ACC and rising medical costs.

Smith's first move was to replace the chairman, swapping lawyer and former president of the Council of Trade Unions Ross Wilson with accountant John Judge, a former chief executive of Ernst & Young.

More changes to the board are coming. Judge is interviewing the other seven members and Smith wants the reconfigured board in place by the end of the month. The minister says the board is light on financial management and appears to rule out only that it will not be an entirely new board.

"I've indicated to the new chair that my preference would be for some continuity, so you retain some of the knowledge," he told the Herald.

Free physiotherapy and treatment for mental trauma are being reviewed.

Since free physiotherapy was introduced in 2004, the number of visits has risen, and the cost soared from $60 million to $140 million last year.

"We now go to see the physiotherapist more than we go to see the doctor," says Smith. This was one area where part charging may be imposed.

Whether we pay through levies or when we go to the physio makes no difference, says Smith, but if you are paying a part charge you are less likely to over-use and more likely to focus on whether you are receiving value.

Despite the blowout in cost of physio there was no evidence it had improved rehabilitation.

The overall rehabilitation rate has steadily slipped since 2003. Smith cites the rate at which injuries were rehabilitated within three months as the worst in 15 years.

"Rehabilitation is one of the areas where ACC is failing and I have got a number of pieces of work being done on trying to understand why it is going backwards and what we need to do to fix it."

Privatising parts of the scheme (such as the work account) was being considered.

"The moment you talk about any change, there is a political element that screams privatisation. I come to it from a non-ideological point of, simply how do I get the best rehabilitation system possible and if including some private players in rehabilitation will help us get better performance then I am perfectly open to the idea."

Treatment injury (medical misadventure) was another area being scrutinised. Smith says he is concerned that boundaries here were being significantly extended beyond the ACC's founding Woodhouse principals.

Labour's amendments, including 13 introduced in 2007, were being assessed. "We are looking at how much cost they add and trying to make a value judgment vis-a-vis the increase in levies that would flow."

Also on Smith's list for review is the onus of proof on long term gradual disease. At risk is undoing the change Labour made removing the onus from the claimant to prove that such things as lung disease from asbestos exposure or progressive hearing loss from noisy machinery were work-related. Under current practice it is up to ACC to prove that they weren't.

He wants to pursue experience rating (the fewer claims emerge from a workplace the lower the levy).

"It is my view that financial incentives can improve behaviour and improve safety. I'm having work being done on how we can provide better experience rating in obviously the work account so those employers that have a safe record are able to get discounts and those with poor records face penalties."

The viability of a similar regime was being explored for the motor vehicle levy.

"We are interested in more of an insurer model and part [of that] is where there are stronger financial incentives for safer behaviour."

Smith says he doesn't want to prejudge those assessments but seems to indicate cuts will result.

"We have to make some very difficult choices about the extent to which we are prepared to have levies increase [and] how extensive we want the coverage of ACC to be."

Smith says he's trying to "find the fairness. There's been a lot of talk about the fairness to claimants. It is no secret the new Government wants to give a greater weighting of fairness to who pays the bill, the levy payers."

Hazel Armstrong, a lawyer specialising in personal injury litigation and author of Blood on the Coal, a history of ACC, does not believe privatising the work account will lead to savings and says the current system is cheaper than countries using private insurers.

She says significant savings can be made by ACC pressing employers to make it easier for claimants to return to work as early as possible, such as flexible hours and conditions. This is a challenge in the current tight labour market where employers are easily able to replace workers but ACC needed to do better at negotiating return to work directly with employers and working with unions.

Armstrong believes legislation is needed to require employers to honour obligations to injured workers by keeping jobs open and being more flexible in job requirements and hours. "I think we have been letting them [employers] off the hook."

But far from the scheme being broke, Armstrong says it is as efficient as she has known it in the 25 years she has worked with it.

ACC agrees much can be saved by speedier return to work. Its levy and scheme management head, Keith McLea, says a big focus on rehabilitation should get more claimants back to work sooner. Measures are already under way to reduce costs in "big ticket" areas including weekly compensation payments and serious injury.

About 4000 clients with serious long term injuries, including tetraplegics, account for nearly a third of ACC's long term liabilities. Those receiving compensation for longer than three years were also a focus.

ACC specialist lawyer John Miller says he is concerned National will significantly cut entitlement which would raise the issue of restoring the right to sue, a system proven to be slower and far more expensive.

"I fear slash and burn."

From positive to negative

Pricewaterhouse Coopers Australia last year gave ACC a favourable report, saying it was broader, faster and cost less than comparable schemes.

"Under its current structure, [ACC] performed as well or better than most other schemes ... around the world," it said in its report last March.

PwC is a regular ACC auditor and a more recent report has been used by National to claim the system needs to be overhauled. ACC Minister Nick Smith says March's positive report was based on outdated 2005 data and claims it was a highly-politicised, "provided in election year by a Government trying to counter an argument around any change in ACC".

PwC's review findings included that:

ACC offered broader coverage than any other scheme in the world. For example, only a few countries in Scandinavia offered no-fault cover for treatment injury.

It performed well, returning claimants to work - 88 per cent back at work within six months compared to and average of 85 per cent for Australia.

The cost to employers was much lower than comparable Australian and Canadian workers' schemes - 78c for every $100 compared to $2.

ACC's administration costs were lower. Claims management expenses were 8 per cent of total expenditure compared a range of 9 per cent to 32 per cent for Australian schemes. Total expenses for ACC were 24 per cent whereas the Australian schemes providing comparable benefits were 28 per cent (NSW) and 31 per cent (Victoria).

ACC paid a higher portion of payments of total premiums directly to claimants because it did not have the significant legal costs Australian schemes paid for common law claims.

Its dispute rate is very low compared to other regimes. For workplace claims the rate was 0.2 per cent compared with an overall Australian average of 9 per cent.