Can the medical reports deal hold without legislation?

Last month, a commercial agreement between 10 leading insurers and eight leading medical reporting agencies was signed. It was regarding the disbursement of reporting fees, and has been heralded as a triumph of negotiations – and a much needed injection of certainty – into an otherwise uncertain realm.

Judging from the clout of the signatories on both sides, there is reason to believe it is just that.

Some 60% of the personal liability market immediately signed up to the agreement. This group includes Norwich Union, Zurich, Allianz, AXA and the RBS Group. Royal & SunAlliance (R&SA) and the CIS, among others, have since added their names to the list.

Nine medical reporting organisations (MROs), including e-Reporting Group, Mobile Doctors and Premex, are also in.

The agreement sees caps on fees for medical reports, and includes the withdrawal of insurers’ appeal in the case of Woollard v Fowler, which began in 2005.

Landmark case

The case was on the verge of its second visit to the court of appeal, before the deal was struck that rendered it, somewhat curiously, a landmark case without a landmark ruling.

The story began when the High Court ruled that liability insurers did not have to pay fees for the compilation of medical reports for claims. This put the very existence of medical reporting agencies in jeopardy.

The case was appealed in April the next year, and subsequently overturned, increasing pressure on insurers to pursue a fixed costs regime. Furious debate ensued, and despite one aborted attempt last November, compromise was reached just a year later.

Considering the frailty of the courts on the issue, the signing of the deal should come as no surprise.

“The agreement is the result of risk management,” says Alan Jacobs, a partner at DLA Piper.

“Insurers appreciate that they stood the risk of losing the appeal, and MROs appreciate that the fees agreed represent good value for them.”

The main goal – and obvious achievement – of the deal is the removal of satellite litigation. Commentators agree that it should put an end to disputes surrounding the recoverability of agency fees. Fixed fees in fixed recoverable cost cases have now been agreed for road traffic accidents and employers’ liability and public liability cases, provided damages do not exceed £15,000.

Long process

Speaking to Insurance Times last month Simon Margolis, chief executive of Premex, the UK’s largest provider of medical reporting, said: “This has been a very long process. The industry has spent the past 18 months dealing with the repercussions of the court case.

“The pressure is on to continue reducing costs of settling claims, improve the quality of medical report delivery and to speed up the claims process.”

Russell Smart, chief operating officer of LitComp, which has a network of medico-legal subsidiaries, says: “This is excellent news for the medico-legal agency industry, and brings an end to the many months of uncertainty we have faced.”

Insurers, too, appear bullish about the implications of the deal.

Ray Fisher, senior claims Technician at Zurich, says: “This landmark agreement will bring certainty around the pricing of medical reports, and reduce unnecessary, expensive satellite litigation. It removes the costly and unnecessary time spent negotiating costs at the end of the claim.”

Insurers now benefit from paying medical reporting fees within 90 days. The costs start at £195 for a GP record with no notes, over £50 less than the current average. These fees will rise to £375 for the use of an A&E consultation, and £425 for an orthopaedic surgeon. If liability is disputed, these tariffs will be increased by around 10%.

The benefits of this are clear. The initial part of the claims process will be significantly expedited. Insurers stand to save between 10% and 20% on reporting fees, and will see improved cashflow from being invoiced directly.

It also empowers insurers to resist higher fees. More importantly, they retain the right to seek reports from other independent medical associations.

This could prove a crucial point, says Jacobs. “The fees are too high anyway. Insurers can and should be looking elsewhere. Other MROs will see the opportunity to stick their heads above the parapet and undercut their competitors who are bound by the agreement.”

Indeed, despite the climate of optimism that has prevailed, there are question marks. First is what will happen when the agreement expires in two years. Then there is the issue of those who are not bound by the terms of the covenant, and indeed, if steps should be taken to see the agreement become law.

In the first instance, it is worth noting that both MROs and insurers can opt out of the agreement if they provide three months’ notice.

Whether there is a need – or indeed any point – in renewing or widening the terms is questionable. David Pearce, chairman of the Association of Medical Reporting Agencies, is optimistic:

“We are led to believe that the Civil Justice Council (CJC) will promote the decision. Work will go on with stakeholders to make this decision enshrined in statute.”

Yet in a statement, Bob Musgrove, chief executive of the CJC (which has spent five years pursuing fixed fees arrangements in claims) says: “This particular mediation is unique in that it will not lead to the council making formal recommendations to the government.”

That does not mean the situation cannot change. “We will act to pursue legislation if the stakeholders invite us to do so,” Musgrove adds.

“But we can’t race to a solution. First we need to know where the government will go with its consultation paper. When the time comes to pursue statutory legislation, the rates may no longer be appropriate.”

The mention of the DCA paper is key. Having noted that a member of the DCA was present at all stages of the negotiations, Pearce suggests that the deal could help shape its outcome.

“There are a number of references to medical reporting in the paper,” he says. “Having reached this commercial agreement we hope, to a certain extent, to have predetermined its outcome.”

Zurich’s Fisher has agreed that the fixing of fees was in keeping with the philosophy of the DCA’s paper.

Impose legislation

But lawyers suggest that the agreement will neither have any wide-ranging significance, nor will impact on the statute book.

Andrew Parker, head of strategic litigation at Beachcroft, who represent insurers in the deal, says: “The difficulty from a statutory point of view is for those insurers who haven’t signed up for the agreement.

“The government would be reluctant to impose legislation based on a commercial agreement.”

And Jacobs adds an ominous epithet. “Legislation is unlikely because it is a rip-off. The justice system will be happy to let market forces take effect.”

“Because of the competition it will encourage, MROs will be squeezed. Either these losses will be passed on to medical experts, or we will see the further consolidation of these companies.”

In that it provides certainty where previously there was none, the agreement is a step in the right direction. It proves that compromise in the claims domain is possible, albeit far from perfect.