No-Fault Compensation in New Zealand: Harmonizing Injury Compensation, Provider Accountability, and Patient Safety

In New Zealand, patients seek compensation for medical injuries not through malpractice suits as in the United States, but rather through a no-fault compensation system. Injured patients receive government-funded compensation, in turn relinquishing the right to sue for damages arising from personal injury except in rare cases of reckless conduct.

According to Marie Bismark and Ron Paterson, the authors of "No-Fault Compensation in New Zealand: Harmonizing Injury Compensation, Provider Accountability, and Patient Safety" (Health Affairs, Jan./Feb. 2006), the country's Accident Compensation Corporation (ACC) offers distinct advantages over the often maligned U.S. tort law system. While acknowledging that New Zealand's ACC has yet to demonstrate substantial gains in patient safety, the study finds that the popular system has produced more-timely compensation to a greater number of patients, as well as more effective processes for resolving disputes and ensuring provider accountability.

Benefits of New Zealand's System

"The ACC system is one of the simplest in the world for patients to navigate," write the authors, both former Harkness Fellows. Straightforward claims are processed in weeks, with all decisions made within nine months, and a fixed award structure ensuring that similar injuries receive similar compensation. Historically, the ACC has paid out about 40 percent of claims in four categories: 1) treatment and rehabilitation, including the cost of disability aids, home modifications, and vocational retraining; 2) compensation for loss of earnings (up to 80 percent of earnings at the time of injury, up to a set maximum); 3) one-time lump-sum compensation of up to US$70,000; and 4) support for surviving spouses and children under 18.

The system, funded through general taxation and an employer levy, is remarkably affordable. To date, compensation for medical injuries has cost just $29 million—for a population of about 4 million. Reforms enacted in 2005 are expected to incur additional costs of $5 million per year.

According to the authors, several factors contribute to the system's affordability:

• New Zealanders benefit from strong health and welfare systems that cover many of the damages typically at issue in a U.S. claim.
• Compensation awards are generally lower than under a malpractice system.
• Many entitled patients never seek compensation.
• The ACC's low administrative costs account for only 10 percent of expenditures, compared with a typical 50 to 60 percent under a malpractice system.

  In the 1990s, New Zealand addressed concerns that a no-fault system amounted to a "no accountability" system. It did so by establishing the office of the Health and Disability Commissioner, which promotes patients' rights and provides accountability, acts as gatekeeper to disciplinary proceedings in serious cases, and ensures that complaints serve to improve health service delivery and lessons learned are widely disseminated.

Remaining Concerns About the ACC
A few other major concerns about New Zealand's no-fault system, however, remain unresolved, the authors say. First, many observers believe the compensation levels are inadequate, particularly for patients who are not employed at the time of their injury and are unable to claim earnings-related compensation. Second, compensating treatment injuries, but not other forms of illness, can produce tensions, since ACC assistance is higher than that available through the health and welfare systems.

Finally, and most importantly, the system has not fully realized potential gains in patient safety. Thirty years after the implementation of the ACC, New Zealand hospitals are no more or less safe than those in other Western countries—falling midway between the levels recorded in Australia and the United Kingdom—two countries with similar medical practices. While the recent reforms are expected to create a culture of learning, the process of making health care safer cannot be achieved through medical and legal reform alone, say the authors.

Facts and Figures

• In the U.S. medical malpractice system, most injured patients do not qualify for compensation, because their injuries were not negligently caused.
• The most costly claims in New Zealand—as in the United States—involve neurological injury to infants: fewer than 7 percent of claims yet more than 16 percent of spending.
• Per capita health spending was $1,886 in New Zealand in 2003, compared with $5,635 in the United States.