There’s nothing much new to report on the medical indemnity front. The Federal Government is still providing band-aids in the form of guarantees, but a full-scale operation to revive medical indemnity is still some way off, waiting for tort reform.

Last week the Australian Medical Association was again warning we’re on the “brink of chaos” and that doctors will stop working if the crisis isn’t sorted out immediately.

The warning came after David Lombe, the provisional liquidator of United Medical Protection, sent a letter to all UMP-insured doctors stating that while he would cover ongoing legal costs, he would not cover the settlement of any claims.

The Government thought giving a “letter of comfort” to Mr Lombe – to enable him to pay out money on claims falling due – would solve the problem. But the liquidator required Supreme Court approval to pay out money, which meant a group of doctors who were facing malpractice payouts were in risk of possible bankruptcy.

So last Friday the Government was in court, desperately trying to convince the judge to accept its “letter of comfort”. It was given approval, and now the liquidator can pay about $40 million for medical negligence cases that have already been settled.

For the time being, the affected doctors have been kept from completely falling over, but as the Australian Financial Review’s Morgan Mellish said yesterday: “Who’s to say the next group of creditors demanding money won’t cause similar problems? After all, these aren’t businesses demanding money, they are people who have been severely injured.”

The Government is expected to outline its long-awaited rescue package later this week. This will probably involve an extension to its guarantee so claims after June 30 are also covered.

Then will come the bid to get to the real bug in the system – reforming liability laws. But the Feds can’t solve these underlying problems on their own. Federal Treasurer Peter Costello said as much late last week when he called on the states to get behind possible reforms to the medical indemnity system.

“The long-term sustainable solution will involve the states, I believe, having to address the question of liability and verdicts,” he said. “It will involve insurers – if we can get them back into the industry – and it will involve doctors, because at the end of the day doctors will have to continue to pay premiums.”

The unspoken message was that those premiums would be much higher without the relief that the reforms must provide. They would be passed into the community through higher doctors’ bills, possibly precipitating spill-on problems in related industries like health insurance.

That provides yet another reason for the Federal Government to want a lasting and effective solution – and soon.