A Perfect Storm – The Spiralling Cost of Claims

When a patient receives a multi-million pound compensation claim, it often makes headlines. But few of us stop and think about the effect the rise in such claims is having on NHS finances. It is vital that we look at and understand how large the NHS liabilities are and what needs to be done to address the underlying rate of increase.

Clinical Negligence Claims Inflation

Clinical negligence inflation is currently running at 10% and this has been the case for several years, with no indication that it is likely to decrease. This means total NHS liabilities will double in about seven years, if the current claims inflation rate remains steady. Given the NHS Litigation Authority’s (NHSLA’s) liabilities for clinical negligence claims, reported in July 2016, stood at £56 billion (bear in mind this is just the figure for England), you will probably be shocked that this figure could well be £112 billion by July 2023.

To put it in some context, £56 billion would cover a year’s entire expenditure for all 153 NHS foundation trusts in England plus the total annual health spend in Wales.

Now that we have a sense of scale, can we continue to ignore the problem? At this point let me put my cards on the table. I have worked for the MDU for nearly 20 years, and it will be no surprise to anyone that I care deeply about things like claims inflation. The MDU provides indemnity to GPs, doctors in independent practice and other healthcare professionals in return for a subscription. And the subscription they pay is largely determined by the cost of meeting claims. Bear in mind indemnity is not an optional extra for UK doctors. The General Medical Council has legal powers to check whether doctors have adequate and appropriate indemnity in place, covering their full scope of practice. The spiralling costs of litigation against GPs, for example, is placing an unsustainable burden on them because they are responsible for their own indemnity costs. So it matters a great deal to doctors that damages payments are rocketing, and ignoring the problem is not an option.

The Perfect Storm

The reasons for claims inflation are poorly understood. The Department of Health in its triennial review of the NHSLA, published in 2015i, stated that the increasing numbers of patients being treated in the NHS, more complex (and costly) healthcare, an increasingly litigious society, and changes to the legal marketplace with non-specialist lawyers moving to clinical negligence work, are all factors contributing to the cost of claims increasing. But there is a further, hugely important legal change in the wings, which could force up compensation payments overnight: the lowering of something called the discount rate.

The discount rate is the figure used to calculate how much lump sum compensation awards can be reduced (discounted) to account for expected investment returns over time. The Lord Chancellor recently announced a reduction in the discount rate from 2.5% to minus 0.75%, adding billions to the cost of NHS claims. In his budget statement, the Chancellor announced he had set aside £5.9 billion across the forecast period to protect the NHS from the effects of the changed rate.

The rate change increases the costs of compensation awards dramatically and immediately for known claims which have already been reported but not yet settled. It also has retrospective effect on incidents from past years where the claim is not yet reported. Speaking ofGPs, the MDU’s chief executive noted in a statement following the announcement:

‍“We are considering the impact of this decision on our subscriptions and working with the Department of Health and NHS England to find a solution to protect our GP members from the otherwise catastrophic impact this will have on them, the sustainability of general practice and on the public.”

The Solution

The question is what can be done about the cost of damages paid out in claims? Of course the NHS must do what it can to prevent negligence, but this is not a problem caused by clinical standards, which remain highii. The only sensible option is reform of the law. In particular, the starting point should be repeal of section 2(4) of the Law Reform (Personal Injuries) Act 1948iii. The Act means that the cost of NHS or local authority care must be disregarded when calculating the cost of future care. Future care costs are usually the major component of high-value claims, such as birth injury cases.

Were section 2(4) of the 1948iii Act repealed it would mean that patients who are negligently harmed could be cared for by the NHS and local authorities. And the effect of this change could result in additional billions of pounds, which might otherwise be lost to the publicsector, being reinvested in NHS and local authority care. Which is surely a good thing. It must be stressed that there would be no loss of quality of care provided – patients would still have their needs met, but in a way that is fairer and more affordable.

The time for action is now. It is important that the MDU’s message about fair compensation is read and understood by as many people as possible who care about the future of the NHS, and are determined to tell their MPs what needs to be done to ensure a perfect storm does not become an enduring crisis.

Find out how to add your support to our call for law reform at www.themdu.com/faircomp

‍References

i Department of Health (2015) Triennial Review of the NHS Litigation Authority, available at www.nhsla.com/CurrentActivity/Documents/ NHS_LA_Triennial Review_2015.pdf

ii See, for example, Illingworth, J (2015) Is the NHS getting safer? The Health Foundation, available at www.health.org.uk/publication/nhs-getting-safer

iii Law Reform (Personal Injuries) Act 1948, available at: www.legislation.gov.uk/ukpga/Geo6/11-12/41

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