NHS Outsourcing: Who Foots The Bill when it all goes Wrong?

Laurence Vick, Legal Director at Enable Law

In this article, Enable Law solicitor/Legal Director, Laurence Vick, comments on the arrangements by which private providers have the option of joining and paying into the NHS Clinical Negligence Scheme for Trusts (CNST) or obtaining indemnity on the insurance market to meet claims arising from work they carry out for the NHS.

Issue 9

Who picks up the bill for failed NHS treatment carried out by private providers?

NHS outsourcing arrangements raise important questions. Is the NHS able to recover the full cost of compensating outsourced patients who suffer injury as a result of a private provider’s negligent care? Outsourcing contracts may include provision for an indemnity, but with the lack of transparency prevailing when the private sector is involved – even when working with public bodies – it is difficult to establish whether this is enforced by the NHS, enabling the NHS to recover its outlay from private providers or their insurers.

Are those providers who opt to join the NHS CNST scheme meeting the full cost of securing indemnity or are they being allowed to contribute at a lower level then their NHS counterparts for equivalent cover?

In addition to the outsourcing issue, there is the wider question of why should we as taxpayers be expected to absorb the cost to the NHS of providing care for patients who have been harmed in the private sector?

The overriding principle, surely, is that a private provider carrying out outsourced care will deliver safe treatment, which is at least as good as that offered by the NHS, and that the NHS is able to recover losses incurred through the provider’s negligent care, whether through indemnities or directly from the provider or its insurers? As patients, we have the expectation that we will be able to claim fair and reasonable compensation from an identifiable, insured defendant if we suffer avoidable injuries and losses resulting from negligent care.

Putting aside the political implications and fears held by many that the NHS is being deliberately under-funded to make way for privatisation, as we sleepwalk into a US style health system, outsourcing to the private sector is a phenomenon that is having an increasing influence on the NHS. Failures of NHS outsourcing and concerns over treatment standards in the private health sector, highlighted by the Paterson case, are receiving greater attention. However, the ‘indemnity gap’ which may well be opening up as private companies move into health provision has gone largely undiscussed.

As the private sector is beyond the reach of an FOI request, an investigation of these arrangements is difficult but I believe it is in the public interest toknow how NHS indemnity works and whether private providers are contributing less than they should to the CNST scheme and if any preferential treatment they receive amounts to a public subsidy.

Does the insurance market have the appetite for indemnifying private providers carrying out NHS work?

Opting out of the CNST scheme and providing a self-funded indemnity of NHS-equivalent insurance doesn’t appear to be a realistic option for private operators. The insurance market has shown little appetite to insure the kind of risks faced by a full- service NHS hospital with the potential for claims to emerge many years after treatment has taken place. Insurers must flinch at these unquantifiable liabilities.

Carillion and Collapsed Outsourcers

In our work on outsourcing failures, we have never yet had a client who has received outsourced care without a means of redress – the NHS has not been able to divest itself of legal and clinical responsibility. However, as the reorganisation and fragmentation of health serviced gathers pace, patients may find that have become the exclusive responsibility of the private provider. Liabilities have become blurred, for example, for patients pursuing claims for compensation against GP out-of-hours services.

There will be no problem for the injured NHS patient if the outsourced provider has joined the CNST scheme. Where the company has chosen not to join, but has made separate insurance arrangements or provided an indemnity from its own resources, the NHS should be able to recover the cost of claims arising from negligent care.

With the recent collapse of Carillion, another unsettling concern is that large contracts are being offered to private companies which may not be able to stay the course and may go under if liabilities become too big to bear. With profit an imperative in private healthcare, a rising tide of claims may cause an overseas parent company to withdraw support from its UK subsidiary. The financial position of many of these companies could not be described as rock solid; there is no requirement, for example, to lodge a bond as security should a provider collapse. If a private provider has not joined the CNST and does not have sufficient assets or adequate alternative insurance, the NHS finds itself in a dilemma. Medical negligence claims can have a long tail and Trusts will inevitably face negligence claims from outsourced treatment where the private provider has gone to the wall.

Spire, BMI and other private providers carry out a significant amount of work for the NHS. Spire’s NHS referrals account for around a third of its £926m annual revenues. After the news of the pay-outs to Paterson’s private surgery victims, Spire’s shares fell by 28% and the company warned that a decline in NHS activity would hit profits.

With over half the private hospitals in the UK owned by overseas companies, it is difficult to establish their financial stability. The concern is that the NHS and patients can be left in the lurch if a private operator carrying out NHS work goes bust or its parent company withdraws support.

After Circle’s unhappy experience with Hinchingbrooke – the first hospital to be run by a private company – when they pulled out less than a third of the way through their 10-year contract after a disastrous CQC report and mounting losses, there must have been doubt over the private sector’s appetite for taking over and accepting the operating risk and indemnity cost of running a full-service hospital. The cancellation of that contract resulted in significant expense to the NHS. Circle had previously been feted as a shining example of the benefits that a private operator can bring to the NHS.


Patient safety must come first. It is crucial that the still comparatively unregulated private sector should be transparent and accountable for the treatment carried out in their hospitals.

The NHS should not be out of pocket or treated as a ‘safety net’ by the private sector and left to pick up the pieces when private treatment fails or if private providers carrying out NHS work collapse.

Whether private providers joining the CNST must meet the full cost of securing indemnity or are allowed to contribute at a lower level than their NHS counterparts for equivalent cover – including the creation of reserves and providing run-off cover – is unclear.

NHS hospitals may well be uninsurable outside the CNST. The difficulty for private providers of obtaining NHS-equivalent indemnity on the insurance market or meeting the full cost of joining the CNST may prove to be a bulwark against wholesale privatisation of the NHS.

First published in Public Sector Focus January/ February edition, 2018.