Intended for healthcare professionals


Counting the cost of medical negligence

BMJ 2002; 325 doi: (Published 03 August 2002) Cite this as: BMJ 2002;325:233

NHS litigation authority will be able to report on costs and high risk procedures

  1. Paul Fenn, professor of insurance studies
  1. Centre for Risk and Insurance Studies, Nottingham University Business School, Nottingham NG8 1BB

    The financial cost of medical negligence is a topic that rarely recedes from the headlines. In part this is due to a perception that the money paid out to patients is a measure of the adverse health consequences of medical errors, but in part it is due to a concern over the impact such payments will have on healthcare providers themselves. Each million pounds paid in damages is a million pounds that otherwise could be spent on patient care. What is sometimes overlooked is that this financial impact on providers can fulfil a positive role—it gives a signal of where things are going wrong, and an incentive to put them right. For these reasons it is important for consistent data to be collected on the frequency and cost of medical incidents.

    Given the interest generated by the topic, it is perhaps surprising that so little is known with confidence about the cash cost of clinical negligence to the English health service. In a recent article in this journal,1 my colleagues and I attempted to use information from hospitals in the Oxford region to extrapolate a national figure for cash paid out by the NHS in 1998-9. We arrived at a figure in the range of £48m to £130m, which we now believe may be an underestimate owing to the small number of very large claims in our sample. The National Audit Office, in its recent review of claims handling in the NHS,2 cites evidence from the NHS Litigation Authority that it closed 3254 claims in 1999-2000 at a cost of £386m. In the same document the legal services commission is said to have funded 7375 medical negligence claims in 1999-2000 at a gross cost of £62m. All of these figures are dwarfed by the annual estimates made by the National Audit Office of the expected future cost of settling currently outstanding claims (£4.4bn in the NHS summarised accounts for 2000-1.)3 On the one hand these estimates of future liabilities are not particularly helpful, given that they relate to payments expected to arise over a horizon of several decades. On the other hand, the long time scale for settling legal claims means that estimates of the current cash cost of payments to patients are a reflection of mistakes made in previous decades. Both figures are of some relevance, but only if they are presented together and in the appropriate context.

    Much of this uncertainty over negligence costs is a legacy of a decade of structural change to the health service in England, with hospital trusts acquiring a degree of financial autonomy and commercial accounting practices.4 Over the same period, however, the responsibility for compensating injured patients has, almost unnoticed, shifted first from the individual clinician to the hospital, and now finally to the NHS litigation authority as the central agency set up to pool litigation risks through what is known as the clinical negligence scheme for trusts. From April of this year the NHS litigation authority has taken financial responsibility for 100% of all claims against NHS hospitals. Before this date, under the terms of the clinical negligence scheme for trusts, hospitals had to retain part of the cost through choosing an “excess” level, below which they were responsible for the patient's claim. Consequently, data on the cost of clinical negligence were inevitably dispersed and difficult to consolidate, despite an obligation on members of clinical negligence schemes for trusts to provide information on all claims to the NHS Litigation Authority. Moreover, the decentralisation of accounting responsibilities for small value claims placed an additional burden on hospital management and led to difficulties in producing consolidated estimates for the NHS accounts. These difficulties were behind the move to shift all financial responsibility for claims to the NHS Litigation Authority, a move that should markedly improve future public information about the frequency and cost of clinical negligence in England. Now that the authority is responsible for all claims, it should be in a position to report on national trends in the frequency and cost of medical litigation, as well as to identify those activities and procedures most at risk of litigation. In principle, data on claims could be coordinated with data on adverse events as reported to the National Patient Safety Agency.

    These potential benefits have materialised as a consequence of the transfer of responsibility for claims from hospitals to the NHS Litigation Authority. However, it is usually recognised that those who cause injuries should themselves face at least some of the injury costs, in order to provide potential injurers with an incentive to take care. In the healthcare sector, this issue is complicated by the fact that patients may be injured through the interaction of multiple factors, leading to organisational rather than individual failures. In those circumstances it becomes important to provide hospital managers with incentives to take responsibility for identifying system failures and implementing risk management procedures. Arguably, the combined effect of switching financial responsibility for negligence from individual clinicians to hospitals, and imposing a minimum excess level as a condition of pooling risks through the clinical negligence scheme for trusts, represented a coherent policy in this respect during the 1990s. Although hospitals could pass on to healthcare commissioners the cost of claims that were below the excess, this in itself provided some kind of financial discipline. Now, by reducing excess levels to zero, the remaining financial incentives to pursue good practices for risk management occur through subscription discounts to the clinical negligence scheme for trusts.

    One such discount is given by the NHS litigation authority to hospitals that achieve certain assessed risk management standards. While these standards are designed to include the presence of, among other things, adequate incident reporting and complaints management systems, they are a reflection of processes, not outcomes. A second discount that potentially gives hospitals a financial stake in reducing the number and cost of claims is given by the NHS Litigation Authority in relation to hospitals' claims experience. However, it is not particularly clear how claims experience should be measured for this purpose. Newly opened claims may turn out to be unjustified, or have low settlement values. Claims closed with a known payment may reflect risk management decisions taken decades before the year of settlement. For some hospitals, those small enough to experience low absolute numbers of claims, this information would in any case be thin and sufficiently variable to misrepresent their relative risk in most years. In any case, unless these discounts are made more transparent, they may not succeed in providing the signals they are designed to send.

    What does the future hold? The government has announced plans for a white paper on patient compensation, raising the possibility that the current system may be reformed to a greater or lesser extent. However, the issues raised here will almost certainly remain. Whatever system of patient compensation is in place, it will inevitably generate information of potential benefit for risk management purposes. The way this information is fed back to those best placed to take remedial action at the organisational level is crucial. Counting the cost of clinical negligence is important; making it count is even more so.


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