Public Sector Focus – Counting the cost of medical negligence.

It has been a bad year for the medical profession, as scandal after scandal has emerged portraying doctors as murderous, unsympathetic or incompetent. Of course, the vast majority of medics are none of these but they will still make mistakes and, according to health secretary Alan Milburn, these errors cost the NHS at least #2bn every year. The Department of Health has attempted to head off the escalation in settlements by introducing risk management measures. Last week chief medical officer Professor Liam Donaldson launched a new early warning scheme to record and analyse errors and ‘near misses’, and all doctors will soon be subject to a clinical governance regime that checks their work and fitness to practice. An insurance scheme run by the NHS Litigation Authority offers discounts on premiums to health bodies that implement a set of risk management standards. Even so, the controller and auditor general Sir John Bourn is become increasingly worried about the growth in the amount of compensation the health service is paying out. He has also been concerned the NHS is not making adequate provisions for clinical negligence claims. Though the English health service set aside #2.4bn in 1998/99, Sir John believes incidents that have occurred but not yet been reported will amount to an additional significant liability. Clinical negligence claims are a growing problem, says Barry Elliott, chairman of the Healthcare Financial Management Association and finance director at Barts Hospital and the London Trust. ‘We are seeing an increasing number of claims coming through the system but the biggest factor is the way in which the cost of settlements is escalating,’ he says. ‘This is a problem from a finance director’s point of view and the most worrying aspect is the significant year-on-year increases in the amount of money we are having to set aside for actual and potential clinical negligence claims.’ Since 1996/97, so-called back-to-back arrangements have operated, which transfer the liability into health authorities’ accounts. Provisions are no longer a direct financial pressure on trusts but are affecting health authorities’ balances, which worries trusts as the authorities are their paymasters. ‘There is no doubt clinical negligence is going to suck ever-increasing amounts of cash out of the local health economy,’ Elliott says. Making provisions can cause other problems for health bodies. ‘The circumstances in which we have to make a provision are fairly explicit and guaranteed by the advice we are getting from our legal advisors. But there is then an issue around the timing of the payments that relate to the settlement,’ he adds. ‘In many cases you are making provision for a claim that will be settled several years hence so there is a mismatch between the point when you need the money for the accounting and the point when you need the cash to make the payment, either into court or to the claimant directly. ‘That’s the bit that’s most tricky. It’s very complicated, particularly for a trust with a multitude of purchasers. We have to keep track of more than 50 purchasers; where the provision lies and how much has already been called down in cash terms against this provision. It’s an accounting nightmare.’ Tom Jones, ACCA health spokesman, argues that timing is not an issue. ‘Once the claims are in the books the timing on the release of money takes care of itself. But what is concerning is new types of claims coming out, such as those for removing organs from dead bodies, which no-one thought was an issue five years ago, are now forming a new raft of potential claims.’ Provisions for clinical negligence can lead to health authorities showing a technical deficit, which the NHS has found difficult to explain to the public. But the introduction of resource accounting and budgeting will consign technical deficits in health authorities to history. ‘The authorities’ income & expenditure account will be replaced by an operating cost statement, which will include a resource limit rather than the current cash limit,’ says Colin Reeves, the NHS Executive’s director of finance and performance. ‘The good news about that is that provisions and brokerage repayments, which are the two biggest sources of technical deficits, will be built into the resource limits. ‘However, if the use of clinical negligence exceeded expectations this would put pressure on the resource limits,’ he adds. The introduction of the ASB’s accounting standard FRS12 has changed the way the NHS accounts for provisions. In the past, the service has made provisions for those cases thought to have a likelihood of 50% or more of being settled. Contingent liabilities were disclosed for those with a less than 50% chance of settlement. But under FRS12, the provision is the probable value of all claims discounted from the expected settlement date to their present value. Reeves says negligence provisions can serve as an impetus to improve clinical practice. ‘Although the accounting arrangements in respect of provisions have increased, the technical deficits of health authorities, it has also acted as an incentive to reduce clinical negligence. Clinical governance will increasingly fulfil this role and enable us to give more serious consideration to transferring all provisions from health authorities to the NHS Litigation Authority, who have more experience in handling such claims,’ he says. Barry Elliott says such a move would help simplify clinical negligence arrangements, particularly claims handling. But while managers can make administration more efficient, some argue there is still a lot of work to be done in improving the quality of care provided by individual doctors. A General Medical Council proposal that doctors should be revalidated to practice every five years, which is due to be published next week, could go a long way towards this. In the meantime, Professor Donaldson’s early warning scheme could be added to the risk management standards that determine the insurance premiums paid by health bodies. ‘I would be surprised if the scheme doesn’t find its way into the criteria at some time in the future,’ Elliott says. ‘It’s a broad indicator of the extent to which you are exposed to risk and how you minimise that risk.’ More NHS finance news THE SPIRALLING COST OF NEGLIGENCE The estimated costs of clinical negligence to the health service have increased remarkably from 1998 to 1999. NHS Trusts have seen their provisions rocket from #169m to #210m while health authorities have also have rising figures from #165m to #196m. The cost of NHS litigation has increased by #5m year on year. Other money is expected to come from two insurance schemes bringing the gross provisions for negligence to #2,410m in 1999, a massive increase on the gross figure for 1998 of #1,758m.

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