NHS budgets for negligence

16 Jul 98
The NHS Executive is to clamp down on health authorities and trusts that do not put enough cash aside to cover clinical negligence claims against them.

17 July 1998

In a circular informing the health service of a new accounting regime for future costs such as negligence, early retirement and redundancy, NHS finance director Colin Reeves said there were 'wide variances' in the level of clinical negligence provisions.

The Executive's regional offices may question those that have made provisions in their accounts that are significantly different from the average of the type of trust concerned.

In 1995/96, the NHS in England paid out £173.6m in clinical negligence settlements. But there is concern that trusts are not making adequate provision for future claims. Last year the Comptroller and Auditor General Sir John Bourne warned that trusts should recognise future liabilities in their annual accounts.

In 1995/96 the English NHS had provisions for clinical negligence totalling £80m and contingent liabilities of £1.6bn. In the same year Welsh health service bodies had set aside £8.7m and had contingent liabilities of £16.3m. The fear is that this is not enough. Sir John predicted claims for clinical negligence alone would rise by 25% a year over the next five years. And the NHS faces potentially large bills for redundancy and early retirement as the government's changes take effect.

Since 1996 trusts have been able to account for clinical negligence and other costs, such as early retirement, in four ways. A trust and purchaser could enter a recognition of the costs in their accounts at the time of accrual. The purchaser would then make a cash payment to the trust when the case was settled, the member of staff was made redundant or took early retirement. Alternatively, the costs could be recovered during the year payment is predicted or the accrual is forecast. Under the fourth option the money could be paid to the trust over a period of years.

Initially, many trusts chose to recover the money during the year of payment but they have moved towards the first option following a stricter interpretation of their duty to break even. The new national accounting regime will be a variation of the first option and will be implemented in the second quarter of the current financial year.

Every quarter trusts will now have to discuss with purchasers the levels of provisions to be made, agree how much purchasers should pay and how and when the payments will be made. Purchasers should not bear all the costs. Trusts with staff taking early retirement can reimburse the NHS Pensions Agency in two ways. The NHS Executive circular insists purchasers should be free to choose how repayments are made.

The quarterly agreements between purchasers and the trusts should focus on steps the trust will take to settle claims at the lowest cost and reduce future claims against it.

The health department is coming under pressure to crack down on clinical negligence. The Lord Chancellor's department is concerned about the amount of legal aid it has paid in support of patients' claims. In 1992/93 this stood at £20m but by 1995/96 legal aid for clinical negligence cases had more than doubled to £50m. It issued a consultation paper last year designed to fast-track many cases. It also wants to discourage claimants and NHS trusts from going to court where costs can escalate rapidly.


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