Discounting the Future: How Treasury Decisions Impact NHS Clinical Negligence Payouts

by TheEditor

Categories: Investigative

Crown Indemnity was a historical arrangement in the United Kingdom’s National Health Service (NHS) where the government would cover the cost of clinical negligence claims against medical professionals working in NHS hospitals. This meant that doctors employed by the NHS did not need to purchase their own medical malpractice insurance, as the government would handle any claims made against them.

Evolution

However, in 1990, the NHS introduced the Clinical Negligence Scheme for Trusts (CNST). The CNST is a risk pooling scheme administered by NHS Resolution (formerly known as the NHS Litigation Authority) which handles clinical negligence claims against member NHS bodies in England. NHS trusts in England pay an annual premium to the scheme, which then covers the costs of any claims made against them.

In essence, the CNST has replaced the old Crown Indemnity arrangement for NHS trusts in England. It serves a similar purpose but operates as a separate scheme managed by NHS Resolution.

For general practitioners (GPs), a similar scheme called the Clinical Negligence Scheme for General Practice (CNSGP) was introduced in April 2019. This scheme provides indemnity coverage for NHS activities carried out by general practice staff.

So, while Crown Indemnity no longer exists in its original form, the CNST and CNSGP serve similar functions in providing indemnity coverage for NHS trusts and general practices, respectively. These schemes are likely to be what your medical insurers are referring to when they mention that your annual fee is reduced due to their existence.

Aims and objectives

The Clinical Negligence Scheme for Trusts (CNST) is a risk pooling scheme operated by NHS Resolution (formerly the NHS Litigation Authority) in England. Its primary aims and objectives are:

  1. To provide indemnity coverage for NHS trusts against clinical negligence claims.
  2. To manage and settle claims efficiently and fairly.
  3. To reduce the incidence of clinical negligence by promoting good risk management practices and sharing lessons learned from claims.
  4. To ensure that the NHS has sufficient financial resources to meet the costs of clinical negligence claims.

Cost

NHS resolution stated at 13/07/2023:

In 2022/23 the ‘annual cost of harm’ for CNST was £6,278 million. This is a decrease of £7,007 million compared to the previous year (in 2021/22 the cost of harm for CNST was £13,285 million). The decrease is primarily due to the change in His Majesty’s Treasury (HMT) discount rates which has had the effect of significantly reducing the value of claims. If HMT discount rate changes for 2022/23 were not applied, the equivalent cost of harm for CNST for 2022/23 would have been £12,631 million. This figure is slightly lower than the corresponding 2021/22 cost of harm figure of £13,285 million. The decrease is mainly due to a reduction in projected claims numbers for PPO claims, as well as a lower long-term claims inflation assumption for these claims.

In conservative terms that’s least £10 billion in real value claims per year for England alone. Costs have been massaged down by ‘discounting’. Gluttons for punishment may scan some of the details in graphs and tables here.

The Piggy Bank

Figures like the £10 billion or so do not give a full scale of the issue. It is important to understand what money goes into ‘provision’. NHS Resolution states,

The year-end provision has also changed compared to last year. As of 31 March 2023 provision was £69,614 million, compared to £128,550 million in 2021/22. Again the changes in HMT discount rates are the primary factor in this decrease. Without the changes in discount rates the provision would have been £144,218 million

Maternity claims amounted to £44,965 million (65%) of the 2022/23 clinical negligence provision, compared to £90,053 million (70%) in 2021/22, with the value and percentage share being affected by the change in HMT discount rates and how this has affected claims with a long lifespan. While this figure alone presents a stark reminder of the impact of negligence in maternity care, we are acutely aware of the devastating consequences for the child and wider family as well as the staff involved when these incidents occur. This is why we are committed to improving maternity outcomes as part of our
three-year strategy.

NHS Resolution states,

A provision is a liability of uncertain timing or amount. The provision in the NHS Resolution accounts is for claims arising from incidents up to and including the balance sheet date (31 March 2023). This includes claims that we have already received, and those that we expect to receive in the future because of the length of time it can take for a claim to come forward after an incident. As it is expected that payments to settle the liabilities will be made for many years into the future, these are discounted to give a value for the provision at current prices. A helpful way to understand the provision is to think of it as the amount of money needed to settle all liabilities from claims arising from incidents up to the balance sheet date if they had to be settled on that date.”

What does that mean? Breaking it down into the simplest terms it is like this :-

Imagine that the NHS has a big piggy bank called a “provision.” This piggy bank is used to pay for mistakes that doctors or nurses might make while treating patients. These mistakes are called “clinical negligence.”

Sometimes, when a mistake happens, the patient or their family might ask the NHS to pay them money because of the mistake. This is called a “claim.”

The NHS puts money into the piggy bank to make sure they have enough to pay for all the claims, even the ones that might happen in the future. This is important because sometimes people don’t make a claim right away, and it can take a long time before they ask for money.

The amount of money in the piggy bank is called the “provision.” It is the total amount of money the NHS thinks they’ll need to pay for all the claims, including the ones they know about now and the ones that might happen in the future.

To figure out how much money to put in the piggy bank, the NHS uses a special calculation that takes into account the value of money over time. This is called “discounting.”

So, in simple terms, the provision is like a savings account that the NHS uses to make sure they have enough money to pay for any mistakes that might happen, even if the claim comes in many years later.

Unpacking the ‘discount’

Observe that the 2022/23 provision was cut to £69,614 million, compared to £128,550 million in 2021/22 i.e. a 46% cut. For the previous financial year there was a 51% increase in the provision from £85.2 billion to £128.6 billion. These fluctuations are almost entirely due to His Majesty’s Treasury(HMT) discount rates. But what is this discount?

From the perspective of the average person, the discount rate is essentially a tool that the government, through His Majesty’s Treasury (HMT), can use to adjust the amount of money that the NHS needs to set aside to cover the costs of clinical negligence claims.

When HMT sets a higher discount rate, it effectively reduces the amount of money that the NHS needs to pay out in the future for these claims. This is because a higher discount rate places a lower value on future payments in today’s terms. In other words, the government is saying that, due to various economic and financial factors, the NHS can “afford” to pay less for these claims over time.

While the technical details of how the discount rate is calculated may be complex and not fully transparent to the public, the basic principle is relatively straightforward. By adjusting the discount rate, the government can effectively control how much the NHS needs to pay out for clinical negligence claims over time, based on its assessment of various fiscal, economic, and political factors.

It is important to note that while this mechanism gives the government significant control over NHS finances, it also has important implications for patients who have been harmed by clinical negligence. A higher discount rate could be seen as reducing the amount of compensation these patients receive, while a lower discount rate could be seen as providing them with more generous settlements.

The decision-making process behind setting the discount rate is often not transparent to the general public. The deliberations and calculations that inform these decisions are typically carried out at the highest levels of government, particularly within His Majesty’s Treasury (HMT).

It is unlikely that the facts and figures that lead to increasing the discount are ever to be seen by the general public – as that’s a matter at the highest level of HMT. There are a few reasons for this lack of transparency:

  1. Technical complexity: The calculations involved in setting the discount rate are highly technical and involve complex economic and actuarial modelling. This makes it difficult to communicate the details of the decision-making process to the general public in an accessible way.
  2. Political sensitivity: Decisions about the discount rate can have significant implications for public finances and the funding of the NHS. Governments may be reluctant to share the full details of their decision-making process, as this could expose them to political criticism or pressure.
  3. Commercial confidentiality: Some of the data and analysis that informs decisions about the discount rate may be commercially sensitive, particularly if it relates to investment strategies or the financial position of the NHS. The government may be reluctant to release this information in order to protect the interests of the NHS and its commercial partners.
  4. Public trust: Governments may also be concerned that revealing the full details of the discount rate decision-making process could undermine public trust in the NHS and the wider healthcare system. If the public perceives that financial considerations are being prioritised over patient care, this could lead to a loss of confidence in the system.

Key Takeaways:

  1. The Clinical Negligence Scheme for Trusts (CNST) is a risk pooling scheme in England that provides indemnity coverage for NHS trusts against clinical negligence claims. Scotland, Wales, and Northern Ireland have similar but separate schemes.
  2. The costs of clinical negligence claims have risen significantly over the years, with the total cost for the NHS in England reaching billions of pounds annually. These costs include settling claims, legal fees, and operating expenses.
  3. NHS Resolution, which manages the CNST, reports a provision for claims each year. The provision represents the estimated future costs of all known claims and those expected to arise in the future, discounted to their present value.
  4. Discounting is a financial concept that calculates the present value of future payments, considering the time value of money. The discount rate, set by His Majesty’s Treasury (HMT), reflects the expected rate of return on investments over time.
  5. Changes in the discount rate can significantly impact the total cost of clinical negligence claims. A higher discount rate reduces the present value of future claims, while a lower discount rate increases it.
  6. The decision to change the discount rate is made by the government, taking into account various factors such as economic conditions, investment returns, and public finances. However, the decision-making process is often not transparent to the general public.
  7. While adjusting the discount rate gives the government control over NHS finances, it also affects the compensation received by patients harmed by clinical negligence. Balancing these considerations is a challenge for policymakers.
  8. In 2022/23, a change in the discount rate led to a significant reduction in the provision for clinical negligence claims compared to the previous year, highlighting the impact of such changes on NHS finances.

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