PATIENT COMPENSATION: COSTING ENGLAND’S CURRENT CLINICAL NEGLIGENCE SYSTEM – AND PROPOSED REFORMS

The National Health Service spends £327 million a year compensating patients injured during medical treatment, according to research by Paul Fenn, Alastair Gray and Neil Rickman, published in the June 2004 Economic Journal. Yet they also estimate that the total cost of a Swedish-style ‘no-fault’ system would be £2.1 billion a year, over six times the estimated current cost of fault-based compensation.

And the suggestion in the Chief Medical Officer’s (CMO) consultation document (published in June 2003) for a scheme with a claim value ceiling of £30,000, would cost £116 million. Claims valued above £30,000 would continue to be dealt with under the current rules: the researchers estimate a combined cost of £518 million a year.

In order to receive compensation under the current system, claimants must demonstrate negligence on the part of their clinician when supplying their treatment; this may include litigation. This ‘fault-based’ approach has encountered mounting criticism from, among others, the Kennedy Inquiry, the National Audit Office and the House of Commons Public Accounts Committee.

Concerns relate to a perceived failure to provide fair compensation for patients or to encourage doctors and hospital managers to take care. In particular, the system is said to be costly and time-consuming because of the need for patients to prove fault, with the consequence that too few of them obtain compensation for their losses.

In spite of this barrier to claiming, it is nevertheless argued that clinicians concerned about the threat of litigation engage in ‘defensive medicine’, and fail to report mistakes. Consequently, the CMO’s proposed reforms that diminish (without removing) fault as the basis for compensation, and allow access to ‘fast-track’, low-cost determination of eligibility and benefits for claims of relatively low value.

This paper presents new research (originally carried out for the Department of Health’s review) that aims to assess the costs and benefits of the current system and several possible alternatives. Taking the current system first, widely publicised figures suggest that the cost to the NHS of our system of clinical negligence is over £4 billion. This is an accruals-based calculation that takes into account anticipated future liabilities that may arise from the current stock of claims.

An alternative measure is the annual cash cost of operating the system, which Fenn et al estimate to be £327 million using the latest data. Undoubtedly, both figures have merit, depending on the questions they are used to address. To the extent that NHS resource allocation is an annual process, the cash figure gives an appropriate measure of the financial burden placed by patient compensation on the health service. But the cash figure does reflect the outcome of mistakes made in the past, whereas the accruals figure is an attempt to measure the impact of current mistakes on future cash flows. It is also important to appreciate that these cost calculations do not take account of the benefits that the system may generate in terms of improvements in patient safety.

The study next considers alternative patient compensation systems resembling those in the current UK debate: a full no-fault system along the lines of that used in Sweden, and a small claims system like that discussed in the CMO’s report. The costings use original data from a population survey conducted by MORI for this purpose.

The total cost of a Swedish-style system is estimated to be approximately £2.1 billion a year. This estimated total cost is sensitive to assumptions made in relation to the generosity of awards, the propensity of patients to make claims, and the mean cost of administering each claim.

The estimated costs of a small claims scheme would vary between £48 million and £158 million a year, depending on the eligibility threshold chosen for the scheme. The current suggestion in the CMO’s consultation document is for a scheme with a claim value ceiling of £30,000, which would cost in the region of £116 million. Claims with a value above £30,000 would continue to be dealt with under the current rules, and the combined cost would be £518 million a year.

In general, the researchers argue, the link between those responsible for an injury, and the amount of compensation paid, serves to place incentives appropriately, whether liability is based on fault or causation only. A key feature encouraging health care providers to take care is the direct financial cost faced by the clinician or hospital from each mistake made.

This link should be a part of any well-designed compensation system but there is a danger that it is being diluted by recent reductions in cost-sharing measures in the NHS and that reforms emphasising ‘no fault’ schemes could exacerbate this position.

The value of these proposed reforms will of course depend on how they are implemented; increasing numbers of valid claims arising from clinical errors are potentially valuable signals, and providing they are used effectively as such, there could be benefits to patient safety alongside wider access to compensation.

ENDS

Note for Editors: ‘The Economics of Clinical Negligence Reform in England’ by Paul Fenn, Alastair Gray and Neil Rickman is published in the June 2004 issue of the Economic Journal.

Fenn is at the University of Nottingham Business School; Gray is at the Health Economics Research Centre, University of Oxford; Rickman is at the Department of Economics, University of Surrey and CEPR.

For Further Information: contact Neil Rickman on 01483-686960 or 01483-689171 (sec) (email: N.Rickman@surrey.ac.uk); or RES Media Consultant Romesh Vaitilingam on 0117-983-9770 or 07768-661095 (email: romesh@compuserve.com).