Viewpoint: Rate change will make us all poorer



Columnist Dr Tom Goodfellow highlights a calculation change that could have a major impact on indemnity fees

When things go wrong in medical care, resulting in significant harm to a patient, the best thing to do is to hold up your hands, apologise and leave it to the lawyers to work out the compensation for the genuine, as opposed to spurious, cases.

However this is costly. In the year to March 2017 the NHS Litigation Authority (NHSLA) paid out a whopping £1.47 billion, a rise of 27 per cent from the previous year despite all the efforts over the years to raise standards and improve patient safety.

But it gets worse. On February 27 the Lord Chancellor Liz Truss made an announcement, which I suspect escaped the notice of many doctors, concerning the discount rate.

This is a calculation applied to compensation payments to take into account any future possible interest earned by the claimant by investing a lump sum. The actuarial calculation is fairly complex, but it effectively reduces the amount paid. The rate has been held at 2.5 per cent since 2001. 

However, based on the law that claimants must be treated as “risk averse” investors, Truss has lowered the discount rate to minus 0.75 per cent.

So, for example, under the old rate the NHSLA would have paid £975 for an award of £1,000. Under the new system it must pay £1007.50. This equally applies to all other types of personal injury insurance.

This change came into effect on March 20, and there has been much weeping and wailing concerning the cost of motor insurance where premiums are likely to rise an average of £75 per annum.

But more seriously it is likely to add another £1bn annually to NHSLA payouts. This is a truly staggering figure, and in the context of current NHS finances is devastating. Indeed, Truss’s action has been termed “reckless” and “crazy.”

The government and the DoH have stated that there will be funding available to cover the increased awards, but unless they have suitcases stuffed with fivers under their desks we can guess where this funding will come from. Yet again front-line patient services will suffer.

A consultation has been held to consider if there is a better or fairer way of setting the discount rate.

In the meantime, it seems inevitable that professional medical indemnity premiums will rise.

The CEO of the Medical Defence Union stated in January that a drop of just 1 per cent to the discount rate would add a sum equal to about half a year’s subscription income to MDU provisions for claims against GPs alone. The actual drop, at 3.25 per cent, is beyond their worst nightmare.

At the stroke of a pen Liz Truss has made claimants richer, but all the rest of us poorer.