Insurance against Clinical Negligence for Private Providers of NHS Care

Laurence Vick & Martin Young | January 15, 2015 | Blog

The number of NHS patients being treated by private sector providers is steadily increasing, with over 400,000 operations on NHS patients taking place in private hospitals in 2013. How these patients are covered against the risk of clinical negligence, however, has gone largely undiscussed.

Under the current legal framework, the NHS remains legally and clinically responsible for NHS patients treated by the private sector. So long as NHS commissioners obtain an effective indemnity from the private companies providing this care, whether through the existing state-backed insurance scheme or a commercial alternative, the NHS should be able to recover any costs to the NHS arising from medical negligence on the part of the private provider. If this is not done, however, a private company’s negligence can lead to heavy costs for the taxpayer. Moreover there is no existing legal mechanism for the NHS to recover the costs of doing any revision surgery or providing further care that may be needed by NHS patients harmed by outsourced treatment.

The NHS itself ‘self-insures’ against claims for medical negligence: compensation claims are covered by the Clinical Negligence Scheme for Trusts (CNST), a centralised NHS insurance scheme underwritten by the taxpayer, which has great experience of handling claims in conjunction with the NHS Litigation Authority (NHSLA). It was envisaged that, in time, both Foundation Trusts and private providers undertaking NHS work would be required to arrange their own indemnity cover on the commercial insurance market, rather than sheltering under the CNST umbrella. However, for private hospitals which are already providing NHS care, getting cover from private insurance and indemnity schemes has so far proved a huge challenge.

This is because the potential cost of damages for failures on the scale of a Mid Staffs or the Bristol paediatric cardiac surgery disaster is immense, with claims running on for years, and with the potential for cases to present themselves many years after treatment. Litigation can have a long tail: children can claim until they are 21, or even later if they lack mental capacity, and damages awarded for serious disability resulting from negligence can run into the millions, with periodical payments made over the lifetime of the injured party. All of this has to be funded.

Any private hospital, and even its parent company with comparatively deep pockets, would flinch at these unquantifiable liabilities. How could the risks be predicted and pooled across private providers, as they are in the NHS, so as to make this a viable venture for a commercial insurer? This is a particularly resonant question when the financial position of some private providers treating NHS patients have been described as ‘weak at best’ without the support of parent companies which may not always choose to support them. Underwriters in the insurance industry simply lack the appetite for this kind of risk.

The NHSLA has had to raise the amount of money it sets aside to deal with anticipated settlements of claims, and anticipated claims from £8.7 billion in 2010-11 to £15.6 billion in 2013-14.

The need for any private scheme also to have this retrospective ‘back-filling’ would surely be unpalatable to insurers. In addition, the requirement that any healthcare provider leaving an insurance scheme must make a large payment to secure ‘run-off cover’ (i.e. cover against claims that may arise years after a provider has ceased operating) would be a huge burden to providers

Faced with this problem, the government has opened up access to the CNST and the NHSLA to private providers of NHS services, so that private providers are able to get CNST cover subject to making an annual contribution which in 2012 was set at 0.85% of the value of their NHS work (compared with between 1.2% and 1.4% of total operating costs for NHS providers).  According to the NHSLA, private providers are now (2014) paying contributions ‘consistently with the NHS’. Exactly what this means is not known, although in one respect private providers may still be enjoying special terms, as in 2012 they were not being required to pay for run-off cover at the end of their NHS contracts.

In the event that a private provider is not a subscriber to the CNST, and does not have sufficient assets or adequate alternative insurance in place, the NHS risks facing substantial losses. If commissioners fail to ensure that the NHS is indemnified by all the private providers from whom they commission services the NHS will face claims relating to outsourced treatment where the private provider has gone to the wall, or when there is confusion over where liability rests.

Subcontracting poses further complications. In the case of Vanguard, which was contracted by the Musgrove Park NHS hospital trust in Taunton to provide cataract operations earlier this year, and reviewed in a previous CHPI blog, it is not yet known whether the Trust will have legal recourse for compensation to Vanguard, or to the two separate companies subcontracted by Vanguard to provide the surgeons and equipment. The indemnity position remains unclear; the taxpayer could be left out of pocket. The published guidance says that the CNST will cover providers’ ‘material subcontractors’; the precise conditions attached to private providers’ membership of the scheme thus become even more crucial when complex chains of contracts are at play.

It is difficult to see how the present arrangements can continue with the comparatively unregulated private sector increasingly treating NHS patients, yet it may be impossible for the NHSLA role to be replicated by commercial insurance for private providers treating NHS patients. The requirement to insure, either with a commercial underwriter or by paying the full rate to the CNST, could prove to be a critical obstacle to further privatisation of clinical services in the UK.

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About the authors

Laurence Vick

Laurence Vick is is Head of the Medical Negligence Team at Michelmores Solicitors and has practised exclusively in medical negligence litigation for over 30 years. He is currently representing patients who had their eyesight damaged by cataract eye surgery carried out by Vanguard Healthcare at Musgrove Park Hospital in Taunton. The cases he has previously been involved in include representing patients harmed by surgeons employed by Netcare at Independent Sector Treatment Centres. He was joint lead solicitor to the 300 families at the British Royal Infirmary Public Inquiry and continues to specialise in cases involving children's cardiac surgery. @LaurenceVickSee all posts by Laurence Vick