A good day for defendants – lawyers react to discount rate reform and NAO report

Evans: fairer system

Yesterday’s announcement of how the Ministry of Justice intends to reform the discount rate and publication of the National Audit Office’s (NAO) report on clinical negligence claims drew predictably opposing responses from claimant and defendant groups.

On the discount rate, Huw Evans, director general of the Association of British Insurers, welcomed government decision that would produce a system “that is fairer for claimants, customers and taxpayers alike”.

He added: “If implemented it will help relieve some of the cost pressures on motor and liability insurance in a way that can only benefit customers.”

However, it was noted on social media that he made no direct mention of premiums falling as a result, having warned in February that the decision to cut the rate would send them up.

Backing the government, Mark Burton, a partner at defendant law firm Kennedys, said both claimants and compensators “have in any event been pragmatically negotiating settlements within the 0% to 1% range since February, regardless of the prevailing -0.75% rate, in anticipation of further reforms”.

He continued: “The new methodology may therefore lead to a new rate within a similar range to that widely adopted by the market anyway.

“The more rigorous methodology proposed in the draft reforms, including periodic reviews and independent expertise, will hopefully avoid future controversy and ensure a fairer process.”

Simon Kayll, chief executive of the Medical Protection Society, said the current framework failed to consider the impact on the NHS, the public purse “and the affordability of professional protection for healthcare professionals”.

He added: “It is vital that government gets this right if we are to avoid further sudden shocks to the cost of compensation, and the proposed new framework is welcome step which could result in a more common sense approach with the reality of how claimants invest compensation payments at its core.

“It is however dependent on implementation – the new framework will only apply if and when the proposed law is enacted and it will not apply retrospectively.

“We look forward to seeing swift progress on this – and commitment to whole system legal reform to tackle the underlying issue of rising clinical negligence costs.”

On the claimant side, Brett Dixon, president of the Association of Personal Injury Lawyers (APIL), reacted cautiously to the discount rate decision.

“Someone with a life-long, life-changing injury such as brain damage or a spinal injury cannot afford to take any risks with how his compensation is invested… We need to examine the detail of the Ministry of Justice’s response, but what I can say is that the new formula for calculating the rate will be critical to injured people.

“The last thing people with devastating injuries think about when they are lying in hospital is their insurance premiums. They think about how they are going to manage. Insurers say an increased discount rate will ‘benefit’ customers through their premiums. It is of no benefit if they are severely injured and forced to take risks with the compensation they so desperately need.”

Peter Todd, the partner at London firm Hodge Jones & Allen who advised APIL on the court challenge that led to February’s decision, was less on the fence: “The government… will now require injured people to gamble their compensation in investments with risk in order to be able to fund, in particular, the future care they need.

“Whilst many claimants succeed in their investment risks, inevitably some will fail, and will now no longer have a guaranteed safe, secure and dignified future.

“The Conservative government has prioritised the insurance industry’s profits over the secure and dignified future of injured people. It remains to be seen whether they can find a parliamentary majority to enact the proposed new legislation.”

The most radical thoughts came from Malcolm Henké, partner and head of large and complex injury at insurance industry law firm Horwich Farrelly.

He said the firm has been advocating “a rigorous system” for assessing all accident victims: “One thing for certain is that the current basis for calculation is broken and we hope that this latest news means a more radical approach will come into action.

“There is a truly massive gulf between the cost to the state of providing for catastrophically injured individuals with no claim for compensation and the damages paid to those with similar injuries but with a tortfeasor to sue.”

He called for fundamental reform of the way in which compensation is assessed. “Claimants invariably recover damages which will allow them to enjoy a Mercedes Benz package of care, aids, equipment and therapies – although they have no obligation to spend a single penny on the target expenses).

“Their counterparts, dependent on the state or their own resources, will experience anything between a clapped out old banger service and a Skoda: they are subject to the so called postcode lottery.”

He called on defendants to press for a system “by which multiplicands match actual needs and multipliers set at correct levels, again to represent actual rather than assumed investment”.

Mr Henké continued: “A more accurate parallel would be the advice given to someone with a self-invested pension, balancing the preservation of a capital sum with a regular income flow over their lifetime. The difference here is that in most cases the investment ‘pot’ will be far greater than for most pensions and would not be subject to any restrictions.”

On the NAO report, Meg Hillier MP, chair of the House of Commons’ public accounts committee, said: “The costs of clinical negligence claims are spiralling at a time of immense financial pressures on our National Health Service, taking scarce resources away from frontline services and patients.

“The Department of Health and Ministry of Justice have been too slow to work together to turn the tide, with actions to save £90m a year by 2020-21 a drop in the ocean in the face of forecast costs of £3.2bn a year by 2021. We need government to take a good hard look at the financial and personal costs of clinical negligence.

Dr Pallavi Bradshaw, senior medicolegal adviser at the Medical Protection Society, argued that legal reform was needed “to help achieve a balance between compensation that is reasonable, but also affordable – both to the NHS and to healthcare professionals who are feeling the pressure of rising clinical negligence costs through their professional protection subscriptions.

“Of course controlling the cost of clinical negligence, once a claim is made, is just one component of a more sustainable system. This must go hand in hand with continual improvements in patient safety to help prevent adverse events, and a shift to a more open, learning environment in healthcare where mistakes are routinely discussed and learned from.”

APIL’s Brett Dixon stressed the important of the NHS learning from avoidable harm, part of which was better data collection and co-ordination.

He added: “We are just starting to see the impact of cuts to legal costs, which will continue to streamline claimant costs significantly. But more savings could be made with co-operation on both sides to avoid unnecessary delays and additional work, rather than simply slashing claimant lawyers’ costs further or denying injured patients full compensation.

“In cases where fixed costs could be workable, the costs should be set to reflect a better procedure. Meanwhile, the NHS needs to put its house in order – 39% of negligence claims are the result of harm caused by needless delays in diagnosis or treatment and more than twice a week someone has a foreign object left inside of them, including broken drill bits, surgical needles, swabs, and bags used for the retrieval of specimen.

“Let’s not forget that the overriding concern here should be the cost in human misery.”

James Bell, a clinical negligence partner at Hodge Jones & Allen, accused the NAO of having failed patients: “The NAO has approached this issue with a narrow focus and seems to have air-brushed out of history the recommendations it made to the NHS to reduce clinical incidents in 2001, preferring instead to give the organisation a clean bill of health. The reality is that little or no progress has been made by the NHS to bring down the cost or number of claims.

“The continued focus on claimant lawyers as a solution for all the NHS’s financial ills is misguided and disproportionate. Lawyers’ fees are already tightly controlled, capped and limited due to recent reforms; they have to be “reasonable and proportionate” before they are paid and the courts rightly already hold the power to reduce any bill found to be excessive.

“Delays caused by trusts and NHS Resolution can be unrelenting and are hugely distressing to clients. Often legal bills are massively increased as a result of the NHS’s failure to admit fault at an early stage and the way it conducts cases.

“While the narrative remains solely on claimant lawyers, nothing will change.”

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