NHS in Scotland faces massive annual damages bill increase after change to injury payouts

The change in the personal injury formula which was confirmed on Tuesday is good news for victims of negligence, but it will also cost insurance industry millions of pounds who have warned that it will send premiums higher for customers.

There are also concerns it will add add tens of millions each year to the soaring NHS Scotland claims bill for botched medical operations which has risen more than ten fold in ten years.

The Office for Budget Responsibility (OBR) Budget book is already putting aside £1.2bn every year to protect the publicly-funded National Health Service (NHS) from the effects of the changed discount rate south of the border.

Some insurers have questioned whether the Scottish Government has made similar contingencies and whether there has been enough scrutiny by MSPs.

Experts say the impact of the change in Scotland may be greater than down south, as the Scottish courts can only make lump sum payments whereas in England and Wales, courts can make orders spreading the payments over the lifetime of the injured person.

Iain Buchanan, partner with BLM, the risk and insurance law firm, said for a 17 year old boy needing a £150,000 per annum care package for life, this could mean a leap from a lump sum payment of around £5m to more than £14m.

But the Association of British Insurers has warned the move will have a major impact on tight budgets in the NHS in Scotland.

Alastair Ross, head of public policy for Scotland at the Association of British Insurers said: "It is important severely injured people get the help and compensation they need, but the process used to decide that must reflect the reality of what people do with a lump sum payment.

"The change is based on a flawed process which will meant tens of millions of pounds in additional costs every year for the NHS in Scotland, and will massively increase claims costs for insurers which will inevitably push up insurance premiums for motorists.

"We urge the Scottish Government to work with the Ministry of Justice on its expected consultation on the process for calculating the discount rate so a new approach and a more sensible rate can be established as soon as possible."

The doctors union and professional body, BMA Scotland, was concerned that medical defence unions will have higher payout costs that they may pass on to GPs.

Simon Kayll, chief executive of another insurer, the Medical Protection Society, which provides insurance for doctors aid the move was "unsustainable" and that without adequate intervention from government "will significantly increase the cost of settling future loss claims against the NHS and our members in Scotland at a time when the cost of clinical negligence is already at a worryingly high level".

Chris Kenny, chief executive of another insurer, the Medical and Dental Defence Union of Scotland, said the move was "good news for lawyers but bad news for the NHS" in Scotland.

And the Medical Defence Union said that there was the potential for some large clinical negligence claims to double in cost.

Dr Hugh Stewart, MDU director of legal services and Scottish affairs, said: "Although GPs treat NHS patients, they pay for their own indemnity against claims and must be protected against the inevitable increase in indemnity costs that this change in the law will cause."

BMA Scotland’s GP committee chairman Dr Alan McDevitt said the move was "extremely concerning" and said that he hoped the Scottish Government would ensure that any higher costs to the medical profession will be met in full.

“At a time when we should be pulling out all the stops to make general practice a more attractive career, the last thing that GPs in Scotland need now is to be hit with higher indemnity bills. GPs must not be financially penalised as a result of this decision and we will be making that case strongly to the Scottish Government," he said.

The Association of Personal Injury Lawyers said the decision was in the best interests of injury victims who might require life-long care, and that the claim that insurance premiums must now rise "beggared belief".

The Scottish Government said the change was made following "careful consideration"by ministers and said it was "important" that they ensure that the "principle of full compensation is maintained".

“The Scottish Government recognises the potential impact of this change for GPs and we are committed to working through the implications with Indemnity Providers," said a Scottish Government spokesman.

The discount rate is used by courts to calculate future loss in personal injury cases. When victims of life-changing injuries accept lump sum compensation payments, the actual amount they receive is adjusted according to what interest they can expect to earn by investing it.

Accordingly courts apply a calculation called the discount rate, also known as the Ogden Rate, which is a percentage, now -0.75pc, linked to returns on the lowest risk investments.

The compensation award using the rate is meant to put the claimant in the same financial position had they not been injured, including loss of future earnings and care costs.