Inflation is very much in the news at present and will be an important factor in clinical negligence claims going forward. So in this extended article, DACB’s medical malpractice team provides you with a breakdown of how and why inflation may affect the cost of litigation.OverviewThe aim of compensation claims is to put a Claimant back in the position that they were in, but for the act of negligence.  Damages, once awarded to the Claimant, are invested (often in low risk investments, as reflected by the modest/negative personal injury discount rates in recent years), with a hypothetical aim in mind, namely the very last penny of compensation being spent on the day of a Claimant’s death.  In order to get to the proper compensation figure certain assumptions have to be taken along the way and both parties have to be prepared to take a view. The past few years have been turbulent, however.  The UK’s stock market has tumbled, salaries have been frozen (or even reduced), and some professions placed on furlough for sustained periods of time.  These, and other, economic factors, have resulted in significant upward inflation, which, in turn, is starting to impact on the way that claims are advanced, awards of damages are structured and compensation payments invested.  Put simply the assumed rate of return is not keeping pace with increasing prices and so this is putting upwards pressure on damages awards as Claimants seek that proper compensation figure.What does this mean for the healthcare sector? Current Inflation RateIn March 2022, the UK Consumer Price Index rose by 7.8%, in the 12 months to April 2022, and the Retail Prices Index rose by 11% in May 2022.  Both increases are thought to be due to the rising cost of annual housing and household services, including the cost of utilities and other fuels.The Bank of England predicts that the rate of inflation will keep on increasing throughout the remainder of 2022.  However, it is anticipated that the current high rates of inflation are not likely to last.Causes of InflationThere has been much discussion about the causes of the increasing rates of inflation, across the different sectors impacted.  Broadly speaking, the factors at play include the pandemic, and the measures introduced as a result, Brexit, labour shortages, salary pressures, supply chain issues, the War in Ukraine and the response in China to the resurgence of Covid 19, with significant workplaces closures impacting, once again, on supply chains.The Impact on Compensation Claims through the discount rateThe rising rate of inflation is undoubtedly having an impact on the claims advanced for compensation as a result of medical malpractice.  Calculating an award of compensation is a careful process, which takes into account the likely return on investments.  Where the Claimant is a child, their damages will be awarded often decades in advance of the need arising.  The aim is to ensure that a Claimant is properly but not overcompensated.  Typically the award would be discounted for accelerated receipt (the impact of a positive personal injury discount rate), but now with negative discount rates (i.e. an assumption that the use value of an award decreases rather than increases in value with time) a Claimant is already awarded more than £100.00 if he/she needs to spend £100.00 at some future point.  We are not seeing inflationary pressure on these already inflated awards.The Ogden discount is reviewed periodically to account for the external pressures at play, that may influence the rate of return on any sums invested.  On 20 March 2017, the Lord Chancellor changed the discount rate to be applied to all heads of future loss from +2.5% to -0.75%, where it had effectively been sitting since 2001.  In August 2019, it was changed to -0.25%, and assurances given that a further review would follow within 5 years to ensure that it remains fit for purpose in the future. Whilst there has not yet been a revision in the Ogden discount rate, it seems inevitable that pressure for change will follow because if inflation runs at in excess of the assumed rate of return for any sustained period of time a Claimant may be left undercompensated.  For Claimants with periodical payments lasting 70+ years (i.e. infant Claimants) this is a significant concern.Effect of Inflation on individual heads of lossThe other way in which inflation is impacting on awards is everything is simply costing more, whether that be care, a gardener/handyman, accommodation, utilities, equipment etc.Below, we consider the heads of loss that will be impacted by the current situation.CareThe British Association of Brain Injury Case Managers (BABICM), recently surveyed their membership base.  The responses to the “Perfect Storm” survey make interesting reading.  90% of respondents indicated that they were having difficulty in recruiting support workers for private care packages[1].  The main issues identified were poor pay (with improved pay in competing sectors), poor working conditions, loss of staff due to Brexit, unsociable hours, the introduction of mandatory vaccinations (with 5-15% of support staff reported to be unvaccinated/refusing to disclose their vaccination status) and the perceived low status of support workers.  Ultimately, these issues have contributed to a shortage of support workers. 64.8% of respondents were having to pay increased agency rates in order to access staff, with directly recruited staff varying between £13.00 - £21.00ph, agency rates between £20.00 - £40.00ph and agency nursing rates reported to be as high as £80.00ph (with £1,000.00 per shift reportedly needed to secure last minute cover).Arising out of concerns about having to rely on family care, a forced move into residential care and safeguarding concerns (due to vulnerable clients being left without adequate support), Claimants are now in many cases reconsidering the adequacy of their care package recommendations, particularly in cases that are approaching Round Table Meetings or trials.  In those cases, Claimants’ solicitors are now often serving updated evidence.  Common trends seen include recommendations to increase the recommended basic rates of pay by at least £1.00 per hour, the introduction of loyalty payments and other long service incentives.  In cases where new carers are being recruited, increased rates are often having to be advertised.  In such instances, we are seeing the existing support workers rates increasing in order to ensure retention.  With labour intensive care packages in place for long periods of time what may seem a modest increase to the hourly rate has a very significant impact overall.The difficulty in recruiting/retaining support staff is having an inevitable knock on effect with regard to the sums claimed in relation to case management, recruitment and training costs.The position is arguably impacting Claimants with privately recruited care packages to a lesser degree than those individuals that rely on direct payments and health budgets.  With an aging population, demand was perhaps always going to outstrip supply.  However, it is worth noting that the government is live to this issue and care workers are now on the occupation shortage list from an immigration perspective, vaccinations for support workers are now no longer mandatory, and there is also a white paper regarding the accessibility of local authority care, which is anticipated to have an impact from October 2023.Whilst the costs of a privately funded care package are likely to continue increasing in the short term, it is possible that the rate of increase will slow over time, particularly if the corrective measures achieve their aim.Domestic AssistanceThe increasing cost of fuel appears to be having an impact on the hourly rates charged by domestic cleaners, who travel to assist a Claimant with maintaining their home, as does the costs of the products needed.  We have seen an increase of £3.00ph on the hourly rates claimed in some cases.  Even if required for two hours a week, this will have a significant increase over the course of a decade. TherapiesThe rising cost of fuel is also having an impact on the rates claimed by a Claimant’s therapeutic team.  We often see a mileage rate of 45-55p per mile claimed in relation to the travel required to conduct the sessions needed by the physiotherapy/occupational therapists.  However, given that the cost of fuel has increased so significantly, these rates are being revised to 60-70p per mile.  Again, over the course of a Claimant’s lifetime, where there is a comprehensive therapy package in place, this may lead to a significant increase in the sums awarded.  Latterly we have been able to argue for reduced mileage rates; it is much harder to do this now.EquipmentPutting  the cost of transportation aside, labour shortages in the transportation sector have had a knock on effect on manufacturing processes, supply chains and therefore the availability of many products. Significantly there is a shortage of microprocessors required for devices such as laptops/mobile phones, and batteries required to power them.  This is having an impact on the availability and therefore the cost of specialist equipment.  As demand is outstripping supply, we are seeing the costs associated with equipment increasing.The war in Ukraine has impacted on nickel production and, therefore, the availability of batteries.  With the reopening of this supply line and China moving past its “zero tolerance” to Covid policy, the supply chain and transportation issues will ease.  However, it remains to be seen whether, and to what extent, the costs claimed for equipment will reduce, in the medium/long term.AccommodationFinally, inflation is also affecting claims for the purchase and adaptation of suitable properties to cater for a Claimant’s new disabilities. The cost of properties continue to increase.  However, the cost of adaptations, based on the costs of labour and materials, are also escalating very significantly. The Tender Price and Building Cost indices have seen a rise of 6.4% over the past 12 months[2].  There is a forecasted rise in tender/building costs of around 3%, over the next 12 months.  The costs of materials rose by 18.4% over the past year and are predicted to rise by a further 15% over the next 5 years.  Again this is due to supply chain issues, oil prices, new tariffs on imports, the impact of the war in Ukraine and sterling exchange rates. The new restrictions on the movement of foreign labour is also an important issue.  Since their introduction in early 2021, there has been a shortage of labour in the construction sector, which has also put pressure on wages.  Indeed, the pressures created by labour shortages is anticipated to take over from material shortages as the major factor affecting costs, particularly if construction workers are not included on the occupation shortage list from an immigration perspective. Whilst some of these issues may be alleviated in the foreseeable future, the cost of crude oil, steel and energy are predicted to continue to increase.  Therefore, the costs associated with property adaptations appear likely to remain high in the foreseeable future.The increasing costs of fuel are also serving to increase the costs associated with running a larger home.  Care/accommodation experts are therefore reconsidering their recommendations, with regard to the costs that would have been incurred in any event, and the costs associated with running larger, adapted properties.ConclusionThe rate of inflation is increasing due to a number of factors, and this is having a clear and tangible impact on the heads included in a Claimant’s Schedule of Damages.  Whilst an increase in the interest rates may ultimately counteract the rate of inflation, pressure for adjustment to the personal injury discount rate appears one likely response to this from Claimant groups. Certainly, Claimants are seeking to protect themselves, in the short term, by ensuring that as many future heads of loss (particularly those impacted by inflation as detailed above), are paid on a periodical payment basis.In short, when the landscape is shifting a certain flexibility may be required in valuing claims going forward. [1] https://www.babicm.org/2022/02/03/perfect-storm-survey-results/[2] BCIS Quarterly Briefing: May 2022"},"dtdGuid":"f99a89af-92a2-4618-9d83-5ba3cd7215d5"}