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Finance & IT FAQs

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How are CNST contributions set?

How is a member’s basic contribution calculated?

How have risk group weightings changed this year and how might they change in future?

What is the source of the WTE and birth data used to set each member’s basic contribution?

How is a member’s historic claims experience used to adjust the basic contribution?

How is my levy for ISTCs, ECNs and FCNs calculated?

How are the non-clinical contributions calculated?

How is a member’s risk management standard used to adjust the basic contribution?

How are CNST contributions set?

CNST is a pay-as-you-go scheme. This means that money is collected from the members of the scheme each year to cover the estimated claims and costs paid during that year. By operating on this basis, no reserves need to be held to cover either the claims that have been reported, but not yet settled (the reported outstanding claims) or the claims that have been incurred but not reported (known as the “IBNR”). This has the fundamental benefit of keeping more money in patient care now, rather than in provisions for future costs.

Each member’s CNST contribution is determined in the following way:

· the NHSLA Board determines the total amount to be collected based on actuarial analysis of the estimated value of claim payments in the forthcoming year. The total amount to be collected in 2012/13 to cover claim payments and scheme expenses for CNST is £950m;

· the total amount is then split between members according to their relative risk within the scheme to determine a basic contribution (further detail is provided below); and

· finally each member’s basic contribution is adjusted to allow for:

· material favourable or poor claims experience to date; and

· any discount applicable as a result of the level of Risk Management achieved by the member.

The following questions provide more detail on how CNST contributions are calculated.

How is a member’s basic contribution calculated?

Each member’s basic contribution is calculated by determining their relative risk compared to other members of CNST. Each member’s risk is measured in terms of the number, clinical specialty and grade of Whole Time Equivalent (WTE) staff that they employ and the number of babies delivered.

To set the 2012/13 contributions, the following information is analysed:

· claims data held by the NHSLA;

· the number of WTE staff employed by each member at 31 August 2011; and

· the number of registered births in 2010/11 by member.

The purpose of the analysis is to measure the relative riskiness of different clinical specialties. The primary measure considered for each specialty is the value of claims per WTE. However, obstetric risk is estimated by considering the value of claims per birth rather than the number of obstetric WTEs (i.e. obstetricians and midwives). This is because the number of births is believed to be a better indicator of obstetric risk than the number of obstetric WTEs.

Each clinical specialty is allocated into one of thirteen risk groups (see the next section for details of these groups). Some of these risk groups contain several clinical specialties where the relative riskiness per WTE is similar. Others cover only one specialty. The specialties that have their own risk group are either high risk groups or unusual in some other way. For example, since around 10% of all NHS doctors work in psychiatry, they have their own category.

Having allocated the specialties into these groups, the value of claims per WTE is assessed for the risk group as a whole. This is used to determine a relative risk weighting for each risk group. For example, a WTE working in the Accident and Emergency risk group is assumed to have seven times the risk of a WTE in the Anaesthetics risk group.

There is also differentiation between nurse specialists and qualified doctors. Nurse specialists are allocated into the appropriate risk group but they are only assigned a small fraction of the risk that is assigned to a fully qualified doctor in the same risk group.

The number of WTEs employed by each member in each risk group (or the number of births for obstetrics) is then multiplied by the relative risk weighting for that risk group to produce a total risk value for each member.

The global contribution is then allocated among the members in proportion to their total risk value.

The analysis to determine the relative risk weights of each clinical specialty is updated each year so that emerging trends can be incorporated.

How have risk group weightings changed this year and how might they change in future?

As a result of the analysis of the most recent claims experience, some of the risk weights have been updated since the previous analysis. The table below shows the relative risk weightings used for all risk groups. It also shows the approximate cost that members will pay in 2012/13 for one WTE in each risk group.

Risk group	2011/12 risk weight	2012/13 risk weight	Approximate cost per WTE in 2012/13 £
Neurosurgery	250	300	38,875
Trauma & Orthopaedics	125	140	18,150
Accident & Emergency	125	140	18,150
Neurology	105	105	13,600
General surgery	95	95	12,325
High	45	45	5,825
Medium	20	20	2,600
Anaesthetics	20	20	2,600
Psychiatry	10	8	1,025
Ambulance	1.7	1.7	225
Low	1.5	1.5	200
Nursing	0.2	0.2	25
Obstetrics (per birth)	7	6.5	850

Note that the cost per WTE shown above will not match that shown on each member’s individual contribution breakdown. This is because of the impact of the differentiation between nurse specialists and doctors, scheme expenses, Risk Management Discounts and experience ratings.

The risk weights for Neurosurgery, Trauma & Orthopaedics and Accident & Emergency have been increased for 2012/13. This is because recent claims experience suggests that these risk groups are more risky than was previously thought.

On the other hand, the risk weighting for Psychiatry has been reduced following continued favourable claims experience. The risk weighting for Obstetrics has also been reduced to more appropriately reflect the relative risk that it contributes to the scheme.

Two specialties, Clinical Oncology (in the medium risk group) and Ambulance, are on the “under observation” list for next year. Current analysis suggests that higher risk weights may be supported for these categories in future if poor claims experience continues.

What is the source of the WTE and birth data used to set each member’s basic contribution?

The NHSLA uses the WTE data available from the NHS Health and Social Care Information Centre to set CNST contributions. The WTE data used to set the 2012/13 contributions was as at 31 August 2011.

The birth data is collected directly from members by the NHSLA in the autumn each year. The birth data used to set the 2012/13 contributions was the number of registered births in 2010/11.

How is a member’s historic claims experience used to adjust the basic contribution?

In assessing a member’s claims experience, their actual experience to date is compared against the expected experience based on the risk profile used to calculate the basic contribution. That is, the risk profile based on the number, clinical specialty and grades of WTEs, and the number of births. This comparison is done separately for the obstetric and general claims experience.

This comparison of actual claims with expected claims is based on two measures; the total value of claims and the total number of claims. It is important to take account of both these measures to be sure that a member’s claims history is materially different from what is expected before applying an experience rating.

For example, a member’s expected claims experience may be ten claims totalling £1.0m. However, the member has actually had one claim of £1.5m. Is the experience good or bad? There are fewer claims by number than expected but the total value of the claims is greater than expected. In this particular case, no adjustment would be applied to the contribution since we cannot be sure that this is bad experience rather than simply random fluctuation. An adjustment to the contribution is only made when we are confident that the experience is materially different from what is expected.

Each member’s obstetric and general experience rating adjustment is shown at the bottom of their statement.

There are four possible adjustments that can be made to the contribution as a result of a member’s claims experience. The adjustment is determined as follows:

Adjustment	Criteria
10% discount	Actual claims are less than 50% of that expected both by number and value
5% discount	Actual claims are less than 50% of that expected by number and less than 75% of that expected by value Or Actual claims are less than 75% of that expected by number and less than 50% of that expected by value
5% loading	Actual claims are more than 50% greater than expected by number and more than 25% greater than expected by value Or Actual claims are more than 25% greater than expected by number and more than 50% greater than expected by value
10% loading	Actual claims are more than 50% greater than expected both by number and value

No adjustment is made if:

· none of the above criteria are met;

· the member in question is a newly created community trust (due to their limited claims history); or

· less than ten claims are expected (since when the expected number of claims is so small, any analysis becomes too spurious to determine meaningful results).

It is possible that the approach for determining experience ratings will be reviewed ahead of the 2013/14 contributions. This review is likely to explore the possibility of changing both the sensitivity of the rating criteria and the size of the discounts/loadings. Members will be consulted on any proposed changes in due course.

How is my levy for ISTCs, ECNs and FCNs calculated?

PCTs and some other members of CNST outsource the provision of care to Independent Sector Treatment Centres (ISTCs), Extended Choice Network providers (ECNs) and Free Choice Network Providers (FCNs). However, any clinical negligence liability that is incurred when an NHS patient receives care at an ISTC, an ECN or an FCN is covered by CNST.

A small fraction (less than 1%) of the global contribution relates to claims associated with ISTCs, ECNs and FCNs. For the 2012/13 contributions, this amount was charged to members of CNST in proportion to their usage of ISTCs, ECNs and FCNs. The usage was measured by the number of Finished Consultant Episodes (FCEs) referred to an ISTC, ECN or FCN by each member of CNST during 2010/11. The FCE data was supplied by the Department of Health.

How are the non-clinical contributions calculated?

The Risk Pooling Scheme for Trusts (RPST) contributions are split into two parts, namely the Liability to Third Parties Scheme (LTPS) and the Property Expenses Scheme (PES). Below is a brief explanation of how the contributions for each are calculated.

Each member’s RPST contribution is determined in a similar way to CNST as follows:

· the NHSLA Board determines the total amount to be collected based on actuarial analysis of the estimated value of claim payments in the forthcoming year. The total amount to be collected for LTPS and PES for 2012/13 is £42.8m and £5.2m respectively (including expenses of running the scheme);

· the total amount is then split between members according to their relative risk within the scheme to determine a basic contribution (further detail is provided below); and

· finally each member’s basic contribution is adjusted to allow for any discount applicable as a result of the level of Risk Management achieved by the member.

The following sections provide more detail on how the basic RPST contributions are set.

How is risk measured for LTPS?

Claims to LTPS are made up of around 80% Employers’ Liability claims and 18% Public Liability claims and a small amount of other claim types. The standard measure of exposure to Employers’ Liability used in the insurance industry is wage roll. However, given that the scheme also covers Public Liability, the number of WTE staff employed by the member and the member’s total income are also taken into consideration to give an indication of the size and risk of claims for each member.

Therefore, the contribution depends on the following three risk factors for each member:

· Total income;

· Number of WTEs; and

· Wage roll.

The weightings applied to each of these risk factors are reviewed each year, although they are kept as stable as possible over time.

How is risk measured of risk for PES?

PES covers damage to buildings and contents, and business interruption claims. The value of the buildings and contents covered give a good measure of the exposure to property damage claims with the income giving a good indication of the exposure to business interruption claims.

Therefore, the contribution depends on the following three risk factors:

· Buildings value;

· Contents value; and

· Total income.

Again, the weightings applied to each of these risk factors are reviewed each year, although they are kept as stable as possible over time.

How is a member’s risk management standard used to adjust the basic contribution?

As mentioned previously, members can qualify for Risk Management Discounts (RMDs) by attaining certain standards. There are three levels of discount: Level 1 which provides a 10% reduction, Level 2 which provides a 20% reduction and Level 3 which provides a 30% reduction.

The RMDs are assessed separately for general and maternity care. The general RMD will apply to CNST excluding maternity, LTPS and PES contributions. The CNST maternity standards are assessed separately and the level of discount will apply to the maternity element of CNST contributions only.

The RMDs will apply whilst the standards are maintained so any investment in achieving these standards could be repaid many times over through savings in contributions.