Page 174 - Pharmacy Appeals 1/4/04 to 31/3/05

150 Financial statements

7.4. Prior period adjustment - known claims
The known claims provision calculation (described at As a result of this review, we have concluded that this
Note 7.2) uses the expected settlement date (ESD) from approach should have been applied to prior periods,
individual claims recorded in the Claims Management drawing on the information that was available at the
System (CMS) to apply inflation and discounting to time, as it results in a better estimate of the known claims
reach a valuation. However, for the disclosure of the provision. The prior period financial statements have
expected timing of cashflows, this has historically been therefore been restated as required by IAS 8 Accounting
based on an actuarial view of settlement patterns. Policies, Changes in Accounting Estimates and Errors.
The ESD for individual known claims is based on the The closing position for the provision at 31 March
judgement and experience of individual claims handlers 2021 has therefore been increased by £2.5 billion,
informed by advice and regular review by panel lawyers and a corresponding change to the provision expense
(where instructed). It is dynamic as it responds to has been made. The prior year restatement has
developments on the individual claim, which will not been confined to the CNST scheme on the basis the
follow a prescribed timetable. Claims handlers are impact on the other schemes is not material (based
required to keep this field under review and as part of on the work done for the 2021/22 adjustment).
their reporting requirements, panel law firms revise and
The opening position for the provision at 1 April 2020

recommend any changes to the ESD. This judgement is
for CNST only has also been restated, resulting in an
based on a range of factors pertinent to the individual
increase of £2.8 billion. Taken together with
claim such as whether liability issues are clear or complex,
the restatement at 31 March 2021, there was
or whether the claimant's condition can be assessed easily
a net reduction in the provision expense for the
or requires further examination and expert evidence.
restated 2020/21 financial year of £0.3 billion.
While these judgements may be reasonable at individual
The following table sets out the changes made to
claim level, collectively they may be optimistic compared
the financial statements and notes to the accounts
to the number and value of claims that the legal
as a result of the prior year restatement.
and health systems have the capacity to settle. The
appropriateness of the ESD on individual cases is audited
as part of the rolling audit programme internally and
also when a claims handlers' financial authority limit is
considered for review or approval. The audit considers
the reasonableness of the claims handlers' judgement,
based on the evidence available at that point in time.
A difference between reasonable granular judgements
taken together and likely cashflows is not unexpected.
NHS Resolution has had in place an actuarial view of the
timing of cashflows (derived from historical settlement
patterns) for the provisions disclosures in the accounts.
However, the difference between these two views has
diverged in 2021/22, most likely due to the impact
of the Covid-19 pandemic on the legal and health
operating environments. There has been an increase
in the volume and value of claims with a settlement
date within a shorter timeframe. An adjustment to
the known claims provision (£4.6 billion across all
schemes at 2021/22 HM Treasury discount rates) has
been made to reflect an actuarial view of a slower
settlement pattern than the claims ESDs suggest.