Under item 1 on the agenda, we return to a matter that we considered last week—contingent liability, specifically in relation to the Scottish National Blood Transfusion Service. Members will recall that we asked for clarification of a number of matters. As a result, we have received an Executive note, which was circulated with members' papers. Alasdair McLeod, assistant director of finance at the Scottish Executive, Dr Aileen Keel, deputy chief medical officer, and Angus Macmillan Douglas, national director of the Scottish National Blood Transfusion Service, are here this morning to give evidence and assistance to the committee. I thank them for coming.
Dr Keel and I will make a short opening statement to give some background to, and try to put in perspective, the papers that members have received.
The simplest way of setting the context is to explain the current legal actions against SNBTS. Colleagues have examined the records back to 1995. In that time, 23 legal actions have been raised, all of which have been sisted—they are not currently proceeding. All the cases relate to hepatitis C transmission and many date back to the 1970s and 1980s—they are not recent incidents.
Mr McLeod, would you like to add anything?
No, I do not want to say anything.
Thank you very much. I would like some clarification in relation to the Executive note that has been supplied for today's meeting. The third paragraph begins:
Our NHS activities are covered by the Exchequer. We do not take out separate insurance for that.
So the only cover you need is in relation to your non-NHS activities.
Yes. Except for the issue that is number 2 on the agenda: the clinical trials.
Could you expand on that point? Are those regarded as a non-NHS activity?
No. They are an NHS activity, but cover is required for the people who are conducting the trials, who may be exposing themselves to risk if something goes wrong.
But the trials have been carried out since 1993 and there have been no claims.
Yes.
Those opening remarks have been very helpful in dealing with some of the matters that were raised, as is the Executive note—particularly on the point of what is defined as an incident, which is clear. I have no further questions. Do other committee members have questions?
Good morning. I have a background in pharmacy and the pharmaceutical industry, so I have some understanding of the matter of litigation, particularly in respect of an exported product. Politics get involved, which tends to inflate the lawyers' fees, and the costs get bigger and bigger. A point was made in the papers about the gross income from this contract. What is its net value?
The net value of this particular contract is £400,000. The net value of all our contracts of this type is £3.5 million.
Sorry, I have obviously misunderstood what was in the paper. Do you have sales of £400,000 or is the income £400,000?
The income is £400,000.
Before costs?
I am so sorry—you are right. The turnover is £400,000, and the profit, if you like, will be about £250,000.
I welcome that, as it obviously helps the organisation's progress.
I can go back only three years. We have always taken commercial insurance for activities outside the NHS. For our activities in the NHS over the past three years, we have received our cover from the Scottish Office and the Scottish Executive. I am afraid that I cannot go back much before that.
Fine.
I can certainly answer that question. I and my colleagues in the SNBTS are very concerned that we do not run before we walk. The organisation has acquired some expertise on international relations and business. We also get tremendous support from Scottish Enterprise, the Foreign Office and trade organisations. We use the best professional advisers to ensure that we do not run into difficulties. We have particularly relied on Aon Risk Management, which has one of the best reputations for risk management in the pharmaceutical business. Before we entered into the amount of insurance involved, Aon carried out a benchmarking exercise across the pharmaceutical sector to find out what a commercial company would take as insurance cover for various turnovers of similar types of pharmaceutical business. For a turnover of £5 million, a sample of seven of the major international pharmaceutical companies had insurance limited to £5 million. Companies do not go up to £20 million until their turnover is more than £20 million.
Excuse my ignorance, but can you explain, in layman's terms, what is meant by surplus by-products of the protein fractionation process? My line of questioning will be clear in a moment.
Absolutely. Plasma is spun off from any blood that is donated. We are referring to products that are derived from plasma—that is a manufacturing process. We have a factory, built with public money, which tries to match the demand for plasma products in Scotland with our capacity to make them. Of course, demand changes through the years, so it can never be matched exactly. Therefore, potentially, we always have some surplus capacity. There will always be surplus parts of the product, because the demand will never meet exactly the way the product is split up through fractionation. We therefore use our surplus capacity and our by-products for those processes; we do not buy especially for those processes.
How far back do the surplus by-products go? How old are the products we are talking about?
The plasma and the intermediate products will not be old at all—it will be a matter of months. It was a real concern to us that if we could not enter into a contract such as this one, with the Turkish company, we would have to destroy the product, which would mean destroying a gift.
I do not know about such matters, but I am asking how far back it goes because I am concerned about hepatitis C, in particular, having anything to do with the product.
You are absolutely right: transmission of hepatitis C by blood and blood products has been a real issue in the recent past. The plasma we are talking about, from which these products are manufactured, is tested by state-of-the-art technology—something called polymerase chain reaction, which is a very sensitive test. We no longer rely on antibody tests to the virus, which can take a few weeks or months to develop. Plasma from Bavaria or the US is tested there using PCR, which shows up any positive donations.
You say it is state-of-the-art technology. So it is foolproof?
I would not say that any technology is foolproof, but it is as foolproof as it can be today, given our knowledge.
But you are aware of the wide incidence of hepatitis C in Scotland now? Hepatitis C is a time bomb under health boards throughout Scotland—for example Fife Health Board. The Scottish Centre for Infection and Environmental Health estimates the figure to be 7,000 or 8,000; the footnote says that that could be an underestimate and that the figure could be several times higher. That is my concern.
The hepatitis C epidemic that we think is under way in Scotland is mainly due to drug abuse and needle sharing. We are talking about non-UK plasma, so that is—
But it is mixed with surplus by-products from here, is it not?
No. We no longer use UK plasma to manufacture blood products because of the theoretical risk of new-variant CJD.
The imported plasma is from countries—I think you mentioned the United States and Germany—where the prevalence of hepatitis C is similar.
There are not vast differences. The centres from which the Scottish National Blood Transfusion Service purchases plasma are accredited. They were inspected by the Medicines Control Agency in the UK before the blood transfusion services were allowed to import. However, the prevalence of hepatitis C is not markedly different from what it is in this country.
I apologise for my late arrival.
Prior to Dr Simpson's arrival, I tried to set the context by referring to legal actions that are pending in Scotland regarding the hepatitis C virus and to what one might call the HIV worst-case scenario of the early 1990s. The sums that would attach to both those scenarios would amount to much less than £20 million. If all the hepatitis C cases were successful, the total amount payable would be between £1 million and £1.5 million.
So if it were proved to the courts that all reasonable precautions had been taken, SNBTS would not be liable.
That is right. It is not clear how consumer legislation covers blood products, but even if it covers them fully, the point that you have just made is correct. There is a clause in the Consumer Protection Act 1987 that says that one cannot be held responsible for something that typical professional producers of a product could not know about.
That is very helpful.
I think that your last point was pretty important. It would have been helpful if it had found its way into the briefing paper. What was the logic for increasing the indemnity limit per incident from £15 million to £20 million?
One might argue that it was unnecessary. We did it because, after working through the sort of arguments that we have just rehearsed, taking advice from Aon Risk Management Limited, our insurance brokers, and examining the pharmaceutical company comparators, we found that the pharmaceutical companies would have insured for £5 million. Our indemnity was at £15 million, and we thought that we would give ourselves some more headroom. We like to think that this is good for Scotland's reputation: it is about using our public assets more effectively. The last thing that we want to do is to produce a liability for the taxpayer. That is why we increased our insurance.
Those points are well taken. However, I do not understand how the risk per incident could have risen by £5 million because of your involvement in the Turkish market. Where is the logic in that?
You are quite right. There is no empirical link between the contract in Turkey and £5 million. We examined the insurance that we had before, saw the Turkish contract coming along, hoped to have other contracts similar to the Turkish contract and, as we were doing an annual review of our insurance, raised the indemnity limit to £20 million.
So this is part of a general review.
Exactly.
By how much does it increase your premiums?
I cannot answer that. I know that if we were to increase our indemnity limit by another £5 million our premium would increase by about £15,000 a year.
So there is an incentive for your insurers to advise you to do this. How much of the income that you receive does the SNBTS get to retain internally? How much is passed on to the NHS as a whole?
I would like to return to the point about Aon Risk Management. Of course the insurance brokers have an incentive to sell us more, and I appreciate that what they recommend must be only one consideration. However, in fairness, the insurance company recommended a lower liability. It was we who chose to increase the premium. It was a difficult judgment to make, but we were trying to err on the side of safety.
Is it possible to buy unlimited protection?
No, it is not, as all insurance companies are limited liability companies. However, it is true that for comparatively modest increases in premium we could increase our cover substantially. We have to judge whether that is a good use of public money.
People can grasp a figure of £20 million. If you were to increase the cover to £100 million or £1 billion, which is a more theoretical figure, what increase in your premiums would that entail?
I cannot give you a precise figure, but I think that, to take the cover to £100 million, we would be talking in terms of about a £50,000 or £60,000 per annum increase in premium. I must admit that I have never tried to find out what the premium increase would be for £1 billion.
It is a theoretical concept; you would have to deal with a company that would be able to pay out. I am just trying to get an idea of where you draw the line. Obviously, that must be a difficult decision for you, when the whole country is drawing the line for you above that. I wanted to know what offers you had had from insurance companies and how much more increased cover would cost, given that it would be extra money for the Exchequer if you decided not to take it.
If we went to £100 million, we would be talking about a premium of around £60,000 more than we pay at present. That is a jump of five times and is 20 times what the industry would insure for, which shows what a low risk the insurance industry puts on this.
My little knowledge of the background may assist my colleagues. You are basing your risk on the advice that you are given and you are sharing risk at different stages of the processing, handling and distribution. The question that arises from that is whether you have had sufficient assurance from the other people in the chain of supply that their insurance is in place and that you are not having to take their risk as well.
That is something that we specifically require of our suppliers in the United States and in Germany—we required it before this contract. We require that assurance for the protection of patients treated in Scotland. You make an extremely fair point. I am told by my adviser that we have checked with our Turkish suppliers. We insist on that insurance and on being able to review it and get proof that they have it.
I have a question for Mr McLeod about the contingent liability of the Scottish Executive. What effect will that additional liability have on the total spend of the Scottish Executive in insuring the various risks across all the departments for which it has responsibility? I imagine that it will have a fairly small effect, but can you tell me what impact it will have?
The effect will be very little in some ways and very big in others. In general, we do not insure against risks of any kind. This case is exceptional, as the risk is one that arises because of the use of a foreign supplier and foreign patients. We would not consider it right for the Scottish taxpayer to run that risk, but as a general policy we do not insure, simply because the cost of insurance would outweigh the benefits over the Executive as a whole.
I know that when a department of the Executive proposes to undertake a contingent liability for which there is no specific statutory authority, it is appropriate to report the circumstances to the Parliament. How many incidents are there of departments undertaking contingent liability without specific statutory authority? This is the first one that this committee has received. Does that mean that it is the only one so far?
It rarely happens. I can think of one case in my time in finance—12 or 13 years—that we had to take to the Westminster Parliament. That had to do with an indemnity that we gave to Lord Cullen in relation to the Dunblane inquiry. We make an annual report to Parliament, which we could let you have.
I think that the information that you have given has answered my question.
I should stress that I was talking about the unusual liabilities. All sorts of contingent liabilities are taken on in the action of carrying out the work that Parliament has authorised us to do. We would not expect to go to Parliament with each of those.
I appreciate that.
There is also a minute about clinical trials. I do not know whether your comment took account of that as well or whether you wish to leave that for another occasion.
We have been asked only to endorse the minute that was sent to us last week. Point 2 in the note that was sent to us for today's meeting states that no action by the committee is required in relation to the minute that you mention. We might be asked to make a decision on the matter at a later point, but we are not in a position to do so today.