Negligence costs

1998: �2.3bn 1999: �3.2bn 2000: �3.9bn 2001: �4.4bn

The body, which scrutinises public spending on behalf of Parliament, warned that in the "possible and unlikely" event that it had to meet all other outstanding negligence claims, the total could almost double to �8.4bn.

The NAO report comes a week after the government announced its intention to pump billions of pounds into the NHS, raising overall spending by �40bn over the next five years.

'Extremely worried'

Edward Leigh, chairman of the Commons Public Accounts Committee, told BBC Radio 4's Today programme he was "extremely worried" by the scale of the cost to the NHS and urged reform of the compensation system.

He said: "We are living increasingly in a culture of litigation and certainly if I was running the health service I would be very worried about this.

"People know there's much more money coming into the health service now and it's possible there could be many more claims."

Sir Liam is reviewng the current system

Mr Leigh recommended mistreated patients receive a speedy apology and a thorough explanation to dissuade them from the "trauma" of legal action.

But Health Secretary Alan Milburn said plans to reform the clinical negligence system would be published shortly.

Speaking on the programme, he said: "I think most people now acknowledge that our clinical negligence system isn't working well, it is expensive, it is unfair, it takes far too long to settle these claims, and as far as small claims are concerned all too often we end up paying out more money to lawyers than we do to patients.

"Now that can't be right, so I've asked the Chief Medical Officer, Sir Liam Donaldson, to now bring forward proposals for a fairer system to settle these sorts of clinical negligence claims and I expect to be able to publish a White Paper in due course, over the course of the next few months."

Vanessa Bourne, chairman of the Patients Association, speaking on the same programme, said: "If something does go wrong, there's a culture of 'don't let the cat out of the bag.'"

She called for better information available on risks and doctors, and a standard compensation payment.

Higher awards

The NAO said one of the reasons for the spiralling costs of settling negligence claims was a series of court rulings which had increased the scale of awards in negligence cases.

The level of waste in the NHS is even bigger than we have been led to believe

Dr Liam Fox

As a result, the Lord Chancellor, Lord Irvine of Lairg, has ordered a reassessment of the money the NHS needs to set aside to cover future care costs and compensation for loss of earnings for claimants.

The Department of Health (DoH) says it recognises the need for "fundamental reform" is long overdue.

A DoH spokesman said: "The current system is slow and bureaucratic and doesn't work for either patients or for NHS staff.

"We need a faster and better system, not only to reduce costs, but to make sure the risk of mistakes happening again is minimised."

Commenting on the NAO report, the Shadow Health Secretary Dr Liam Fox said: "This shows that the level of waste in the NHS is even bigger than we have been led to believe."

The NAO report also shows that patient fraud is costing the NHS an estimated �112m a year - with another �81m said to be "at risk" of fraud.

However, the total figure is likely to be higher as the service has yet to produce estimates for the level of fraud committed by contractors or by NHS trusts.