The litigation crisis in the NHS has hit a £4 billion high.

Medical negligence claims may have a total cost to the cash-strapped NHS of up to £3.9 billion over the next decade, the National Audit Office claimed on Thursday.

The shock figures mean that the health service's "compensation culture" is now worth up to 10 per cent of the NHS's budget - a sum equivalent to the cost of 16 new hospitals - fuelling concerns over growing litigiousness in the UK.

The NAO found that in March 2000 23,000 outstanding cases totalled £2.8 billion with its report estimating an extra liability of £1.3 billion.

A quarter of the huge bill is accounted for by legal costs which are often greater than the damages.

The parliamentary watchdog has called for two key changes to the system:

- Measures to deal with outstanding claims more quickly. The NAO argues that the NHS Litigation Authority should draw up an action plan with quantified targets and performance measures to address claims that have sometimes been open for more than five years.

- Alternative ways of satisfactorily resolving small and medium sized claims.

NAO chief Sir John Bourn said: "The human and financial costs of clinical negligence are enormous. Many claims have been outstanding for a long time, and the present system is a slow and inefficient way of resolving many claims. Implementation of our recommendations should provide patients with improved access to remedies, speed up settlements and cut legal costs."

Speaking on Thursday, David Davis, the chairman of the Commons Public Accounts Committee, said the system was "spiraling out of control".

"It doesn't serve the taxpayer and neither is it serving the people making the claims," Davis said.

Observing that in 65 per cent of cases for damages under £50,000 the legal fees outstripped compensation, Davis attacked the "irresponsible use of public money" and called for alternatives to court action.

"[Claimants] often want an apology, an explanation and assurance that the incident could not be repeated," he said.

Critics of the NHS's "compensation culture" argue that a growing culture of mistrust and consumerism in the NHS has fuelled the 72 per cent rise in medical negligence claims between 1990 and 1998.

Author of "Courting mistrust: the hidden growth of a culture of litigation in Britain", Frank Furedi told ePolitix that the "momentum behind the process is so powerful that it is transforming the whole culture of health service delivery."

Furedi and others warn that the costs of the UK's "litigation culture" go beyond the headline figure of £3.9 billion.

"Whilst the financial consequences are quite dramatic in terms of undermining services a far greater issue is how the fear of litigation alters medical practice, with research showing the growing institutionalisation of defensive medicine," he said.

In an ePolitix interview in January, shadow health secretary, Liam Fox, attacked the rise of defensive medicine as "bad for patients, because unnecessary investigations and tests are carried out on them simply to make sure that the doctor is not going to be liable to face a lawsuit later on. Everybody loses in a something for nothing culture."

"When you have the legal profession advertising on TV for people to sue others for accidents, then inevitably you will have a knock-on effect. In time, we'll suffer what happened in the United States, where doctors primarily practise defensive medicine and patients therefore undergo procedures whether or not they need them. The goal is to protect the doctor's reputation, not to improve the patient's health," he told ePolitix.

Tracey Brown, senior analyst at Regester Larkin's risk analysis unit, argues "that the relationship between the medical profession and patients has been consistently undermined by strained resources and the simultaneous promotion of complaints procedures and compensation schemes."

"Patients are encouraged to feel that they are unlikely to be treated carefully and seriously without the explicit back-up of the law. For their part, many doctors have embraced defensive practices, because their confidence in their own abilities is constantly challenged and because they don't believe that they will be trusted or backed up in the event of a complaint," she told ePoltix.

Liberal Democrat health spokesman, Nick Harvey, has called for the creation of a "no-fault" Medical Injuries Compensation Board. A new board would award compensation on the basis of "causation not negligence" meaning the the NHS would be able to afford to compensate "more patients at a more reasonable level".

"The costs of compensation are getting out of hand. It is not fair to add to patients' suffering and it is not right to waste NHS money. A no-fault compensation scheme would cut out legal fees, avoid health authorities clocking up costs and mean swifter pay-outs for patients," he said.