Primary care trusts have been given freedom to set the level of financial penalty imposed on providers for serious failings “that should never happen”.

The new system would allow PCTs to place a cap on the amount of money they recover. But commissioners fear it could prove too complicated.

The move follows the extension of so-called “never events” from eight to 25. New avoidable errors include misidentifying patients and incorrect administration of insulin.

Since April 2010, PCTs have been expected to recover the cost of these mistakes, including the cost of any procedure that went wrong and treatment to put it right, by withholding payments to providers.

But the Department of Health has now said it should be up to PCTs to decide locally how that will work.

It has suggested commissioners should cap potential penalties to ensure they are “proportionate” and avoid unfairly penalising providers. This could be the equivalent of a month’s inpatient stay or a specific figure “of, for example, £10,000”, a spokeswoman said.

PCTs can also decide to waive fines entirely.

The spokeswoman said commissioners and providers “should discuss what principles to apply in advance, while agreeing contracts”.

PCT Network director David Stout said that attempting to recover the full cost of an error that had caused lasting damage to a patient could become “ridiculous and disproportionate”.

Discussing costs beforehand could help avoid rows between PCTs and providers, he said. But he feared it could become very complicated.

He said: “My worry is we’re turning something simple into something that involves a complex set of negotiations between commissioner and provider for each type of never event.”

He said one solution would be to set rough costs for each of the 25 nationally. But he added that it was impossible to predict the impact of individual cases.

There were 111 recorded never events between July 2009 and June 2010 under the old list.

This increases to 261 under the extended list.