N.H. doctors sue to stop state raid on medical liability fund

New Hampshire physicians are challenging what they call an illegal $110 million plunder of a medical liability insurance fund by the budget-strapped state.

A coalition of more than 200 physicians and other health care entities sued the state on June 18, just days before Gov. John Lynch approved a 2010-11 budget that transfers the money from the state-created Medical Malpractice Joint Underwriting Assn. to expand state health programs for underserved populations.

The JUA was created by the state in 1975 as an alternative source of affordable medical liability insurance. The insurer is funded through the annual premiums physicians, hospitals and other health care entities pay to purchase individual coverage.

The state planned to withdraw $50 million from the fund by June 30, though a recent court order has frozen any transfer until the litigation is resolved. The legislation proposes to withdraw another $60 million by June 30, 2011.

Dipping into those funds amounts to an unlawful tax on policyholders and a violation of fiduciary duty to the physicians and others who pay into the fund, according to the lawsuit. The plaintiffs are asking the Belknap County Superior Court permanently to block any JUA fund transfer and compel the insurer to return any potential surplus to its policyholders.

State law, as well as doctors' contracts with the JUA, require that any surplus money either be used to cover outstanding debts or be returned to policyholders, said dermatologist Georgia A. Tuttle, MD, a lead plaintiff in the case and immediate past president of the New Hampshire Medical Society. The organization, though not directly involved in the lawsuit, is supportive of the effort and testified against the fund transfer.

"These are the rules we play by, and the Legislature can't go in retroactively and change the rules," Dr. Tuttle said. More importantly, she said, if the JUA's reserves were to come up short, "this is going to affect health care around the entire state." State regulations permit the insurer to tax even nonmembers' premiums to shore up funds, and past shortfalls resulted in a 15% surcharge for about nine years, she noted.

The New Hampshire Insurance Dept. has recommended leaving a $55 million surplus to cover the JUA's estimated liabilities, according to a February opinion by the state attorney general's office.

Still, "all it would take is one or two catastrophic claims to tip it over," Dr. Tuttle said.

Whose money is it?

Kevin Fitzgerald, a plaintiff attorney in the case, said the state has played no role in the management of the JUA, nor has it contributed to the insurer's funds or promised to back them up.

A trial judge agreed in a June 25 preliminary ruling and concluded the JUA is an entity separate from government control. A full hearing is scheduled for July 20.

State officials, meanwhile, have defended the transfer, saying the fund has plenty of money to spare to help make health care more accessible. Glenn A. Perlow, an assistant attorney general, said the JUA is a state-created entity and as such, the Legislature has discretion to use any excess funds as it sees fit.

"The money is deemed to be used to help the medically underserved. So since the ultimate purpose [of the JUA] is to benefit citizens by ensuring doctors are available, the Legislature deemed that to be a better use of the funds," he said.

In addition, any payout to policyholders requires approval from the insurance commissioner and cannot interfere with the private market. A distribution of the current excess funds to physicians would significantly reduce premiums and undermine competition, Perlow said.

Perlow disputed doctors' claims to the surplus, saying the JUA already has fulfilled its obligations to policyholders. "What they are paying is premiums for malpractice insurance, and what they are getting is malpractice insurance."

A dangerous trend?

Perlow cited a recent precedent established in Wisconsin, where a trial court concluded that state physicians had no right to excess money in the state's patient compensation fund because they already received the benefit of the insurance coverage they purchased through the pool. Gov. Jim Doyle in 2007 approved a $200 million transfer from the fund to finance Medicaid and uninsured programs.

The Wisconsin Medical Society, which brought the initial case, appealed the ruling to the 4th District Court of Appeals. The Litigation Center of the American Medical Association and State Medical Societies filed a friend-of-the-court brief supporting state doctors, who argued the fund was meant to keep insurance rates affordable and protect injured patients.

"There ought to be a bright-line rule. If the legislature says these are protected dollars to be used for a specific purpose, that's the end of the story," said Larry Pheifer, executive director of the Wisconsin Academy of Family Physicians, which joined organized medicine's brief. "Now, with the taking of this money, lo and behold, the fund is in trouble, and doctors are being asked to pony up a 25% fee increase over five years," which could disrupt a relatively stable liability climate and hurt recruiting efforts, he said. Fees already jumped 10% in 2009.

But unlike Wisconsin, New Hampshire law clearly states that any liability fund surplus belongs to its policyholders, said Fitzgerald, the plaintiff attorney in that state's case.

If the proposed transfer is not overturned, doctors elsewhere could face a similar fate, Dr. Tuttle warned. "This could set yet another precedent that would empower legislatures around the country to do the same kinds of things to other funds."