Physicians stop states from raiding liability funds

New Hampshire and Pennsylvania physicians won separate court rulings against state authorities looking to tap into state-created medical liability funds to solve budget shortfalls. Doctors said the early rulings could have a significant deterrent effect on other state legislatures that are considering plundering such funds to the detriment of access to care.

In New Hampshire, a Belknap Superior Court judge found unconstitutional a bill authorizing the transfer of $110 million from the state-created Medical Malpractice Joint Underwriting Assn. to expand state health programs for underserved populations. Gov. John Lynch as part of his 2010-11 budget had approved the transfer of what lawmakers consider to be excess monies in the fund.

Although the state created the JUA in 1975 as an alternative source of affordable medical liability insurance, the court noted that the insurer is funded through the annual premiums physicians and other health care entities pay to purchase coverage.

"The state did not financially contribute to the creation of the JUA and has not contributed any funds since that time," Judge Kathleen A. McGuire wrote in a July 29 opinion. She found the insurer was not a part of state government, and doctors and others have a vested right in the JUA funds. As a result, the state's seizure of that money violated policyholders' contractual and property rights.

The court also said the state's rationale that the transfer served an important public interest in promoting access to care did not justify the government's action. McGuire noted it was up to the JUA to determine if a surplus existed, which it had not done.

The decision is a victory for physicians, because if the JUA reserves were to fall short, it would have far-reaching negative consequences, said Georgia A. Tuttle, MD, a Lebanon, N.H., dermatologist and lead plaintiff in the case.

"That would directly penalize patients, because those higher fees would translate to an increase in the cost of providing care to the public," Dr. Tuttle said. The JUA "was created to provide malpractice insurance to providers in the state. It's not about subsidizing anything else."

The ruling also has significant legal and policy implications, said Kevin Fitzgerald, a plaintiff attorney in the case. "What we have going on here and around the country is governments looking around at funds accumulated based on other promises and trying to figure out how to change the rules of the game," he said. "This ruling stands for the notion doctors and other private parties need to be prepared to bring these claims and defend against the overreaching of government into private property."

Lynch has appealed the decision to the state Supreme Court, where the New Hampshire Medical Society and the Litigation Center of the American Medical Association and State Medical Societies plan to file a friend-of-the-court brief in support of the physicians.

"We continue to believe the state's intended use of these surplus funds is in the best interests of the people of New Hampshire and is consistent with the legislative intent in establishing the JUA," Lynch said in a statement. The JUA was established "to provide a service, not a windfall, to doctors ... to ensure doctors could get access to malpractice insurance, and that service has been provided."

Similar story, different state

Meanwhile, a Pennsylvania trial court on July 24 gave the green light to a lawsuit filed by the Pennsylvania Medical Society and the hospital industry to preserve an estimated $600 million set aside to help abate doctors' liability premium payments.

The pool, financed by cigarette taxes, was created to keep doctors practicing in the state by subsidizing the fees they must pay into a state compensation fund, known as Mcare. The program covers half of doctors' required $1 million liability coverage.

But the state in 2008 failed to release the money accumulated in the abatement fund after lawmakers reached a stalemate with Gov. Edward G. Rendell over his proposal to cover the uninsured. At the time, the governor said he would use the money to cover health care expansions, while other lawmakers proposed to tap the funds to cover other budget shortfalls.

Because the money was set aside to help retain doctors by reducing their liability insurance burdens, however, the Commonwealth Court found the physicians were entitled to relief and allowed the suit to proceed to trial. As of this article's deadline, no hearing date was scheduled. The court also rejected the state's argument that because the abatement program expired in December 2008, it no longer had the authority to transfer the abatement funds to the Mcare program.

J. Scot Chadwick, the state medical society's director of government affairs, said with the abatements gone, the money must cover Mcare's outstanding liability claims still making their way through the legal system, which stand at an estimated $1.7 billion. Diverting those funds would not only drive up doctors' fees to cover any potential deficit, but also drive away physicians.

"This all boils down to access to care for patients," Chadwick said. When it comes to recruiting new doctors, in particular, "we don't want to have physicians paying [a surcharge] for coverage they never received."

The governor's deputy general counsel, Barbara Holland, said the physician and hospital organizations are misreading the legislation, which allows the state to spend the money on other projects, not strictly Mcare.

"At this point, the Legislature has the sole authority to appropriate that money, and if they decide there's a better use of that money, that's their discretion."