Pa. court orders state to restore medical liability funds

Meanwhile, a Wisconsin audit confirmed doctors' fears that a state liability fund is in trouble, after lawmakers withdrew $200 million to balance the state's budget.

By Amy Lynn Sorrel — Posted May 3, 2010

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Pennsylvania physicians have won a major victory in their fight to keep the state's hands off money intended for a medical liability compensation fund. A trial court ordered the return of hundreds of millions of dollars diverted to balance last year's budget.

The Commonwealth Court on April 15 found that physicians had a vested right in an estimated $600 million in tax money set aside to help abate doctors' liability premium payments and another $100 million physicians paid into a separate state fund for liability coverage.

Physicians and other health care professionals contribute annually to Mcare, the Medical Care Availability and Reduction of Error Fund, which subsidizes half of the $1 million in insurance coverage doctors are required to carry. The state also set up another pool financed by cigarette taxes to encourage doctors to practice in the state by reducing their Mcare fees.

Last October, Gov. Edward G. Rendell and state lawmakers, as part of the 2009-10 budget, approved the transfer of what they contended were excess funds in the liability pools to finance other state needs. The move prompted separate lawsuits by the Pennsylvania Medical Society and the hospital industry.

The court found that the money was set aside for specific statutory purposes -- namely covering outstanding liability claims and relieving physicians of high premium costs -- and that doctors had a right to see those purposes fulfilled.

Because the abatements were not fully financed, Mcare would not have the money needed to cover its unfunded liabilities, the court noted, thus placing that burden on doctors. "Providers in the future, therefore, will pay increased assessments, meaning that any abatements they have received were actually only mere payment deferrals, rather than abatements," Judge Johnny J. Butler wrote.

The court also rejected state authorities' arguments that because the abatement program expired in December 2008, it was no longer required to use the tax money to fund Mcare.

"The state made a good faith deal with physicians, saying we will provide you with abatements, and in return, you will agree to stay and practice in Pennsylvania for a full year," said Scot Chadwick, the state medical society's vice president of government affairs. "Physicians held up their end of the bargain, and the state didn't hold up its end. [The state] can't create a legal program, have people act in good faith on it, and retroactively go back and take that away."

Chadwick said the decision also is critical because if the money is not returned to Mcare, once it is phased out as planned, doctors could be responsible for an estimated $1.6 billion in claims that have yet to come due.

But the governor contends the Legislature has the constitutional authority to appropriate state money as it sees fit, Rendell spokesman Gary Tuma said. The governor is appealing the decision to the Pennsylvania Supreme Court, which is expected to take the case.

Tuma also noted a dissenting opinion that echoed those arguments.

"The governor and General Assembly were well within their constitutionally granted powers when they enacted budget legislation last October. The Commonwealth was facing an enormous crisis," Judge Dan Pellegrini wrote, adding that judicial intervention was not warranted.

He said doctors already received the abatements to which they were entitled, and the state's obligations were fulfilled. The majority ruling, on the other hand, provides "a personal windfall to doctors, with the consequential effect of making the 2009-2010 budget out of balance," he said.

Wisconsin fund in peril

Wisconsin physicians, meanwhile, say a state audit has confirmed their fears that the state's Injured Patients and Families Compensation Fund is in worsening shape after the Legislature withdrew $200 million to balance its 2007-09 biennial budget -- and that doctors will pay the price.

A Legislative Audit Bureau report released in March found that as a result of the budget legislation, the compensation fund's financial balance "declined significantly over the last two years" and came up $109 million short of what it needed to meet its projected liabilities for 2009. The pool also was affected by the downturn in the economy and rising claims payments, the audit stated.

In addition, the fund's financial health is projected to deteriorate further unless its board raises the fees doctors and other health care professionals must pay in order to participate in the pool, which covers the payout of claims above $1 million. The board already raised rates by 9.9% in 2009, "but did not factor in the effect of the $200 million transfer," auditors said.

"Every patient who receives health care services in Wisconsin should have the assurance that, if injured, the money in the fund will be used to pay claims as the Legislature intended," said George Lange, MD, chair of the board of trustees of the Wisconsin Medical Society.

WMS sued the state in 2007 to have the transfer declared unconstitutional. State officials have defended the move as legal, and a trial court agreed in 2008.

The case was appealed to the Wisconsin Supreme Court, where a decision is pending. Oral arguments began April 15.

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Case at a glance

Were Pennsylvania lawmakers entitled to use money from medical liability funding pools to balance the budget?

A trial court said no. The state is appealing to the Pennsylvania Supreme Court.

Impact: Physicians say the funds were intended to guarantee their liability coverage and patient access to care. State officials say they have the discretion to appropriate the money as they see fit.

Pennsylvania Medical Society et al. v. Dept. of Public Welfare et al., Commonwealth Court of Pennsylvania and The Hospital and Healthsystem Assn. of Pennsylvania et al. v. Commonwealth of Pennsylvania et al., Commonwealth Court of Pennsylvania

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External links

Commonwealth court opinions in Pennsylvania Medical Society et al. v. Dept. of Public Welfare et al., Commonwealth Court of Pennsylvania and The Hospital and Healthsystem Assn. of Pennsylvania et al. v. Commonwealth of Pennsylvania et al. (link)

"Injured Patients and Families Compensation Fund," an audit by the Wisconsin Office of the Commissioner of Insurance, March (link)

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