Pennsylvania not obligated to transfer funds to liability account, court rules

After losing a recent lawsuit on the state’s medical liability fund, the Pennsylvania Medical Society is continuing to fight another legal battle related to the fund.

The Supreme Court of Pennsylvania ruled that the state was not obligated to transfer tax funds from a state account into Mcare, the Medical Care Availability and Reduction of Error Fund. The second suit, which the state high court has yet to decide, centers on money taken from the Mcare fund to balance Pennsylvania’s budget.

“We felt we had a very strong case, and we were disappointed with the Supreme Court decision,” said Elizabeth Metz, general counsel for the medical society. “But it is what it is, and we’re going to move on. We will not petition the Supreme Court to rehear the case.”

The medical society and others filed two lawsuits against the state. In one suit, doctors claimed the state improperly took $100 million from Mcare during a budget crisis. The fund was created in 2002 in response to the growing costs of medical liability claims, increasing medical liability premiums and concern that health professionals would leave the state. Mcare is primarily funded by assessments paid by doctors.

The other lawsuit is related to the state’s Health Care Provider Retention Program, which served temporarily to reduce the Mcare assessments paid by health professionals. Doctors in high-risk specialties were entitled to a 100% abatement of their annual Mcare assessments, while all other physicians were entitled to a 50% abatement.

As part of the program, the state set up an account called the Health Care Provider Retention Account, from which the state was authorized to transfer funds to Mcare and to determine the amount of such transfers. The account was funded by cigarette taxes and motor vehicle surcharges.

In its legal challenge, the medical society argued that the state did not transfer the appropriate amount from the account into Mcare. Specifically, from 2003 to 2007, health professionals were granted abatements of $946 million, according to court documents. The state, however, transferred $330 million into Mcare. Then in 2009, the state moved about $700 million from the Health Care Provider Retention Account into its general fund to manage the state budget.

State officials argued that the account was created not to provide a dollar-for-dollar transfer to Mcare for all abatements.

A lower court ruled in favor of the medical society. However, the state’s high court reversed the lower court’s decision, finding in favor of the state.

Although the law “implicitly suggests that the Legislature intended for some HCPR account monies to be utilized to pay for abatements, which, in turn, served to retain health care providers in the Commonwealth, it does not demonstrate & that the Commonwealth had an obligation to transfer funds,” the court said in its Feb. 29 opinion.

Second lawsuit continues

At this article’s deadline, a spokeswoman for the Dept. of Public Welfare of the Commonwealth of Pennsylvania had not returned messages seeking comment. In court documents, the state said the HCPR account was not created solely to pay for abatements dollar-for-dollar.

“The transfer of hundreds of millions of public tax dollars into the Mcare fund would have amounted to an improper windfall for private health care providers,” the state said in court documents.

The HCPR account and the state’s abatement program since have been terminated.

Metz said the medical society is focusing on its remaining lawsuit against the state over the $100 million taken from the fund. The case was argued before the state Supreme Court in September 2011. The high court has not issued a decision.

“We’re trying to protect the money and assessments physicians have paid into the fund,” she said. “We believe that money should be used only for Mcare purposes and should not be used for other budgetary purposes.”

The Litigation Center of the American Medical Association and the State Medical Societies issued one friend-of-the-court brief in support of the medical society in both cases. The brief asks the court to reject the state’s transfer of funds from the Mcare fund.

“The AMA respectfully urged the court to follow the precedents of the well-considered decisions of the Supreme Courts in New York, New Hampshire and Wisconsin in rejecting state efforts to transfer statutorily-dedicated and committed funds,” the brief said. “Physicians, like all citizens, have a right to expect fair and honest treatment from government, including honoring the statutory promises that have been made and relied upon.”