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Swept Clean (76041)

ImageA fund set up to compensate victims of medical malpractice is facing hundreds of millions of dollars in potential liability but has no cash on hand and a negative net worth after the state moved money out of the fund to pay for other programs.

The Injured Patients and Families Compensation Fund, set up in 1975, is designed to pay judgments above and beyond the state of Wisconsin’s $1 million limit on the amount of malpractice insurance health providers must carry. As recently as three years ago, the fund contained almost $95 million. Two raids of the fund by Michael L. Morgan, secretary of the Department of Administration, cleaned out $200 million from the fund. At the end of the 2009 fiscal year, the fund had a balance of negative-$109 million.

Morgan was sued in 2007 by the Wisconsin Medical Society (WMS), which said that he had no right to take money from the fund because it was funded by contributions from health practitioners, not general taxpayer funds.

In arguments before the Wisconsin Supreme Court on April 15, attorney D. James Weis made the point that a highway is not going to sue the state of Wisconsin for taking money from the transportation fund.

“When it comes to general taxpayer funds, case law has said the state has the right to raid those,” Weis said in an interview. “There is no quarrel with that.”

But Weis argued that the state has no right to raid a fund paid for and designed to protect a specific segment of the population.

Weis, who appeared in court to present an amicus brief from the Wisconsin Association for Justice (WAJ), said claimants are “scared to death,” that the fund won’t be able to cover the future cost of claims.

“If that happens, I think it has an implication about the constitutional soundness of the entire medical malpractice statute,” he said.

Ruth M. Heitz, General Counsel for WMS, said there is still money in the fund because the audit looked at not only the current claims, but those that have yet to be filed when determining the deficit.

“Part of what needs to be restored is the actuarial balance of the fund,” she said, “so that there will be money for old checks that simply haven’t been written.”

A large part of restoring the fund is recovering the $200 million, said Heitz. But she also said the board of directors is exploring alternative measures such as raising assessments of health care providers that pay into the fund.

For Dr. Tim Bartholow, higher contributions run contrary to the purpose of the fund, which also helps to attract and retain physicians to the state.

“Honestly, that wasn’t the deal,” Bartholow said of the raid. “I think physicians are frustrated to have the goalposts moved if that’s the intention of the government.”

For attorneys, a deficit could impact the amount of recovery for claimants in medical malpractice cases, said Weis.

As long as a doctor contributes to the fund, they are immune from judgments against them, as payments come from the fund.

“It’s a scary thing if there were not enough money in the fund to cover claims,” Weis said.

Starting in 2007, Morgan made transfers of $71.5 million and $128.5 million to the newly created Medical Assistant Trust Fund (MATF), to help cover costs of Medicaid, prescription drug care for seniors and health insurance for families and children through the Badger Care Plus program.

Morgan argued that the current state of the fund is fiscally sound. He cited its current value of $660 million, as noted in the audit, which he said is “nearly as much as has been paid out over the 35 year lifetime of the fund.”

He added that the value is more than adequate to meet current average annual payments of approximately $30 million per year during the past 10 years.

“To assert that the fund is in any danger of failing to pay claims is contrary to these basic facts,” Morgan said.

Still, he acknowledged the possibility that the fund could face a deficit at some point and said that the state “is prepared to step in with another $100,000,000 in the very unlikely event that ever became necessary.”

“The actuarial ‘deficit’ projected by the actuary is a very long-term, conservative view of what might occur in the future,” Morgan said. “Estimating future potential losses is very difficult and is highly speculative.”

WMS appealed a Dane County Circuit Court decision upholding the raid, and in December, the Court of Appeals issued a certification requesting that the Supreme Court accept the case.

Weis said statute clearly prohibits the state from raiding the compensation fund.

“In 2003, when there was a threatened raid, the legislature created a law that tried to make it as clear as possible that the state cannot welsh on this deal,” he said. “Then 2008 rolls around and the state says, ‘never mind.’”

The state argued that because the statute makes no specific reference to the fund as a “contract,” health care providers do not have a protectable property interest in the compensation fund.

This is a unique case, said Wisconsin Association for Justice President, Paul V. Gagliardi, given that it deals specifically with the medical profession and isn’t funded by taxpayer money.

“I’m quite certain there is no precedent for this particular case,” he said.

For that reason, Gagliardi suggested the case likely won’t have much impact on other areas outside the medical profession.

But Heitz suggested that an adverse ruling from the Supreme Court could potentially open the door for other “irrevocable” funds to be raided.

Some of those could include lawyer-centered funds such as the Wisconsin Trust Account Foundation, which attorneys pay $50 into annually for dispersal to various civil legal service providers.

“There is the potential that the fund could be subject to state raids as well,” she said. “So, the thought that people could be left with nothing is a little unsettling for attorneys in the state.”

The WMS compared its interests in the case to those enrolled in the Retirement System Trust Fund addressed in Wisconsin Professional Police Association, Inc. v. Lightbourn (2001 WI 59, 243 Wis. 2d 512, 627 N.W.2d 807).

In that case, an attempted raid of the fund was denied because the court found the pension money was contractually protected under statute.

Weis, of Habush Habush & Rottier, said doctors and health care providers also have those protection rights.

“They don’t have to use that magical language, as long as the statute was intended to be a contract or convey property rights,” he said.

In other instances where raids were upheld, such as those involving transportation trusts, Weis said they didn’t involve a group of sole beneficiaries, such as doctors.

Jack Zemlicka can be reached at jack.zemlicka@wislawjournal.com.

3 comments

  1. Although the article correctly discusses the issue involved in the case, your headline is a little misleading. The Injured Patients and Families Compensation Fund still has assets of $635,831,5340 as of the last financial statement, dated June 30, 2009. As the respondent correctly stated, the total payments from the Fund to injured claimants from 1975, when the Fund was established, through December 31, 2009, has been $770.8 million. Thus, it is true that there is currently almost as much money in the Fund today as has been paid out in 35 years. Thus, I think your statement that the Fund “has no cash on hand” is an overstatement.
    Regarding the discussion about having to possibly increase the amounts of the annual assessments charged to doctors, last year’s assessments were only about one-third of the assessments from 1996-97. The Fund has been doing very well, other than the taking of the $200 million, so that the assessments have been quite reasonable for a substantial period of time. Last year, internists and family practice doctors paid an assessment of $1,240; doctors performing minor surgery paid $2,231; most surgeons paid $5,144; and obstetricians and neurosurgeons paid $7,438.
    As the article mentions, most of the actuarial deficit is attributed to “incurred but not reported losses”, namely, unknown cases that may be filed, but have not been. The actuaries have generally been very conservative by giving a large number to this potential liability. When looking at the financial statements in retrospect, those potential losses have usually not come to fruition.
    All of that being said, I agree with the argument of Attorney Weis. I do not think it was right to have taken the $200 million from the Fund. The purpose of the Fund is to protect injured patients and, secondarily, the doctors who may negligently cause injury to patients.

  2. Michael,

    You are correct when you say the fund still has assets, which was noted in the story. However, the story is correct when it says the fund has no cash on hand. According to the audit report used as the basis for the story, the fund had a cash balance of zero at the end of the ’09 fiscal year.

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