A Wisconsin Supreme Court ruling that a 2007 raid of a medical malpractice fund was unconstitutional seemingly restricts the Legislature’s ability to clean out similar funds, but stopped short of declaring all such funds off-limits, sources said Monday under the condition that they remain anonymous.
On July 20, the court ruled that transferring money from the Injured Patients and Families Compensation Fund to fill budget holes was unconstitutional and the state must now pay back $200 million, plus interest. The 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.
But the question remains whether the 5-2 decision from the court puts an end to future attempts by the state to tap into money allocated for specific purposes, such as the Wisconsin Trust Account Foundation (WisTAF).
“Obviously, this strengthens the arguments of lawyers that those funds cannot be touched and used for other purposes,” said attorney D. James Weis. “But while the decision provides guidance, I don’t think it necessarily means a dispositive outcome in any situation.”
WisTAF is similar in structure to the Injured Patients fund in that neither is fed by taxpayer dollars and both were created for specific purposes. Wisconsin attorneys pay a $50 annual assessment, which is dispersed to various legal service providers in the state for representation of indigent people.
Given the parallels between the two funds and the court’s logic in its ruling, Wisconsin Medical Society (WMS) General Counsel Ruth M. Heitz suggested that the Legislature would have a hard time tapping into the WisTAF fund.
“I would fully expect the same principles the court applied in this case would apply to attorney accounts as well,” she said.
In its decision, the court emphasized the fact that Wis. Stat. 655.27(6) defines the Injured Patients fund as an “irrevocable trust” and that health care providers have a constitutionally protected interest in the fund.
Weis said the same argument could be used on behalf of lawyers who pay the WisTAF assessment because they have a financial interest in where their $50 ends up.
“I think that the decision certainly makes clear that you don’t have to have a declaration of contractual rights in order to be able to protect a fund from a raid by the state,” he said.
Starting in 2007, the state made transfers from the Injured Patients Fund 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.
Michael L. Morgan, who at the time was secretary of the Wisconsin Department of Administration, was sued by WMS, which claimed that he had no right to take money from the fund because it was funded by contributions from health practitioners, not general taxpayer funds.
Morgan’s justification for transferring the money, as detailed in the Supreme Court’s decision, was that health care providers did not have a protectable property interest in the fund, which was created by statute.
WMS appealed a Dane County Circuit Court decision upholding the raid. In December, the Court of Appeals issued a certification requesting that the Supreme Court accept the case. In its ruling, the Supreme Court remanded the case back to Dane County Circuit Court with directions that the $200 million, along with lost earnings and interest, be repaid.
In its decision authored by Justice David T. Prosser, the court said that while they were sensitive to the financial plight of the state, “that cannot mean anything goes” or that “recognized property interests evaporate when the winds shift.”
“The legislature created a ‘trust’ for health care providers and their patients and families, and it pronounced that trust ‘irrevocable’,” wrote Prosser, who served 17 years in the State Assembly. “We take the legislature at its word.”
Another potential barrier in any attempted raid of WisTAF is the fact that it is a court-ordered fund and not one that is governed by statute.
During oral argument, the question arose as to the legality of legislative transfers from court-mandated funds, such as WisTAF. In a memo to the court, Assistant Attorney General Charlotte Gibson stated that while such a transfer would not be a taking of private property, it might raise “separation of powers concerns.”
“I think for court-established funds that the legislature tries to invade, you are going to have some separation of powers issues,” said Axley Brynelson health care attorney Guy J. DuBeau.
But Weis said it could also be argued that because it is a fund created by the court, that it doesn’t provide the same “indicia,” or ownership rights, as those trusts established by the Legislature.
“The property interest for lawyers could be greater or lesser and it could be argued both ways,” he said. “If the state drained that fund, the court would undoubtedly have to order lawyers to pay more.”
In recent years, the state has transferred money out of various funds to address other budgetary needs and Wisconsin Secretary of Department of Administration Dan Schooff suggested that the court’s decision was unique.
“I would think most other funds would not have the same sort of protection,” he said. “Generally, I think this is a narrow ruling, but it’s premature to say exactly what it means.”
Schooff added that the state has never attempted a raid on the WisTAF fund and he isn’t aware of any plans to do so.
In her dissent, Chief Justice Shirley S. Abrahamson, joined by Justice Ann Walsh Bradley, said that while the raid may have been unfair, it was not unconstitutional.
“The use of the label ‘trust fund’ creates no vested property interest on the part of persons, organizations or causes who may contribute to or benefit from those programs,” Abrahamson wrote.
Heitz said she expects other groups will evaluate the decision and potentially seek legislative changes to prohibit funds transfers by the state.
If there are future challenges to the state’s authority to raid funds, Weis said they will likely be evaluated on a “case-by-case” basis.
“The decision in general would favor the position that funds can’t be raided,” he said. “But someone is looking too broadly if they come to that conclusion automatically. There is still a set of criteria to be met and I still think cases will be fact driven.”