Wisconsin Medical Fund Not a ‘Piggy Bank,’ State High Court Rules

Published August 27, 2010

The Wisconsin Supreme Court dealt a blow to the budgetary manipulations of Gov. Jim Doyle (D) and the Wisconsin legislature when it ruled their $200 million raid on a medical trust fund was unconstitutional.

The fund was established by state law in 1975 to help control increases in medical malpractice insurance premiums for Wisconsin doctors and other health care providers. As ultimately amended, the law requires providers to carry private malpractice insurance with annual coverage of $1 million per claim and $3 million for total claims per year.

Health care providers also pay an annual assessment to the state fund. The fund covers providers who maintain the required private insurance and are found liable for malpractice claims in excess of the $1 million or $3 million coverage amounts. The fund pays the excess verdict amounts so injured patients are fully compensated beyond the negligent providers’ policy limits.

The purpose of the fund, the state law says, is “to curb the rising costs of health care by financing part of the liability incurred by health care providers as a result of medical malpractice claims and to ensure that proper claims are satisfied.”

No Tax Dollars in Fund
No taxpayer money goes into the fund. Doctors say the fund’s purposes were being accomplished, with physicians coming to Wisconsin from other states where malpractice premiums are skyrocketing.

For the 2007-09 budget, however, the legislature transferred $200 million from the fund to make up for deficits in other areas. This put the fund $109 million in the red, the court found.

Since 1975, the court noted in its July ruling, about $771 million in claims have been paid. It also said the claims payment amounts have steadily increased since 2006, but the amount payable in any particular year is unpredictable. Therefore, a surplus in one year can be quickly wiped out in another as jury verdicts in excess amounts become final in court and thus payable.

Unconstitutional Taking of Property
After the transfer, the Wisconsin Medical Society and Dr. David Hoffman of Mauston, Wisconsin sued the state, alleging the diversion of funds was an unconstitutional taking of property. In a 5-2 decision, the court agreed.

The law establishing the fund created an “irrevocable trust account,” the court found, giving providers “a constitutionally protected property interest in the Fund” and naming them as beneficiaries to both the fund’s principal and any interest earned.

The court remanded the case to Dane County Circuit Court in Madison and directed the court to enter an order requiring the state to replace the funds, along with lost interest, and forbidding any further transfers.

The assessment amounts range from approximately $1,300 to just under $9,000 per year per doctor, with those in high-risk specialties paying higher assessments. Interest earned from investing fund balances helps reduce the assessments.

‘Stabilizing Influence’ on Premiums
Hoffman said the law has been “a stabilizing influence” on malpractice premiums. Dr. Thomas Luetzow, president of the Wisconsin Medical Society, which represents approximately 12,500 physicians, said in a statement the ruling is “a great victory for patients, their families, and health care professionals across Wisconsin.” It “sends an important message that the Fund is not a piggy bank. The raid was wrong, and justice has been served,” he added.

In the past seven years, Doyle and the legislature have diverted more than $2 billion from funds established for particular purposes such as road building and bridge repairs, according to a 2009 report by the legislative budget bureau.

These diversions may now be challenged in court, but the court’s medical fund ruling might not apply. The statute creating the medical fund contains unique and legally significant language establishing that fund as an “irrevocable trust.” That language is not present in statutes creating other special-purpose funds.

Maureen Martin ([email protected]) is an attorney and senior fellow for legal affairs at The Heartland Institute.