Audit: Wisconsin Medical Malpractice Fund in Poor Shape

A fund that helps Wisconsin health care providers pay medical malpractice claims is in poor financial shape after lawmakers raided $200 million to balance the budget, auditors have warned.

The Injured Patients and Families Compensation Fund also has been negatively affected by the downturn in the economy and an increase in payments to malpractice victims, a report by the Legislative Audit Bureau found. The fund had an estimated $109 million less in assets than its projected liabilities as of June 30, it found.

“The fund’s financial position has declined significantly in the last two years,” State Auditor Jan Mueller said in a letter to lawmakers.

Its finances likely will continue to deteriorate in coming years unless its board raises the fees paid by the 13,000 health care providers who participate in the fund, the report warned. Last year, the board increased rates by 9.9 percent.

The fund has been credited with keeping malpractice insurance rates low, making Wisconsin an attractive place to practice medicine. It pays for claims that are more than a provider’s primary malpractice insurance covers, which is generally $1 million per case.

Lawmakers and Gov. Jim Doyle agreed in 2007 to transfer $200 million from the fund to pay for other medical programs as part of a deal that ended a lengthy budget stalemate. The Wisconsin Medical Society, which represents doctors, is challenging the transfer in court, arguing it was unconstitutional.

A Dane County judge dismissed the case in 2008, but the Wisconsin Supreme Court is considering the group’s appeal. The high court is expected to rule this summer on whether the transfer can stand or the state has to pay the money back.

“The fact that the fund no longer has enough money to pay projected claims … erodes confidence in a system designed to protect the interests of injured patients and their families and undermines the integrity of Wisconsin’s medical liability climate,” said George Lange, chair of the Medical Society’s board.

Doyle defended the transfer. He downplayed its impact on the fund’s stability, saying he has always believed the fund overestimates its potential liabilities.

“When you consider what the options were – major cuts to medical providers in the state, cuts to doctors and cuts to hospitals, I think the Legislature made the right decision,” he told reporters after a ribbon-cutting ceremony for a new manufacturing facility in Verona.

The audit said the transfer caused the fund to have a negative cash balance since it did not have enough cash and investments to cover it. The fund was loaned $76.8 million from another state fund, and incurred $2.5 million in interest as a result. The transfer also reduced the fund’s potential investment earnings.

The fund was hit with $9.2 million in losses after the collapses of Washington Mutual Bank and Lehman Brothers in 2008, and a $7.7 million loss after fund managers sold its investments in Ford Motor Co. and General Motors Co.

At the same time, annual claims payments have increased for each of the last four years. In the budget year that ended June 30, the fund paid out more than $65 million, the most since its inception.

Some of the claims increases were attributed to the Wisconsin Supreme Court’s 2005 decision that struck down a cap on damages malpractice victims could receive for their pain and suffering. Lawmakers have reinstated a $750,000 cap, but the ruling has left no limits on such damages for injuries between 1991 and 2006.

Several multimillion dollar claims have resulted, and the fund’s liability to cover future medical expenses of victims jumped from $5.5 million in 2006 to $31 million in 2009, the report noted.

According to the Legislative Audit Bureau cases with high payouts include:

• $34.3 million in 2008 to settle allegations that a negligent blood transfusion caused cardiac arrest and brain damage.
• $16.1 million in 2009 to a patient who claimed that a botched surgery caused brain damage.
• $37 million to settle five separate cases in which patients alleged the negligent deliveries of babies caused injuries.