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  • WisBar News
    April 22, 2010

    Supreme Court hears oral argument to decide fate of $200 million transfer

    April 22, 2010 − Last week the Wisconsin Supreme Court heard oral argument in Wisconsin Medical Society, Inc. and David M. Hoffmann, M.D. v. Michael L. Morgan, a lawsuit filed after the Wisconsin Department of Administration (DOA) transferred $200 million from a fund supported by assessments on health care providers to the state’s Medical Assistance Trust Fund (MA Trust).

    Established in 1975 and renamed the Injured Patients and Families Compensation Fund (the IPFC Fund) in 2003, the IPFC Fund was created to provide medical malpractice insurance to health care providers in excess of their primary insurance coverage limits.  Current law requires health care providers to carry minimum yearly coverage amounts of $1 million per claim and $3 million for all claims. Claims in excess of these amounts trigger use of monies from the IPFC Fund, which the health care providers support through annual assessments.

    In 2003, Wis. Stat. section 655.27(6) was amended to state that the IPFC Fund “is established 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. The fund, including any net worth of the fund, is held in irrevocable trust for the sole benefit of health care providers participating in the fund and proper claimants. Moneys in the fund may not be used for any other purpose of the state.”

    On Oct. 26, 2007, enactment of 2007 Wis. Act 20 allowed the transfer of $200 million from the IPFC Fund to the MA Trust, which supports the Medical Assistance program. See 2007 Wis. Act 20, section 9225(2). Michael L. Morgan, Secretary for the Department of Administration, recorded the first transfer of $71.5 million on Oct. 27, 2007.

    However, because the IPFC Fund did not have sufficient cash on-hand to cover the first transfer, “the Secretary reallocated money from a different state fund and began charging the [IPFC] fund interest.”  Wisconsin Medical Society v. Morgan, 2009AP728 (Dec. 10, 2009) (Certification by Wisconsin Court of Appeals). As of oral argument Apr. 15, 2010, the Medical Society noted that the state continued to charge interest on money that was not available to cover the transfers.

    The Medical Society argues the transfers constitute an unconstitutional taking of property without due process of law under both the U.S. and Wisconsin constitutions. It further contends the transfer impaired contractual rights and constituted an unlawful tax against them because such transfers “threaten the soundness of the [f]und” and may lead to increased assessments. Id. at 1-4.

    The court of appeals, noting an issue of first impression and “the broad statewide effect of a decision in this case,” certified the case for supreme court review in December 2009. Id. at 2-3. In its certification, the appeals court outlined the primary issue: whether health care providers covered by the IPFC Fund have a constitutionally protected property interest in the statutorily created fund that was violated when the state transferred the money.

    The circuit court had determined on summary judgment that the Medical Society “did not have a protectable property interest in the [IPFC] Fund, and that their remaining claims were barred by sovereign immunity.” Id. at 2.

    Last week, the Medical Society – represented by Thomas M. Pyper of Whyte Hirschboeck Dudek, S.C. − argued that allowing the state to make transfers of this kind thwarts the goal of reducing health care costs and ensuring the payment of claims. Pyper noted that under section 655.27(6), any surplus is the property of IPFC Fund providers to ensure funds for existing and projected yet unreported claims. The property interest, Pyper argued, is not restricted to amounts sufficient to pay actual claims. The ultimate property interest of the providers and the patients is “to protect the security and integrity of the fund.”

    D. James Weis of Habush Habush & Rottier, S.C. − who filed an amicus brief on behalf of the Wisconsin Association of Justice and in favor of the Medical Society’s position ­− responded to a substantive due process question arguing that “there was a shortage of general revenue … so instead of increasing tax revenue … [the state] grabbed money out of the fund … and the [doctors] have to make up the difference.”  That’s an inappropriate tax, Weis explained.

    Assistant Attorney General Charlotte Gibson, representing Morgan, argued that health care providers “can’t prevent the legislature from transferring monies into other state accounts if the legislature decides that that’s the wisest public policy.” The statute does not provide a mandatory right to distribution, Gibson said, and to have a property right “it has to be mandatory.” She also argued that IPFC Fund managers made the decision to borrow from other state accounts and pay interest rather than liquidate certain long-term funds for transfer.

    Justice David. T. Prosser Jr. asked Gibson: “This court assessed attorneys $50 a few years ago to help people with civil litigation needs … could the legislature take that money?” In response, Gibson said she thought so. Prosser went on: “And all the funds to help those people who have been injured by unethical behavior of attorneys, the legislature can just take that money?” Gibson said her assumption was that it could. “Isn’t that,” Prosser said, “the precedent we are talking about here today?” Gibson said: “The question as to when we get to interfere with those [state] policy choices is very narrow.” To interfere judicially, Gibson said, there must be a private property interest, and “that is very rarely the case.”

    Amicus Curiae briefs in support of the Medical Society were filed by: the Wisconsin Association of Justice; the Wisconsin Academy of Family Physicians; the American Academy of Family Physicians; the Wisconsin Chapter of the American College of Physicians; the Milwaukee District Association of Osteopathic Physicians and Surgeons; the American Medical Association; the Wisconsin Hospital Association; Dean Health Systems, Inc.; Marshfield Clinic; and Gundersen Lutheran Health System, Inc.

    The Advocates for Medicaid Patients filed an Amicus brief supporting the state.

    By Joe Forward, Legal Writer, State Bar of Wisconsin

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