New Hampshire Argues Claim to $110M Malpractice Fund

By | October 15, 2009

New Hampshire will ask the state Supreme Court today to support its claim to $110 million in surplus from a fund that underwrites malpractice insurance.

The central question is whether the fund’s policyholders have a constitutionally protected contractual right to the money.

In July, Superior Court Judge Kathleen McGuire sided with the policyholders, ruling that the state’s claim to the malpractice money is unconstitutional. They had argued the surplus is their property and should be returned to them or used to lower future premiums.

The policyholders, who include doctors and medical providers, also argue that if the state takes the $110 million and the fund fails to retain enough reserves to pay claims, their costs would be driven up to cover the claims.

Kevin Fitzgerald, the policyholders’ lawyer, argues that the constitution requires the state to pay compensation if it takes property, but that can’t happen if the property is money.

“If the state takes $1, it has to pay $1 for it. At the end of the day, it can’t take it,” Fitzgerald said last week.

The state is arguing that it set up the fund, the Medical Malpractice Joint Underwriting Association, in 1975 to fill a gap in the availability of malpractice insurance and did not give policyholders a vested interest in any surplus.

The state says the surplus is from premiums, investment income, efficient operations and good claims management. It says the surplus also grew partly because the association did not pay state taxes or assessments charged private companies to cover the state Insurance Department’s operating costs.

The state notes that policyholders paid market prices in exchange for comprehensive medical malpractice coverage even when they presented a risk that the private market refused to cover.

House Speaker Terie Norelli and Senate President Sylvia Larsen have filed briefs supporting the state’s claim. They argue lawmakers created the fund for a public purpose and lawmakers retained the right to modify the public policy to ensure access to health care.

“The public interest that spurred the Legislature to act was not simply the providers’ interest in getting coverage,” their brief said. “The core public interest is maintaining the availability of medical services offered by health care providers, who, in the absence of available coverage, might leave the state.”

They also note that the law prohibits the association from using its tax-exempt status to undercut the private market’s rates. They said the surplus can’t be distributed to policyholders without undercutting the market, which means if the state doesn’t use the money for health care, it will remain in the fund.

The law gives the state final authority to decide if a surplus should be used to lower rates or be returned to policyholders as dividends, they argue.

Norelli said lawmakers decided the surplus should be used to provide access to health care, which was the program’s original purpose.

Republicans have repeatedly called the state’s claim an attempt to “steal” money from doctors and health care providers.

The state counted on $65 million of the money to help balance the budget in the fiscal year that just ended and used $45 million toward spending in the current two-year budget.

Budget figures released earlier this month show that state revenues and cost-cutting measures were better than expected last year. As a result, the state may not need the $65 million from the fund to balance the budget. That would blunt Republican criticism of Gov. John Lynch for not saying what he will do regarding the budget if the state loses the appeal.

Lakes Region General Hospital in Laconia and other policyholders are suing to block the state’s claim. About half the 900 policyholders are doctors. The rest are nurses, physicians’ assistants, home care providers, nursing homes, a hospital group and other medical providers.

The New Hampshire Medical Society and American Medical Association are siding with the policyholders.

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