Commonwealth Court: Pennsylvania overcharged doctors

Brian Bowling
| Tuesday, Aug. 13, 2013, 12:01 a.m.

A Commonwealth Court ruling raises the likelihood that hospitals, doctors and other medical providers next year will receive more than $100 million in refunds or credits from a state-run medical malpractice liability fund.

Though consumers won't benefit directly, it's good news for them long term, said Stephen Foreman, an associate professor of health care administration at Robert Morris University.

Private and government insurers constrain how much doctors and hospitals may charge for services, but anything that makes their operations more expensive eventually drives up consumer costs or drives medical providers out of the state, Foreman said.

“An excess tax on physicians in this state always hurts consumers,” he said.

In the case of the Mcare fund, the state has overcharged medical providers since 2004 by insisting that money remaining at year-end cannot be used to reduce the next year's assessments, said Martin Ciccocioppo, vice president of research for the Hospital & Healthsystem Association of Pennsylvania.

The annual assessments increased while the amount paid annually in claims decreased until 2010, he said.

“That's how we ended up with a surplus,” he said.

The hospital group, the Pennsylvania Medical Society and the Pennsylvania Podiatric Medical Association sued the state over the Mcare payment calculations.

Insurance Department spokeswoman Melissa Fox said the agency hasn't decided whether to appeal the ruling and declined further comment.

Established in 2002 to keep down the cost of medical malpractice insurance, the Mcare fund isn't an insurance program that builds up a reserve that's invested to cover future claims. It's a pay-as-you-go program that covers claims on a year-by-year basis.

Medical providers obtain their first $500,000 of coverage from private insurers, and the state fund provides the next $500,000 of coverage.

The program is supposed to phase out if the insurance commissioner determines the private market can provide the entire $1 million coverage at affordable prices.

In a 5-2 ruling late Friday, the court said the clear language of the law creating the fund doesn't allow the state to build up a surplus. The state argued that building up a surplus — $129 million as of Dec. 31 — provided stability by creating a reserve to cover sudden increases in claims.

Judge Mary Hannah Leavitt said the General Assembly created the program as a short-term measure to keep malpractice insurance affordable.

“Stable, unchanging assessments hold no logic for a statutory fund scheduled for ever reducing liabilities,” she said in the majority opinion. “In this context, ‘stability' is just another word for ‘excessive.' ”

Ciccocioppo said if the state decides not to appeal the ruling, or the state Supreme Court were to uphold the ruling, it's unclear how the state would return the surplus. One possible option is a one-time reduction, by about half, in what hospitals and doctors pay into the fund.

Denise Zimmerman, executive vice president of the medical society, said the ruling has a significant effect on physicians in specialties such as obstetrics and gynecology who could easily pay six figures in malpractice insurance each year.

“We're talking thousands of dollars, even for a family physician,” she said.

Michael Davis, executive director of the podiatrist association, said providers have to pay into the fund to keep their licenses, so the ruling is a welcome relief.

“We will have an accurate assessment, as opposed to an arbitrary assessment,” he said.

Keeping the fund from building a surplus would keep it from “becoming a target for the Legislature,” Davis said.

In 2009, the Legislature took $100 million from Mcare to balance the state budget. Commonwealth Court ruled in a separate case that the transfer was illegal, but the state has an appeal pending with the Supreme Court.

Brian Bowling is a Trib Total Media staff writer. Reach him at 412-325-4301 or

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