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State Settles MCARE Row Over Hundreds of Millions in Funds

By Gina Passarella
October 17, 2014
The Legal Intelligencer

State Settles MCARE Row Over Hundreds of Millions in Funds

By Gina Passarella
October 17, 2014
The Legal Intelligencer

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David LoderThe state has settled five years of litigation with several health-care provider groups over a $100 million transfer of funds from MCARE to the general fund as well as the state's calculation of the annual assessments it charges doctors.

Gov. Tom Corbett announced Thursday a settlement that allows the state to keep the $100 million previously transferred out of the Medical Care Availability and Reduction of Error (MCARE) Fund, but provides for reimbursement to the separate Assessment Relief Fund of $139 million. The state also agreed to change, beginning in 2015, its calculation formula for the assessments doctors must pay for MCARE assessments, resulting in an expected $61 million reduction from the projected 2014 year-end fund balance, Corbett said in a statement.

The settlement between the Pennsylvania Insurance Department on one side and the Pennsylvania Medical Society, The Hospital & Healthsystem Association of Pennsylvania and the Pennsylvania Podiatric Medical Association on the other resulted in the parties discontinuing their appeals, one of which was accepted by the state Supreme Court in February. In granting allocatur in that case, Hospital & Healthsystem Association of Pennsylvania v. Insurance Commissioner, the high court had agreed to mull whether the MCARE fund should have to apply any surplus funding from the previous year to the current year when determining annual contribution amounts for health care providers. The Commonwealth Court had ruled that it did.

The MCARE fund provides doctors with a secondary layer of medical malpractice insurance and is funded mainly through assessments paid by doctors each year based on a statutory formula that looks to get 110 percent of the claims and expenses paid out in the prior year.

"Making sure Pennsylvanians have access to quality, affordable health care is one of my top priorities," Corbett said in a statement. "Today's final settlement enables the commonwealth to reduce medical malpractice costs for health care providers which, in turn, ensures access to robust networks of hospitals, medical doctors and specialists."

The $139 million that will be paid into the Assessment Relief Fund represents a portion of health care providers' assessment payments from 2009 through 2012 and in 2014, according to the statement, which noted those refunds will not be available for 18 months.

Mark Aronchick of Hangley Aronchick Segal Pudlin & Schiller represented the Pennsylvania Insurance Department in the case. David E. Loder of Duane Morris represented The Hospital & Healthsystem Association. Kevin J. McKeon of Hawke McKeon & Sniscak and Robert Hoffman of Eckert Seamans Cherin & Mellott represented the Pennsylvania Medical Society. James W. Abraham of Abraham Law Offices represented the Pennsylvania Podiatric Medical Association.

Aronchick, who handled the case with his colleagues, Daniel Segal and Dylan Steinberg, declined to comment. McKeon, Hoffman and Abraham did not return calls for comment.

Loder said the $139 million is coming from the MCARE fund to reimburse doctors for several years of overpayments to the fund.

"I think the settlement essentially provides that no longer will the MCARE fund be able to generate these large surpluses on overpayments by the health care industry," Loder said.

Loder said that, from his perspective, the settlement is a recognition that the MCARE fund will no longer operate with surpluses above the statutorily designated 10 percent and that excess funds cannot be transferred to the general fund.

Loder said he gives credit to the administration for helping to resolve the issue outside of the courts. He said the settlement resolves a number of ongoing pieces of litigation on these issues in both the Supreme and Commonwealth courts.

The plaintiffs had asserted in their lawsuits that their assessments were excessive because they resulted in a collection of more money than was needed by the MCARE fund to pay claims for one year and provide a 10 percent reserve, Commonwealth Court Judge Mary Hannah Leavitt said in the court's majority opinion in August 2013.

Leavitt said that in making its annual assessment in 2009, the MCARE fund failed to account for the $100 million surplus it had from 2008.

"The MCARE fund must begin its annual aggregate assessment calculation with its unspent balance and add to it the amounts sufficient to cover the prior year's claims and expenses and to provide a 10 percent reserve," Leavitt said. "Instead, the MCARE fund's calculation has provided a 64 percent reserve."

Leavitt said the fund also failed to take its unspent balances into account when setting its assessments for 2010 and 2011.

The MCARE fund had argued that having a surplus would provide "stability" to annual assessments, Leavitt said. But she said the act said nothing about stability or surpluses or how to spend them.

"Stability is not a value expressed in the MCARE Act, but a reduction in the cost of medical malpractice insurance is an expressed value," Leavitt said.

One of the legislative goals for the MCARE Act was to help create a system that provides "affordable professional liability insurance," she said.

"Requiring health care providers to fund a new 10 percent reserve every assessment year, without regard to the monies already held by the MCARE fund, undermines that goal," Leavitt said.

Reprinted with permission from The Legal Intelligencer, © ALM Media Properties LLC. All rights reserved.