Fund faces shortfall in spite of assurances

By Jason Stein

An October raid on a state fund for injured patients has forced its managers to hit up Peter to pay Paul, borrowing tens of millions of dollars in cash — and paying interest — to meet its obligations, a state memo shows.

The cash shortfall in the fund came in spite of assurances from Gov. Jim Doyle and leading lawmakers of both parties that the medical malpractice fund would readily absorb the $200 million in transfers — a crucial part of the state budget compromise reached in October.

The fund’s fiscal health matters because it helps pay victims with large malpractice claims and holds down malpractice insurance costs for physicians and the overall health-care system, a doctor’s group said.

“It shouldn’t shock anyone that when you steal money out of a fund it goes into the red,” said Mark Grapentine, a lobbyist for the Wisconsin Medical Society, which is suing the state to overturn the raid on the fund. “The whole situation is very unfortunate for the folks for whom this fund was set up — the patients of Wisconsin.”

An Oct. 29 transfer of $71.5 million from the Patient’s Compensation Fund came just one business day after the state budget was signed and left the fund short $46.2 million in cash, according to a Jan. 11 letter from Department of Administration Secretary Michael Morgan to the Legislature’s budget committee.

The fund, which had enough assets but not enough cash to cover the full transfer, borrowed cash from other state funds to make up the difference and paid them an undisclosed amount of interest, the letter reads.

The latest available figures show the fund was still short $44.5 million in cash as of Nov. 30 because managers had yet to sell off the assets needed to cover the shortfall.

Officials with DOA and the Office of the Commissioner of Insurance refused to say Thursday what the fund was paying out in interest to other state funds. DOA spokeswoman Linda Barth said the state wouldn’t say any more because of the pending lawsuit by the Medical Society.

The two-year budget approved by Doyle and the Legislature in October calls for another $128.5 million to be transferred out of the fund in the fiscal year starting July 1.

Senate Minority Leader Scott Fitzgerald, R-Juneau, said the Doyle administration should have allowed fund managers more time to sell off assets to cover the transfer in October.

“That is the problem. You couldn’t do any quicker cash grab than what they did,” said Fitzgerald, adding that DOA officials should ensure a smoother transfer in July.

Doctors and other health-care providers pay into the fund. As of Sept. 30, the fund had $831 million in assets, including stocks, bonds and $17 million in cash, according to the Insurance Commissioner’s office.

But after allowing for future claims that will have to be paid, the fund’s net worth is much less than that. Its surplus was about $60 million in June 2006 — not enough to handle $200 million in transfers without raising fees on doctors, according to a recent Legislative Audit Bureau report.

The Legislature’s budget office in June also cited an actuarial study that found the raid would lead to much higher losses for the fund because of a loss in investment income.

Doyle and lawmakers have said the transfer from the patients fund was needed to help balance the budget while holding down taxes and protecting priorities such as health care and education. They said the fund had more than enough assets to handle the transfers.

Grapentine said the state and the Medical Society will meet with a judge in early February to set a date for a trial in the lawsuit.


The news: An October budget raid on a state patient’s fund forced the fund to borrow $46.2 million in cash to meet its obligations.

Why it matters: The fund helps pay victims with large malpractice claims and holds down malpractice insurance costs for physicians. The borrowing could be likened to a consumer who borrows against his stock portfolio to get cash to pay his bills.

The defense: Lawmakers and Gov. Jim Doyle have said the $200 million in approved transfers from the fund are needed to balance the budget and to protect priorities like health care and schools.
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