Ruling will force cuts in programs

TED SICKINGER
The Oregonian Staff

Oregon Health & Science University faces a multimillion dollar annual budget hit after a court ruling Friday that effectively eliminated a state cap on malpractice and other awards for damages.

That’s an expense that the institution can ill afford as it attempts to bolster hospital profits and reduce big losses on medical education and research.

“There will be program reductions as a direct result of this ruling,” OHSU President Joe Robertson said. “We can’t do everything that we’re currently doing and pay the additional malpractice premiums.”

Robertson said the ruling was more complex than a simple elimination of the cap, and it may take weeks to calculate an accurate estimate of its financial impact. A consultant estimated last year that elimination of the cap could cost OHSU as much as $43 million a year in insurance, settlement and administrative costs.

Robertson wasn’t specific about which medical programs provided by OHSU could be at risk because of the ruling. He did say that certain high-risk procedures would have to be re-evaluated, such as the eye surgeries he performed on low birth-weight infants during his career as a physician.

After the ruling, OHSU filed a lawsuit against one of its insurance providers, Washington Casualty Company. The insurance company had earlier notified the university that it wouldn’t cover losses from an estimated $90 million in pending claims if the Oregon Supreme Court didn’t uphold the state’s liability cap.

The ruling applies to all state agencies, but OHSU bears a disproportionate financial risk because it is directly implicated in the ruling, has a persistent exposure to such awards for damages and may not receive help from taxpayers to cover added costs.

OHSU is officially a state agency. But in 1995, then-President Peter Kohler helped establish the university as a separate public corporation for budgeting purposes. His aim was to make OHSU a more nimble player in a competitive market and gain direct access to debt markets to underwrite its expansion.

Ever since, legislators have held the university at arms length and asked it to finance more of its operations with internally generated funds. Since 1995, the state contribution to OHSU has shrunk from 12 percent of its budget to 3 percent in 2006.

The liability cap is an indirect form of state support — one that limited OHSU’s exposure to expensive malpractice insurance premiums.

An insurance firm hired by the university last year estimated that OHSU could expect to pay an additional $8.7 million to $43.1 million in annual malpractice premiums, settlement and administration costs depending on the cap ruling. That comes on top of one-time costs for claims pending against OHSU that the insurance firm hired, Chicago-based Aon Corp., estimated between $14 million and $49.5 million.

OHSU has established a reserve to help offset current damage claims, but a spokesman declined to say how much money is in the fund.

But future insurance costs could be a budget spoiler at a time when the university is looking to stabilize its finances after a period of rapid expansion.

Earlier this month, OHSU unveiled its five-year financial plan, outlining steps needed to change a financial path that Robertson describes as “not sustainable.”

The plan includes some $76 million in budget cuts and efficiencies over five years, such as reductions in administrative support and consolidating departments.

In past years, OHSU officials have pointed to their disproportionate share of care for uninsured patients and asked other hospitals to take on more of the burden.

Robertson said OHSU will look to the state for some part of the solution.

“We have to meet with the state and discuss all remedies with them and the speed with which they think a remedy can be effective,” he said. “We have a disproportionate burden to bear.”
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