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Allocatur Watch

The Pennsylvania Supreme Court has agreed to hear arguments over whether the Medical Care Availability and Reduction of Error Fund should have to apply any surplus funding from the previous year to the current year when determining contribution amounts for health care providers.

The Commonwealth Court ruled in an apparent case of first impression last August that it must.

In a Feb. 12 order granting allocatur in Hospital & Healthsystem Association of Pennsylvania v. Insurance Commissioner, the Supreme Court agreed to consider whether Section 712(d) of the MCARE Act requires the state to “‘spend down’” any balance in the MCARE Fund when calculating annual provider assessments.

In August, an en banc panel ruled 6-1 in Hospital to reverse an adjudication of the Pennsylvania insurance commissioner that upheld assessments imposed upon doctors and health care providers by MCARE in 2009, 2010 and 2011.

The plaintiffs—which included several medical groups, such as the Hospital & Healthsystem Association of Pennsylvania, the Pennsylvania Medical Society and the Pennsylvania Podiatric Medical Association—asserted 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. The majority also included Judges Dan Pellegrini, Bernard L. McGinley, Renee Cohn Jubelirer, P. Kevin Brobson and Patricia A. McCullough.

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.”

According to Leavitt, the MCARE Fund obtains its funding from an annual assessment levied on health care providers. The guidelines for establishing assessments are laid out in Section 712(d)(1).

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.

In a concurring opinion, Brobson said the insurance commissioner’s assessment was at odds with the statutory language, differing only with the majority in terms of her “construction of the governing statutory language.” He added that he differed from the majority in how to calculate the assessments.

According to the Supreme Court’s Feb. 12 order, the Pennsylvania Insurance Department argued in its petition for allocatur that the Commonwealth Court’s ruling “‘disregards the plain language and purpose of the statute, disregards accepted statutory construction principles and conflicts with the court’s decision in Meier v. Maleski.’”

In its 1996 ruling in Meier, the Commonwealth Court ruled that the language of Section 701(a) of the Health Care Services Malpractice Act, the MCARE Act’s predecessor, requiring that a $15 million reserve be maintained in the Medical Professional Liability Catastrophe Loss Fund, the MCARE Fund’s predecessor, was ambiguous, Leavitt said.

Ultimately, the Meier court found that the $15 million represented a floor, not a ceiling, according to Leavitt.

But Leavitt said that ruling was not dispositive of Hospital.

“In short, the mandate for ‘a 10 percent reserve’ set the floor and the ceiling, eliminating the ambiguity perceived in Meier,” Leavitt said of Section 712(d).

Judge Bonnie Brigance Leadbetter wrote a dissent siding with the insurance commissioner’s assessment, saying that the insurance commissioner’s interpretation of Section 712(d) was correct, particularly in light of the Meier ruling.

“I agree with the insurance commissioner’s construction and application of Section 712(d) of the act,” she said. “The purpose of 712(d) is to calculate the amount of the annual assessment to be imposed, which has legislatively been determined to be 110 percent of the prior year’s expenditures. Section 712(d) simply does not relate or pertain to the fund’s accumulated balances; nor does Section 712(d) provide any authority to the department or its agents to manage or address the fund’s balance in the context of calculating the annual aggregate assessments to be collected from providers.”

Section 712(d)(1) states, “The assessment shall be based on the prevailing primary premium for each participating health care provider and shall, in the aggregate, produce an amount sufficient to do all of the following: (1) reimburse the fund for the payment of reported claims which become final during the preceding claims period; (2) pay expenses of the fund incurred during the preceding claims period; (3) pay principal and interest on money transferred into the fund in accordance with Section 713(c) [authorizing the governor to make loans to the fund].”

Leavitt noted that the 2009 aggregate assessment was calculated to be $204 million, consisting of 2008 claims and expenses (approximately $185 million) plus 10 percent (approximately $18.5 million). She also said the MCARE Fund sought the funds even as it projected a $100 million surplus.

“The actual reserve established by this assessment was $118.5 million (this was the $100 million in the MCARE Fund plus the $18.5 collected in 2009). This sets a reserve of 64 percent ($118.5 million/$18.5 million) of the 2008 expenses. A 10 percent reserve is $18.5 million. Thus, the 2009 assessment collected $100 million more than needed,” Leavitt said in a footnote.

Leavitt said the MCARE Act says nothing about the accumulation of unspent balances in excess of 10 percent, nor does it authorize them.

“The MCARE Act provides no guidance on the income generated by an accumulation of unspent balances, which can be considerable given the present unspent balance of $104 million,” Leavitt said. “The MCARE Act’s silence on these matters makes perfect sense only if the legislature never intended that such an accumulation would develop.”

Counsel for plaintiff Pennsylvania Podiatric Medical Association, James W. Abraham of Abraham Law Offices in Hummelstown, Pa., could not be reached for comment.
Counsel for plaintiff Hospital & Health System Association of Pennsylvania, David E. Loder of Duane Morris in Philadelphia, and a spokesperson for the insurance commissioner also could not be reached for comment at press time.

A spokesman for plaintiff Pennsylvania Medical Society, which was represented by Robert B. Hoffman of Eckert Seamans Cherin & Mellott in Pittsburgh, said in an emailed statement, “We believe that the Commonwealth Court correctly decided the case in our favor and we look forward to the matter being put to rest in the Supreme Court.”

Zack Needles can be contacted at 215-557-2493 or zneedles@alm.com. Follow him on Twitter @ZNeedlesTLI. •