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In November 2006, the Pennsylvania MCARE Commission released its final report on its recommendations for the future of the Medical Care Availability and Reduction of Error (MCARE) Fund. Because malpractice coverage is an issue affecting every health care provider in the commonwealth, the recommendations give an important insight into where Pennsylvania might be headed in the near future regarding malpractice insurance costs and coverage. The commission’s full report may be found on the MCARE Web site at www.mcare.state.pa.us. An understanding of the commission, its purpose, and its relevance requires background knowledge of the Pennsylvania MCARE Fund. The MCARE Fund is the successor to the Medical Professional Liability Catastrophe Loss (CAT) Fund, which was created in 1976 as a response to the first medical malpractice crisis in Pennsylvania. The MCARE Fund was created by Act 13 in 2002 with the purpose of ensuring that those damaged by medical negligence receive reasonable compensation. The fund is administered by the Pennsylvania Insurance Department. All health care providers in Pennsylvania are required to have medical malpractice insurance coverage. The required amount of coverage varies between hospital and non-hospital providers. Hospitals are required to have minimum total coverage of $1 million per incident and $4 million in the aggregate per year. The first $5000,000 per incident and $2.5 million of the annual aggregate is the primary layer (provided by an insurance carrier licensed or approved by the Pennsylvania Insurance Department or with an approved self-insurance plan). The coverage above that is the MCARE layer. For nonhospital providers, the minimum total coverage required was $1 million/ $3 million. The MCARE Fund provides insurance coverage for health care professionals and non-hospital entities beyond the $500,000/$1.5 million primary layer. Participation in the MCARE program is required for health care providers practicing in Pennsylvania, unless they fit within a designated exception. Pennsylvania health care providers are thus first and primarily covered in the event of a malpractice judgment by private insurance coverage (the primary layer) and then secondarily by the MCARE layer of coverage for recoveries beyond the primary layer. In 2003, Act 44 established the Health Care Provider Retention Program (the abatement program) to help alleviate the cost of malpractice insurance premiums by providing for abatements to participating physicians and providers – thereby encouraging health care practitioners to remain practicing in Pennsylvania. This abatement program was a response to the rising malpractice costs, especially in high-risk specialties, which resulted in many health care practitioners leaving Pennsylvania to practice elsewhere or leaving medicine entirely. In order to qualify for abatement, a health care provider pledges to continue practicing in Pennsylvania for the year of his or her abatement as well as the next subsequent year. The amount of abatement a health care provider receives varies by type of health care provider (e.g., physician versus midwife) and by practice specialty. Certain physicians, for example, are entitled to 100 percent abatement, while others are eligible for 50 percent abatements. The abatement program is currently funded, under Act 44, by a 25 cent per pack tax on cigarettes. The abatement program receives additional funding under Act 13 of 2002 from the Auto CAT Fund. The abatement program was recently extended through 2007. Due to the way the MCARE Fund is paid by providers, the fund has accrued “unfunded liabilities” – the amount of money projected to be paid out of the fund for claims reported to-date and also those claims that are anticipated to be made but have not yet been reported. According to the commission’s report, MCARE’s unfunded liability at the close of 2005 was estimated at $2.33 billion. Currently, MCARE is slated to be phased out somewhere between 2009 and 2012, depending on market conditions. The Commission In December 2005, Act 88 became law. Act 88 extended the abatement program through 2006 (Act 128 of 2006 subsequently extended the program through 2007). In addition, Act 88 provided for the establishment of a commission to review and make recommendations pertinent to the MCARE Fund. This commission was to submit a report on its recommendations to the governor and General Assembly by Nov. 15, 2006. The specific charge of the commission was as follows, from 40 P.S. Section 5103.1(b)(3): “The commission shall make recommendations concerning continuation of the MCARE abatement; the elimination or phase-out of the fund; and other provisions for providing adequate medical professional liability insurance, including, at a minimum, an evaluation and actuarial analysis of the projected scope of the fund’s future unfunded liability and any reasonable and available financing option for retiring those unfunded liabilities.” Act 88 required that the commission be composed of the following members: the Insurance commissioner (as the chairperson of the committee); the secretary of budget; the secretary of revenue; two members appointed by the president pro tempore of the Pennsylvania Senate and two members appointed by the minority leader of the Pennsylvania Senate; two member appointed by the speaker of the Pennsylvania House of Representatives; and two members appointed by the minority leader of the Pennsylvania House of Representatives. The commission appointees included doctors, lawyers and members of the Pennsylvania Senate and House of Representatives. These commission members, as required by law, appointed an advisory committee to support their work. The advisory committee was comprised of 15 members that included health care administrators, physicians and attorneys. Beginning in April of 2006, the commission had several meetings, a public hearing and several executive sessions. The agendas, minutes, presentations and handouts from the commission meetings are available on the MCARE Web site. The commission retained PricewaterhouseCoopers for the actuarial services necessary for its investigation. The actuarial analyses are also available on the MCARE Web site. Recommendations The recommendations of the commission flowed from a set of principles that the commission established in order to guide its approach and determine recommendations. The principles the commission approved were ensuring appropriate numbers of health care providers and assuring access to quality health care for Pennsylvanians; encouraging health care providers to practice in Pennsylvania; maintaining a healthy medical malpractice marketplace; continuing the abatement program; phasing out MCARE; evaluating financing options for MCARE’s unfunded liabilities; determining the source and amount of revenue for MCARE’s unfunded liability; minimizing taxpayer costs; and finding ways of pre-funding MCARE obligations. The overarching theme of the recommendations focused on two areas: a plan to phase out the MCARE Fund, placing medical malpractice coverage completely in the private sector, and keeping the abatement program in place to reduce malpractice insurance coverage costs to health care providers until the phase-out of MCARE is complete. The commission made the following specific recommendations, which it asked that the governor and Legislature consider as a whole, and not individually: Phase out MCARE as soon as practicable without a change in providers’ mandatory malpractice insurance coverage requirements to conserve the public funds committed to paying off the MCARE Fund’s unfunded liabilities and to mitigate health care providers’ medical malpractice insurance expenses; and to continue the abatement program until MCARE’s coverage has been phased-out; Continue use of the cigarette tax revenues until 2025 and the Auto CAT Fund surcharge through 2013; Use the currently committed public funds for the abatement program and then to pay MCARE’s claim payments and operating expenses while MCARE is phasing out; phase out the abatement program as the MCARE malpractice coverage layer is reduced and eventually eliminated; Use leftover public funds from the abatement program and MCARE claim payments and operating expenses, while maintaining a reserve in the HCPRA account, to further mitigate through 2025 health care providers’ out-of-pocket expenses for malpractice insurance; Use the currently committed public funds to achieve a target of no more than 10 percent annual aggregate increases for mandatory coverage annually; Utilize any remaining unpledged public funds in the HCPRA for health care service and programs; Promote health care quality in an effort to reduce future malpractice expenses and maximize the residual public funds for health care services; Implement the approach once private malpractice insurers and self-insurers have capacity to fully serve the market; Borrow money as necessary to implement the approach and use unpledged public funds from the HCPRA and the Auto CAT Fund surcharge to repay the borrowings; and Make arrangements in 2025 to respond to remaining MCARE claims and borrowing obligations using reserves established for these obligations. It will be interesting to see what the end result will be. Vasilios J. Kalogredis is president and founder of Kalogredis Sansweet Dearden & Burke, a health care law firm, and Professional Practice Consulting Inc., a health care consulting firm, in Wayne, Pa. Among his areas of expertise are group practice arrangements, practice sales and mergers, doctor contract drafting and negotiation, tax and retirement planning for physicians, joint ventures, fraud and abuse matters, and evaluation of practice options for physicians. He can be contacted at 800-688-8314 or by e-mail at [email protected].

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