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State plans to appeal malpractice fund ruling

Copyright © 2019 Albuquerque Journal

The state has said it will appeal a 1st Judicial District Court ruling that potentially exposes more than 459 New Mexico health care providers – individuals, groups and institutions – to increased liability on malpractice claims for an 18-month period.

After the Feb. 12 notice filed by Insurance Superintendent John Franchini, the court halted the portion of the ruling that would create the liability issues. The possibility remains that an Appeals Court judge could lift the stay and the coverage issues would remain, according to the New Mexico Office of Superintendent of Insurance.

The legal battle stems from a 2017 lawsuit filed by current and former New Mexico Medical Society presidents. The suit alleges that the superintendent’s decision, beginning in 2009, to allow hospitals and outpatient facilities into the Patient’s Compensation Fund, New Mexico’s malpractice fund, did not comply with the law. In question is the application of the state’s Administrative Procedures Act, which the plaintiffs argue mandates that the superintendent write and publish rules describing how he determines whether an entity is qualified for the fund, and issue his decisions in the form of orders, among other requirements.

The plaintiffs also claim that allowing the hospitals and outpatient facilities to participate “overburden(ed) an already actuarially unsound fund” by bringing with them an inordinate amount of risk. The fund would have required $36.6 million in additional funds to make it actuarially sound in 2016, according to the lawsuit.

The fund reimburses patients for, among other things, malpractice judgments above $200,000 and up to a $600,000 personal liability malpractice cap imposed by state law. It is funded by surcharges imposed on participants. The plaintiffs argue that the surcharges imposed on physicians will dramatically increase over the coming years as the pool counterbalances the increased liability from the hospitals and outpatient facilities.

In its filings, OSI argued its administration of the fund was lawful and not subject to the Administrative Procedures Act because the Patient’s Compensation Fund is technically not an OSI entity.

On Jan. 31, Judge David K. Thomson ruled that while “no specific action of the Superintendent was wrong,” Franchini was beholden to the Administrative Practices Act, beginning in 2013.

No new providers can be admitted into the fund until written rules guiding the process are in place, according to the order – which means no new doctors, clinics or hospitals can get the state malpractice coverage until March 1.

The judge’s order also voided the admission of health care providers into the fund for the 18-month period beginning July 28, 2017, when the lawsuit was filed. However, the notice of appeal led to that portion of the order being lifted. Without the notice of appeal, it would have been “very difficult to replace this period of coverage in the commercial insurance market on a retroactive basis,” according to emails from insurers included in OSI filings. Preliminary calculations provided to the Journal by OSI indicate the issue would have affected more than 459 doctors, groups, hospitals and other providers.

The superintendent published emergency rules on Feb. 14 and will be able to begin accepting new providers into the fund on March 1, according to OSI Associate General Counsel R. Alfred Walker. Permanent rules will be adopted before the end of April.

In an interview, Franchini said his goal is to “ensure every provider has the protection that they’ve purchased and paid for.”

“As superintendent, I will do everything I can to ensure that all of our doctors will be made whole,” said Franchini.

Franchini said a new, more responsive surcharge system, and a mix of hospitals, outpatient facilities and physicians contributing to the fund have strengthened the fund’s finances since the 2016 report. He said the fund was “never meant to be financially solvent at any one time,” but rather to experience periods of deficit and surplus depending on incoming claims.

According to an actuarial report released late last year, the most recent year for which such numbers are available, the fund’s deficit was $55.4 million in 2017. OSI staff told the Journal the agency’s current cash flow is sufficient to cover any expected losses.

As it stands, the order does not make a judgment on whether hospitals should be allowed to participate in the Patient’s Compensation Fund.

Lee Hunt, an attorney for the plaintiffs, said in a statement that New Mexico hospitals had “inappropriately taken advantage of an insurance program that was designed to provide affordable insurance to doctors.”

“Keeping the fund limited to the doctors that it was intended to serve will protect the Fund,” Hunt said.

Among the plaintiffs is Dr. Barbara McAneny of the New Mexico Cancer Center, who in addition to being a former Medical Society president is the current president of the American Medical Association. The other plaintiffs are Dr. William Ritchie of New Mexico Orthopedics, Dr. William Liakos Jr. of BCA Pediatrics and Dr. Albert Kwan of the Clovis Surgery Center.