Wisconsin Supreme Court Rules State Improperly Raided Patients Compensation Fund

July 20, 2010

On July 20, 2010 the Wisconsin Supreme Court released its decision in Wisconsin Medical Society, Inc. v. Morgan, 2010 WI 94. At issue was a $200 million transfer from the Injured Patients and Families Compensation Fund (the Fund) to the Medical Assistance Trust Fund (MATF) pursuant to 2007 Wis. Act 20, § 9225, effectuated by Department of Administration Secretary Michael Morgan. The Fund was established to provide a form of excess insurance to health care providers for any judgments against them above a statutory cap, presently $1 million.

The Medical Society had challenged the transfer as an improper taking without just compensation. The circuit court had ruled in favor of Secretary Morgan, declaring that the Society lacked a property interest in the Fund. The Court of Appeals certified the case to the Wisconsin Supreme Court, which reversed the trial court in a 5-2 split decision.

Specifically, the Court addressed two issues. First, it had to determine whether the Society had a protectable interest in the Fund. Second, it addressed the constitutionality of the law authorizing the transfer.

As to the first question, the Court found that health care providers have a constitutionally protected interest in the Fund. It noted that by statute, the Fund was set up as an irrevocable trust and that health care providers are beneficiaries of that trust. As beneficiaries of the trust, health care providers have a right to the security and integrity of the entire Fund, the right to realize interest earnings from the Fund and a right to have excess judgments paid to proper claimants.

After getting through this part of the analysis, the Court further concluded that 2007 Act 20, § 9225 was an unconstitutional taking without just compensation. It reversed the circuit court and sent the case back with a directive to order Secretary Morgan to replace the money taken together with lost earnings and interest, and to issue a permanent injunction prohibiting the Secretary from transferring money out of the Fund pursuant to the Act.

Fortunately, during the pendency of this litigation there were no immediate solvency issues for the Fund and it was able to satisfy its obligations to claimants. Presumably, with this decision in place, the Fund can return to a position of relative financial strength, which, at least in the long run, will reduce the financial burden on health care providers who must contribute to the Fund. While the decision affects only 2007 Act 20, § 9225, it also establishes a framework for analysis of future legislative actions that might seek to tap into the Fund or similar entities to offset reductions in general revenue. At present, there is no word from the legislature on whether it will try a different route.