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Budget woes deepen concerns about malpractice fund sweep

Oversight committee urges Legislature not to divert money for other purposes

By Andy Marso | October 21, 2015

Budget woes deepen concerns about malpractice fund sweep
Photo by Andy Marso Chip Wheelen, executive director of the Health Care Stabilization Fund, warned an oversight committee of the possibility of a fee sweep as the state faces budget shortfalls. The oversight committee met Wednesday in Topeka.

State budget shortfalls are increasing concerns that the Legislature may divert money from a fund used to diffuse the cost of medical malpractice claims.

Such a move could increase health care costs if providers were forced to pay more into the fund to replenish it.

The Health Care Stabilization Fund oversight committee decided Wednesday to include language in its annual report urging lawmakers not to sweep money from the fund.

“This is funded by the providers of the state and the hospitals,” said Dennis George, a former hospital administrator who is on the oversight committee. “It’s not a quote ‘tax,’ it’s for a specific purpose. And to protect that as an oversight committee, I want to recommend we use strong language to keep it in trust so it’s not diverted for other purposes by the state.”

The committee decided to adopt that language after hearing from Jerry Slaughter, executive director of an advocacy group for doctors called the Kansas Medical Society.

Slaughter said that given tight state budgets and recent sweeps of other funds, the Legislature might need a reminder not to touch the stabilization fund.

“We understand it’s an attractive target because it has $270 million in it and the state’s in a difficult budget position right now,” Slaughter said. “But these funds are held in trust.”

Fund serves as backstop

The stabilization fund was formed almost 40 years ago to make health care providers’ medical malpractice costs more predictable year-to-year.

It is funded through a surcharge on providers’ regular malpractice insurance. If providers’ claims exceed their regular coverage, the fund provides a backstop.

The fund had about $271 million in assets when the fiscal year ended June 30. But it also had about $223 million in liabilities.

Chip Wheelen, the fund’s executive director, said that leaves about an 18 percent margin of error in reserve. Wheelen characterized that level as “very safe” but noted the fund’s board of governors has set a goal of 25 percent.

He also warned of the possibility of a fee sweep.

“In some of those other states, these funds have been the subject of piracy,” Wheelen said. “They’ve been robbed.”

In Kansas, money from the Health Care Stabilization Fund has been diverted only once. In 2009, then-Gov. Mark Parkinson ordered a series of allotments after the global recession pushed state finances into the red.

The following year the Legislature passed a law stipulating that the executive branch could no longer unilaterally divert the funds. But Wheelen said that doesn’t necessarily mean the reserves are secure.

“We will not be subject to allotment authorities issued by the secretary of administration,” Wheelen said. “(But) I do have to mention that the Legislature could do whatever it may. We are just an agency of the state.”

He urged lawmakers not to use the stabilization fund for “any purpose other than what it was intended to do,” echoing statements he made last year, when the state also was in a budget crisis.

“In some of those other states, these funds have been the subject of piracy. They’ve been robbed.”

- Chip Wheelen, executive director of the Health Care Stabilization Fund

Large income tax cuts passed in 2012 have led to tight budgets in recent years. The 2015 session was the longest in history as legislators struggled to end a stalemate over raising taxes.

Gov. Sam Brownback and the Legislature have tapped other special funds to shore up the general fund, most notably one within the Kansas Department of Transportation that’s intended for highway projects.

After revenue estimators revise their projections next month, most legislative observers expect that the state again will be in the red for the current fiscal year.

‘We have to be on guard’

The Health Care Stabilization Fund has not been among those swept in the Brownback era. But Slaughter said members are nervous their fund could be next.

Rep. Richard Proehl, a Republican from Parsons who sits on the oversight committee, said his concerns are justified.

“There’s always some (legislators) that are willing to take those funds out,” Proehl said. “I think we have to be on guard all the time.”

As a banker, Proehl said his industry felt the effect of the 2009 fee sweeps firsthand. The executive branch diverted money from banking regulation funds, and Proehl said banks were forced to raise their fees to replenish reserves.

Trade associations representing the bankers and other interested parties sued the state over the fund transfers. Wheelen said he was encouraged by a recent Kansas Supreme Court decision that allowed the lawsuit to proceed after the state sought to have it dismissed.

The members of the Health Care Stabilization Fund are not part of that suit, but Slaughter said his organization would not rule out future legal action if legislators decide to divert money from the fund next year.

“We would obviously have to see what the effect was, but we would probably do whatever we could to ensure that those funds were used for the purpose they were intended,” he said. “Whether it took a change in the law to underscore that or perhaps appealing to the courts, we would consider all of those options, of course.”