By Dr. Jim Dahle, WCI Founder
We love constructive feedback. It's gold. Here's a good example:
“Just read your asset protection book and found it to be great. I didn't realize how poor the asset protections were in Wisconsin and am increasing my umbrella coverage. One thing that you did not mention with medical malpractice was patient compensation funds. In Wisconsin, all physicians are required to carry primary insurance of $1 million/$3 million ($1 million per occurrence, $3 million per year), but any judgement above that is covered by the fund (that every doc is required to pay into). Not sure how common this is among other states but figured if you have a second edition to note it under Wisconsin or have a brief mention for people who stay up at night worried about lawsuits.”
I don't know how I wrote an entire book on Asset Protection for Doctors and never mentioned patient compensation funds. We'll certainly inject them into the next update of the book. But let's talk about it today.
What Is the Problem with Medical Malpractice?
The No. 1 problem with medical malpractice is that most malpractice is not sued and most of what is sued is not medical malpractice. Theoretically, the medical malpractice system does the following:
- Makes sure doctors do a good job
- Punishes those who do not do a good job
- Helps those who are hurt
In reality, because of the No. 1 problem with medical malpractice, our system does none of that. Instead, it does the following:
- Enriches attorneys
- Ties up the court system
- Wastes a whole bunch of the time of patients and doctors
- Causes doctors to lie awake at night for up to five years per case
- Causes defensive medicine
None of that is good. You know what does a far better job than the medical malpractice system without all of these negative side effects? Patient compensation funds.
What Is a Patient Compensation Fund?
A patient compensation fund is a fund of money that is used to compensate people who are hurt. The focus becomes helping the hurt patient rather than finding fault and trying to blame it on someone. Instead of most of the money going to the legal system, most of the money goes toward the hurt party. Sometimes the fund is in the format of a fund of money to which injured parties apply. In most states, it functions as an excess liability policy.
Since our tort system (under which malpractice falls) is state-specific, these have to be put in place by the individual states. Most states do not have patient compensation funds. Of those that do, each of them is different and fulfills the above purposes to a greater or lesser extent. We'll go over a number of examples in a minute, but patient compensation funds have the potential to do all of the following:
- Reduce malpractice fear
- Reduce malpractice costs
- Reduce defensive medicine
- Help more hurt people faster
- Impoverish attorneys
More information here:
Virginia Birth-Related Neurologic Injury Compensation Program
The first patient compensation program I ever became aware of was the Virginia Birth-Related Neurologic Injury Compensation Program. As a military doctor, I was stationed in Virginia and I was moonlighting, so I had to have a Virginia license. Every Virginia-licensed doctor has to pay $300. The penalty for not participating is $5,000, so pretty much everyone does. Doctors who don't do any obstetrics really don't get any benefit, but it is mandatory for them. If an OB (or family doc who does obstetrics or a midwife) wants to participate in the program, they pay $6,200 per year (it's just the regular $300 for everyone else). There are exemptions for docs who don't have to participate:
- A physician who is employed by the Commonwealth of Virginia or the federal government and whose income from professional fees is less than 10% of their annual salary.
- A physician who is enrolled in a full-time graduate medical education program accredited by the American Council for Graduate Medical Education.
- A physician who has retired from active clinical practice.
- A physician whose active clinical practice is limited to the provision of services, voluntarily and without compensation, to any patient of any clinic organized in whole or in part for the delivery of healthcare services without charge.
- A physician who does not practice medicine in Virginia.
But most Virginia docs aren't going to qualify for those. Even a moonlighting military doc is probably going to make more than 10% of their military salary doing so.
Hospitals pay $55 per birth, up to $200,000. Liability insurance companies pay 0.25% of net premiums paid.
If a patient delivered by a participating provider or at a participating hospital has a neurological injury (cerebral palsy, brachial plexus injury, etc.), they qualify for benefits. If there is a birth injury, they have up until the child's 10th birthday to file. There is a $470 million reserve fund. There have been 150 claimants in the program so far. The program pays for everything above and beyond what health insurance covers, including:
- Personal nursing and assistive care
- Dental care
- Transportation, vans
- Augmentive communication technology
- Privately owned housing assistance
- Rental housing assistance
- Funeral costs
- Attorney fees
- Miscellaneous expenses
If a kid has a birth-related neurologic injury—a common cause of huge jury verdicts due to the ongoing cost of care for decades—this fund pays. The alternative is to try to get the money out of the doctor and the hospital. They'll probably just declare bankruptcy if you give them some $10 million-plus verdict, which is what these kids might cost over the decades.
These funds have been around for a long time. One source I looked at said there were 15 of them in 1979, although I don't think there are 15 now. Let's take a look at another one. Since the emailer is from Wisconsin, let's look at that state's program.
Wisconsin Injured Patients and Families Compensation Fund
The Wisconsin Injured Patients and Families Compensation Fund is a mandatory program. The fees vary by specialty, from $382 to $1,528 per year (although the fees were waived during the pandemic). Hospitals also have to pay $22.50 per occupied bed and $1.15 per outpatient visit. What's the benefit of the fund? Basically, you receive assurance that you won't be responsible for anything above policy limits ($1 million/$3 million).
- BENEFITS: The personal liability of a healthcare provider who complies with the requirements of ch. 655, Wis. Stat., for acts of malpractice is limited to the mandatory insurance limits required by law. The Fund pays all damages in excess of those amounts. In addition, all claims are required to be processed through mediation prior to civil litigation.
Think of it as an unlimited umbrella policy for malpractice. There are a few exemptions, but if more than 50% of your patients or money is coming from Wisconsin or you work more than 240 hours a year there, expect to pay. It's not a bad benefit, though, especially when you consider what you might be saving on other asset protection techniques (although there are plenty of ways to get sued that have nothing to do with malpractice).
More information here:
Kansas Health Care Stabilization Fund
Another mandatory program is the Kansas Health Care Stabilization Fund. Like Wisconsin, it provides excess liability coverage. Here's the fee chart:
Looks like some docs (presumably OBs) are paying $10,000. It also appears this really only gets you another $500,000 in coverage. It also requires docs to carry at least $500,000 in their own coverage. As you can tell, Kansans are not getting nearly as good of a deal as the Wisconsinites.
The Pennsylvania Medical Care Availability and Reduction of Error Fund (Mcare) is also mandatory. The state's original 1975 program was replaced by Mcare in 2002. Like Wisconsin and Kansas, it functions as excess liability coverage. Limits are the same as Kansas (must carry $500,000, the program provides another $500,000). The fee is 12% of your malpractice premium. Not too bad; double your coverage for only 12% more.
Indiana Patient's Compensation Fund
The Indiana Patient's Compensation Fund is not a mandatory program. It requires you to carry $500,000 in coverage and charges $2,045-$24,828, depending on your specialty. What do you get for that? Another $1.3 million in coverage. Better than Kansas and Pennsylvania but still nothing like you can get in Wisconsin.
Louisiana Patient's Compensation Fund
Another early one, the Louisiana Patient's Compensation Fund was started in 1975. It is not mandatory, but if you're willing to pay, you can get more coverage. You can get claims-made or occurrence coverage, and it ranges from $1,203-$39,618, depending on the type of coverage, how long it's been in place, and the specialty. In Louisiana, you're required to carry $100,000 in coverage. If you do that and participate in the program, you get another $400,000 in coverage PLUS all medical expenses. Since there is a law that malpractice creditors in Louisiana can only get $500,000 plus medical expenses, participating essentially rules out the possibility of you losing personal assets to malpractice—similar to Wisconsin.
Nebraska Hospital-Medical Liability Act
The Nebraska Hospital-Medical Liability Act is a voluntary program. If docs will carry $500,000 in coverage and pay 50% of that premium for the first $500,000 of coverage to the fund, the fund will provide a malpractice cap of $2.25 million. Since Nebraska provides a malpractice cap of $2.25 million (including economic and non-economic damages), this ensures doctors will not have to pay anything out of pocket in a claim.
New Mexico Patient Compensation Fund
New Mexico has had a cap on non-economic damages of $600,000 since 1995, but it recently increased. Its Patient's Compensation Fund requires doctors to carry coverage of $250,000, and then it provides another $500,000 in coverage plus medical costs to get to the new non-economic cost cap of $750,000. The cap for hospitals is $4 million (soon to be $6 million). Interestingly, the $750,000 cap doesn't apply if you are an employee of a hospital. You're then subject to the $4 million cap. Bummer. Sounds like the trial lawyers had a win here recently. I looked all over, but I could not find the premium costs for this one. Hopefully, some New Mexico docs will lend me a hand.
South Carolina Medical Malpractice Association
South Carolina has had a patient compensation fund since the 1970s, currently called the South Carolina Medical Malpractice Association. It offers coverage of $1 million-$10 million per occurrence, and it can be occurrence or claims-made. It was unlimited until 2009. It requires you to obtain a $200,000/$600,000 policy to be eligible. I believe the price is 6% of your premium, but I assume that's for the $1 million coverage. Hard to find a lot of info about this one online. I'm sure some South Carolina docs can help us out here.
New York Excess Coverage Fund
This is an occurrence policy for excess coverage of $1 million. You must carry policy limits of at least $1.3 million and must have hospital privileges to get it. It is not mandatory. If you want it, you do have to take a mandatory risk reduction course every two years. Not everyone can get it, and there's a waitlist. I could not find a premium cost, and one source I looked at suggested it was actually free. No wonder there's a waitlist. Again, it would be nice if a New York doc participating in this program could shed some more light on it.
More information here:
Florida Birth-Related Neurological Injury Compensation Association
Florida has a birth-injury program similar to Virginia's. Non-participating docs pay $250 a year. Participating docs pay $5,000. This supposedly saves the participating doctors $62,000-$88,000 a year in malpractice premiums. There are exemptions as well:
- Resident physicians, assistant resident physicians, and interns in postgraduate training programs approved by the Board of Medicine (documentation of the dates of your program signed by the chair of your department must be provided to NICA);
- Retired physicians who maintain an active license but who have withdrawn from employment in any medically related field, as evidenced by an affidavit filed with NICA (a copy of this affidavit must be provided to the Florida Department of Health);
- Physicians who hold a limited license, as defined by Chapter 458, Florida Statutes, but do not receive any compensation for medical services (an affidavit must be provided to NICA stating that no compensation is received for medical services);
- Physicians employed full-time by the Veterans Administration whose practices are confined to Veterans Administration hospitals (a letter from your employer stating that you are a full-time employee, as well as an affidavit from you stating you are not engaged in the private practice of medicine, must be provided to NICA);
- Any licensed physician on active duty with the Armed Forces of the United States (a letter from your commanding officer stating that you are on active duty in the Armed Forces, as well as an affidavit from you stating that you are not engaged in the private practice of medicine, must be provided to NICA);
- Physicians who are full-time State of Florida employees and whose practice is confined to state-owned correctional facilities, mental health or developmental services facilities, or the Florida Department of Health or County Health Department (a letter from the state government documenting your employment status, as well as an affidavit from you stating that you are not engaged in outside employment, must be provided to NICA).
Maryland Birth Injury Fund
There has been a proposal for a Maryland Birth Injury Fund several times in the last 10 years. No surprise, trial lawyers are fighting it tooth and nail.
I count 11 states (not counting Maryland) that have some kind of patient compensation fund, excess liability coverage, or birth-injury fund.
How a Patient Compensation Fund Should Change Your Financial Plan
What if you, like the Wisconsin doc that emailed me, are in a state with some type of patient compensation fund? Does that mean you don't have to think about asset protection? Sorry, but no.
Remember that malpractice is just one source of liability in your life. There is plenty of personal liability as well. You still need to have high auto and homeowner's liability limits. You still need an umbrella policy. You should still title your property properly. You should still max out retirement accounts. You should still know your state asset protection laws. If your state provides significant LLC protections, you should still give serious consideration to putting your toxic assets (like rental properties and small businesses) into LLCs or corporations.
However, if you happen to be in Wisconsin, Louisiana, or Nebraska, you should sleep a little easier at night if you participate in the patient compensation fund. If you're an OB in Florida or Virginia, you should definitely participate in your program. It's designed to help you save malpractice premiums, so of course you should use it.
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What do you think? Did I get any facts wrong? Post a correction. Are you in a state with one of these programs? Do you participate? Why or why not? Do you think every state should put a patient compensation fund in place? Comment below!