OLR Research Report

October 22, 2003




By: George Coppolo, Chief Attorney

John Kasprak, Senior Attorney

Jennifer Gelb, Research Attorney

Kevin McCarthy, Principal Analyst

You asked for information about the operation of patient compensation funds in other states.


Eight states have active patient compensation funds-Indiana, Kansas, Louisiana, Nebraska, New Mexico, Pennsylvania, South Carolina, and Wisconsin. (We recently summarized the laws creating these funds and have enclosed a copy of that report, OLR 2003-R-0606). These funds, which are sometimes referred to as excess coverage or excess liability funds, pay for medical malpractice judgments or settlements that exceed a statutorily established amount.

Each of these funds has been in operation since the mid 1970s when they were enacted in response to rapidly rising medical malpractice premiums. Based on information provided by fund directors; other fund employees; and, in some instances, audits, it appears that the funds in five of these states are fiscally sound. The principal exception is Pennsylvania, which has experienced so much difficulty that the fund is being phased out. Nebraska's fund may also be in jeopardy because of 80 lawsuits filed against one doctor in connection with a hepatitis C outbreak allegedly caused by unsanitary conditions. South Carolina's fund appears to be financially sound now based on recent changes including significant increases in annual assessments, newly established procedures, and a new management team but the fund's director told us it is too soon to be sure.

The funds operate in substantially the same way. Health care providers purchase malpractice insurance from private insurance companies or insurance associations in a minimum amount established by law. The insurers pay malpractice claims for amounts up to this coverage. The providers also pay an annual assessment to the fund, which is responsible for paying judgments and settlements above the minimum coverage amounts. But in a few states, such as Kansas and Pennsylvania, the funds are liable only up to a certain amount. Thus, doctors remain liable for damages that exceed the fund's limit and often purchase excess insurance from the private market.

In most states, participation by health care providers is voluntary. But in some, such as Wisconsin, it is mandatory.

Each of these states, other than Pennsylvania and South Carolina, imposes some sort of a cap on damages. Indiana and Nebraska cap total damages at $1,250,000 for doctors who choose to be covered by the fund. Nebraska allows patients to opt out of the fund and thus not be subject to this limit by doing so in writing before receiving treatment. Two other states, Louisiana and New Mexico, cap total damages except for future medical care. Louisiana's imposes a $ 500,000 cap and New Mexico imposes a $600,000 cap. Kansas and Wisconsin impose a cap on nonecomic damages. Kansas has a $250,000 cap and Wisconsin has an adjustable cap, which currently is approximately $425,000. Wisconsin also caps total damage for wrongful death cases—$500,000 for children and $350,000 for adults.

Indiana, Louisiana, New Mexico, and Wisconsin are among six states the American Medical Association (AMA) has identified as not exhibiting any problems with respect to the cost or availability of malpractice insurance. The AMA has identified 26 states that are showing problem signs. Three of these have funds—Kansas, Nebraska, and South Carolina. The AMA has identified 18 states “in crisis.” One has a fund—Pennsylvania.

We have obtained information about the operation of each state's fund. Unfortunately, we have not received the same type of information from each state. For example, some states have had recent audits conducted while others have not. Thus the information for some states is much more detailed than others. Please let us know if you would like more detailed information about a particular state or if you would like us to try to determine how certain interest groups such as a state medical society or the plaintiff's bar feels about how well a fund has been functioning.


Indiana is one of six AMA-identified states that are not facing a medical malpractice insurance crisis. Its malpractice fund is operated by the Insurance Department and has been in operation since 1975.

Fund Coverage

The fund covers a wide range of practitioners and institutions, including physicians, nurses, emergency medical technicians, optometrists, hospitals; HMOs; blood banks; ambulance services; colleges that provide health care; home health agencies; and mental health and retardation services. Although participation is voluntary, virtually all physicians participate because caps on liability are limited to participants.

Mandatory Insurance


Practitioners must carry insurance for $250,000 per occurrence and $750,000 in the aggregate per year. Hospitals must carry $250,000 per occurrence and $5 million aggregate per year ($7.5 million for hospitals with more than 100 beds).

Fund Surcharge


The annual fund surcharge for physicians ranges from $2,334 for residents and specialties such as allergy and psychiatry to $26,452 for OB/GYNs and neurosurgeons. The surcharge for internists and family practitioners depends on the amount of surgery they perform. For doctors who perform no surgery, the surcharge is $3,112. For those who perform minor surgery, it is $5,602. For family practitioners who practice obstetrics, the surcharge is $9,336. The surcharges increased by 72.6% across the board in August 2003, after having been flat since 1999. (Rates for underlying private insurance increased during the past year.)

Damage Caps

Indiana caps total damages at $1,250,000 for health care providers that participate in the funds.

Soundness of the Fund

The law requires that the fund be actuarially sound, and the recent increases reflect an actuarial study conducted earlier this year.




Medical professional liability problems arose in the mid 1970s with respect to the availability and cost of medical professional liability coverage for certain classes of heath care providers. In 1975 and 1976, health care provider groups, the state Insurance Department, and the legislature worked to create the Health Care Provider Insurance Availability Act. This law:


created the Health Care Stabilization Fund to provide excess professional liability coverage for defined health care providers,

mandated a basic professional liability insurance requirement for these health care providers, and

established an availability plan to provide the required basic professional liability insurance coverage for those providers who could not obtain coverage from commercial insurers.


The primary function of the Stabilization Fund is providing excess professional liability coverage. Three different fund excess coverage levels are available to health care providers (discussed in detail below.) Typically, the Fund's coverage is “triggered” when the basic professional liability insurer's projected loss exposure exceeds $200,000. But the Fund's legal staff monitors all claims and suits filed against Kansas providers and attends claim settlement conferences even though the Fund's coverage has not yet been triggered.


Fund Administration


A 10-member board governs the fund. The board consists of representatives of the health care providers who participate in the Fund. The Fund's 15-member staff includes an executive director and chief attorney and is divided into claims and legal, accounting and data entry, and fund coverage and compliance sections.

Health Care Providers Covered


The fund covers the following categories of health care providers:


1. medical and osteopathic doctors licensed or holding a temporary permit from the state;

2. people in a state-approved postgraduate training program;

3. chiropractors;

4. podiatrists;

5. registered nurse anesthetists;

6. medical care facilities (special and general hospitals, surgical centers, and recuperation centers);

7. mental health clinics and centers and psychiatric hospitals;

8. dentists certified to administer anesthetics;

9. Kansas professional corporations, partnerships of defined health care providers, and limited liability companies organized for rendering professional services by health care providers; and

10. a nonprofit corporation organized to administer the graduate medical education programs of community hospitals or medical care facilities affiliated with the University of Kansas School of Medicine.

Fund Compliance Guidelines


Health care providers practicing in Kansas are subject to basic professional liability coverage and fund-surcharge requirements that apply both to Kansas residents and nonresident providers who render services in Kansas. They must carry liability insurance with limits of at least $200,000 per claim and $600,000 in the annual aggregate. Providers obtain this basic professional liability insurance coverage from an insurer licensed to write business in the state or through the Kansas Health Care Provider Insurance Availability Plan. (Providers who are denied basic coverage from the voluntary market may obtain coverage from this plan.)


The insurer calculates the amount of the Fund surcharge based on the Fund coverage limit the provider selects, the provider's rating classification code, and the number of years the provider has been in compliance with the Fund (see below). The insurer collects the surcharge payment along with the premium for the basic professional liability insurance coverage and remits the entire surcharge to the Fund.


Nonresident providers rendering services in the state must submit their surcharge payment to the Fund along with a completed nonresident compliance form. Health care providers who live in Kansas and hold an active license, but practice solely in another state, may also be required to contribute to the Fund.


 Annual Premium Surcharge and Rating Classification System


The Fund's Board of Governors establishes the surcharge rates annually. They take effect for coverage periods starting on or after July 1 of each year. All health care providers must select a fund coverage limit from among three options: $100,000 per claim/$300,000 in the annual aggregate; $300,000/$900,000; or $800,000/$2,400,000.


Most health care providers select the highest coverage limit. An individual provider may be required to carry the highest limit by HMOs, PPOs, hospital credentialing committees, or other entities. Fund coverage limits are always excess over any other available professional liability coverage. The fund covers claim expenses and defense costs without any limitation.


Once a health care provider selects a coverage level, it will continue from year to year, unless the provider requests to change it.


The surcharge payment for individual providers who obtain their basic professional liability coverage from an insurance company will have their surcharge payment determined based on published surcharge rate tables. These are referred to as the “dollar surcharge rates.” These are Fund Class Groups 1 to 14. Hospitals and other medical care facilities, providers who obtain their basic coverage from the Health Care Provider Insurance Availability Plan, professional corporations, partnerships, and other provider entities pay a percentage-based surcharge. These are fund Class Groups 15 to 21. Basic coverage documentation and the Fund surcharge payment are due and payable 30 days after the basic coverage insurance company receives the premium.


Each provider decides whether he needs excess professional liability insurance beyond fund coverage limits. Such coverage is available from most basic professional liability insurance companies.


Current Fund Surcharge Rates


Health Care Stabilization Fund surcharge rate tables for individual health care providers who obtain their basic coverage from a licensed insurer (not from the Health Care Provider Insurance Availability Plan) will be continued without any changes for another fiscal year according to the fund's FY 2003-04 Surcharge Rate Announcement. The percentage surcharge rates for Fund Class Groups 15 to 21 (see above) are being reduced by 9%. The lower percentage surcharge rates for these classes took effect on July 1, 2003 and are as follows: (1) 20% for the $100,000/$300,000 Fund coverage limits; 30% for the $300,000/ $900,000 coverage limits; and 35% for the $800,000/$2,400,000 limits. The percentage surcharge rates were last changed in FY 2000-01 when the board adopted percentage rates of 22%, 33% and 38.5%.


But even with the reduced percentage rates, the surcharge payment for many providers may increase due to premium increases made by their private liability insurers. The Fund announcement states, “making this specific reduction to the percentage surcharge rates recognizes the fact that the premium cost of basic professional liability insurance has been increasing over the last several years.”


Continuing with the Fund's FY 2003-04 rate announcement also stated,

“the actuarial review and recommendations made by…Tillinghast-Towers Perrin, has allowed the Board of Governors to make these modest changes to the overall surcharge rating system of the Fund. The last change to the dollar surcharge rate tables of the Fund was a 10% increase for FY 2002. This is the third consecutive fiscal year that the present dollar surcharge rates will continue to be in effect. This is an unprecedented level of stability in the Fund surcharge rates since the Fund became 'actuarially sound' in the early 1990s…”

Dr. Mark Praeger, chairperson of the Fund Board of Governors went on to say that “while these current results are favorable, the Board of Governors and fund staff are very concerned that a continuation in the increasing number of cases and claims, a gradually increasing average cost trend and a depressed economy could adversely impact the Fund. Nonetheless, being able to adopt the same or lower Fund surcharge rates for another year is affirmation that the Kansas Health care Stabilization Fund is meeting its objectives, even in light of the massive medical professional liability insurance problems that are confronting some of the states.”


“Tail” Coverage


 A provider who has complied with the Fund for five or more years and then becomes inactive is eligible for the Fund's continuing coverage without any additional surcharge payments. This continuing coverage, often referred to as the fund's “tail” coverage, affords coverage for future claims or suits made against an inactive provider for professional services rendered while he was in compliance with the Fund law.


Providers with compliance periods of fewer than five years can obtain the Fund's continuing tail coverage by paying an additional Fund surcharge within 30 days of becoming an inactive Kansas provider. The additional surcharge varies with the individual's prior Fund compliance records.


Damage Caps

Kansas caps non-economic damages at $25,000. But it does not limit total damages and only pays up to the amount of fund coverage the doctor purchases. Thus, doctors remain liable for awards or settlements that exceed the fund's coverage.

Notice of Lawsuit

Plaintiffs filing a medical malpractice action against a covered provider must serve a copy of the petition on the Fund's Board of Governors within 10 days of filing the action. If an action is filed against a resident provider outside of the state, the provider or his insurer must notify the board as soon as reasonably practical. If a claim is made without formal legal action being filed, the provider should notify his insurance company and the Fund's Claims section as soon as possible.


All active health care providers are given legal defense by their respective basic coverage insurer or the administrator of their self-insured program. If the claim or suit exceeds the basic coverage limits, the Fund will defend the provider. In most cases, the Fund continues the provider's defense with the same attorney the basic coverage insurer used. Inactive health care providers, whose basic policy no longer covers new claims and suits arising from their prior Fund compliance periods, who are qualified for the Fund “tail” coverage (see below), rely on the Fund to appoint a defense attorney.


Louisiana's Patients' Compensation Fund Oversight Board operates the Patients' Compensation Fund. Participation is voluntary, and participating doctors must carry $100,000 primary insurance. The fund provides excess coverage up to $400,000, plus medical expenses. Louisiana caps damages at $500,000. The fund and cap have been in place since 1975, although the $500,000 cap included medical expenses until 1986, when a new law exempted them from the cap. Thus, the cap does not include future medical costs, which the Fund pays as they are incurred—up to the amount of the award or settlement.

Approximately 7,000, or almost all of Louisiana's doctors, participate in the fund. Doctors cannot get hospital privileges in Louisiana unless they participate. The fund also covers any licensed health care provider, including hospitals, nursing homes, home health services, and ambulance services. All participating providers must carry the same $100,000 insurance as doctors. The fund pays future medical damages every year, but only as they are incurred. It usually pays the provider directly, especially when the provider is a hospital, but sometimes patients will pay for doctor services and submit their receipts to the fund for reimbursement.

Some insurance agents collect two checks from doctors, one for the company's premium on the $100,000 policy and one for the fund, while others collect one check and apportion it accordingly. Insurance companies are not supposed to deduct any percentage from the fund premium for administrative or other purposes. Doctors can also choose to self-insure the first $100,000, in which case they pay their surcharge directly to the fund.

The fund is financially sound and stable. The oversight board has maintained it since 1991. Before that, it was under the Insurance Commission, which did not run any reserves, so the fund was always paying out everything it took in. Executive Director Lorraine LeBlanc says the fund's stability is good and getting better all the time. The fund has not purchased reinsurance in the marketplace. Le Blanc says every year there are constitutional challenges to the cap, and bills in the legislature to raise or abolish the cap. Doctors also complain that the rates for participation are too high. LeBlanc says without the fund and cap, insurance rates in Louisiana would be much higher. The state's Insurance Commission must approve all changes to the fund's surcharges, and has not approved an increase for the last 10 years. Proposed 2004 rates will be addressed at an October meeting.

Thus far, we have unable to get surcharge data on amounts taken in and paid out in recent years. As soon as we receive it, we will forward it to you.




The Nebraska Hospital-Medical Liability Act was enacted in 1976 (R.R.S. Neb. Secs. 44-2801 et seq.). It was subsequently amended throughout the 1980s and 1990s. The act was originally sponsored by the Nebraska Medical Association and held constitutional by the state's Supreme Court in 1977. The act addresses only those professional liability issues associated with the acts of physicians, nurse anesthetists, and certain medical facilities such as hospitals.


Who is Covered


Neither doctors nor patients are required to participate.

If a patient chooses not to be included under the act, he or his representative must notify the Nebraska insurance director in writing. This must be done before treatment and renewed every two years. Additionally, the patient must notify his physician as soon as is “reasonable under the circumstances” that he has made this decision.


In order to be covered by the fund, physicians must:


1. obtain a $200,000/$600,000 basic professional liability insurance policy from an insurance company qualified in Nebraska;

2. send proof of the coverage to the Department of Insurance;

3. annually pay a surcharge to the fund in an amount the insurance director determines, which may not exceed 50% of the premium for basic liability insurance coverage; and

4. display in a suitable location an approved notice that the physician has elected to be included under the act.

Limits of Liability


If the patient properly excluded himself or if a physician has not qualified under the Act, there is no limit of liability. If both the patient and the physician are covered under the act, the physician's liability is limited to the extent of his basic insurance coverage. The total patient award, however, may not exceed (1) $500,000 for claims arising prior to January 1,1985, (2) $1 million for claims arising between December 31, 1984 and before December 31, 1992, and (3) $1.25 million for any occurrence after December 31, l992. This amount will increase to $1.75 million on January 1, 2004. The difference between the physician's basic insurance coverage and the patient's award is paid from the Fund.


Excess Liability Fund


The state insurance director manages the Fund to pay anticipated claims. As noted above, this fund is supported by a surcharge against the medical providers who have qualified under the act. The surcharges may vary pro rata according to the type of medical provider for whom payments have been made from the fund. An additional “special surcharge” may be levied if the fund is inadequate to pay in full all allowed claims. About 3,100 physicians pay into the fund.


Surcharge Rates in Recent Years


In December of 2002, the insurance department announced that surcharge rates for doctors, hospitals, and other health care providers would increase from 35% to 50%, the highest rate allowable. This increase, according to Insurance Department Director Tim Wagner, was due to significantly higher loss payments and declines in investment income on fund assets. The department notes that since rates for the fund are a percentage of the health care provider's primary liability insurance policy, this means that 'this increase is even somewhat greater than it appears, as medical professional liability insurance rates have increased significantly in the last several years in Nebraska.”


This increase is the last of several over the past few years. Rates increased from 5% to 20% effective in 2001, and from 20% to 35% effective in 2002. The Insurance Department has stated, “the reason for these increases is relatively simple. The 5%, 20% and 35% surcharge rates were artificially low rates. They had been intentionally depressed from the amount necessary to support ongoing operations. In the mid 1990s, hindsight determined that the 40% surcharges in place for a number of years were higher than necessary. As such, a decision was made to charge surcharge rates that would lose money (thus saving money for participating health care providers) until fund assets were more in line with its liabilities.


The department stated, “at this point that large surplus is gone, in part because of the artificially low surcharges and in part because of an unexpected surge in claims costs during the past four years. In fact, the surcharge is not higher than 50% because the law does not allow a surcharge higher than 50%” (Nebraska Department of Insurance, “Explanation of Hospital-Medical Liability Surcharge Increase).


Current Excess Fund Issues


Because of the volume of lawsuits filed in connection with the largest hepatitis C outbreak of its kind in the United States, Nebraska's malpractice fund could be “wiped out” according to observers (see
”Fremont Hepatitis Case Could Wipe Out Malpractice Fund,” Associated Press, August 1, 2003.) As of that date, over 80 lawsuits had been filed against a particular doctor who is accused of being at fault for unsanitary practices that caused 99 patients at his cancer clinic to contract the disease. One patient has died according to the article. The fund has about $55 million, but is expected to pay out an estimated $46 million to settle pending claims, excluding those filed against this physician. If the cases against that one physician exhaust the fund, all physicians participating in the fund would be required to pay the remaining claims, which potentially could equal tens of millions of dollars according to the Insurance Department.


New Mexico's Insurance Division, part of the Public Regulation Commission, operates its Patients Compensation Fund. The fund was established in 1976. Participation is voluntary, and participating doctors must carry primary insurance amounts of $200,000 per occurrence and $600,000 per year. Approximately 2,300 doctors, only a small percentage of all doctors in the state, participate in the fund. The fund also covers hospitals, clinics, and nurse anesthetists.

Surcharges vary by specialty, from $2,061 for doctors in certain specialties who do not perform surgery, to $17,175 for doctors who perform surgery for cardiovascular disease, neurology, and obstetrics and gynecology. The rates have not changed since 1984. The fund's actuary, Alan Seeley, said he will send us data on the aggregate surcharges over the last 10 years. Participating doctors pay the fund through their primary insurance carriers, which forward the money to the fund.

Raymond Aragon, a financial specialist for the fund, says the fund has had some impact on rate stabilization. While New Mexico does not have an “insurance crisis” at this time, Mr. Aragon believes it is still an issue. The fund is financially sound and stable. According to the New Mexico Public Regulation Commission's 2002 annual report, the fund's average annual expenditure for the last seven years is $7,738,232, and its average surcharge revenues for the same period are $8,851,625. The fund has not purchased reinsurance in the marketplace, but rather made traditional investments.

New Mexico caps damages at $600,000. Payments for future medical care and related benefits are not subject to this limit.

The fund pays victims' future medical damages, as they accrue up to the limit set by the judgment or settlement. In some instances, it pays directly to the service provider, in others by reimbursing the victims, who pay out-of-pocket and submit receipts to the fund.

The fund is not without its detractors. It is currently the subject of a constitutional challenge by several victims, and reportedly many doctors think they are being charged too much for participation.



According to a recent Pew Foundation report, Pennsylvania's medical malpractice insurance situation is among the worst in the country. During the late 1990s, four major insurers failed, including the state's largest carrier. Medical groups report that nearly all remaining insurers are refusing to write new policies or are underwriting selectively.


The state has had a malpractice insurance fund since 1975, but it being phased out. Participation in the fund is mandatory for physicians and also covers nurse midwifes, hospitals, nursing homes, and birth centers. Physicians currently must carry their own coverage for $500,000 per occurrence and $1.5 million in annual aggregate claims. These levels are scheduled to rise to $750,000/$2.25 million in 2006 and $1 million/$3 million in 2009, when the fund is scheduled to terminate. The current coverage requirements for hospitals are $500,000 per occurrence and $2.5 million aggregate annually. They are scheduled to go to $750,000/$3.75 million in 2006 and $1 million/$4.5 million in 2009.


The law does not cap liability at the $1 million fund claim limit. Thus, health care providers remain liable and may purchase additional excess coverage from private insurers.

Surcharges for the fund vary substantially by region, specialty, and for an internist or family physician, on the type of surgery they perform. An interest or family physician in a rural area who performs no surgery pays $1,971 while his counterpart in Philadelphia or Delaware County pays $3,941. Surcharges for internists and family practitioners who perform minor or major surgery are higher.

Surcharges for OB/GYNs, range from $20,061 to $41,302. Neurosurgeons pay from $22,974 to $45,567. However, the administration has proposed subsidizing the surcharges from state appropriations, and the Insurance Department has sent a letter to physicians, directing those in the high risk specialties (including OB/GYN and neurosurgery) to withhold their payments and physicians in other specialties to pay 50% of their surcharges. The final surcharges will depend on the state's budget. The abatements would cost about $220 million, according to the state medical society.


Total insurance premiums for physicians were slightly below the national average until the mid-1990s. By 2000, premiums had risen to 50% above the national average, to $27,490, according to the Pew Foundation report. Subsequently, premiums have risen by 100% or more for the high risk specialties of OB/GYN and surgery, as well as for internal medicine, according to a January 28, 2003 Wall Street Journal article.


The fund operates on a “pay-as-you go” basis. Surcharges cover current payouts from past occurrences, not the risk of future losses. The fund carries very limited reserves. Its initial annual expenditures were very low (less than $20 million), but rose to over $150 million in 1986 and over $300 million in 1996. Approximately $400 million will be expended this year. The Pew Foundation report asserts that the fund has “…contributed to the state's liability insurance woes by increasing annual assessments on health care providers and by reducing its level of excess coverage.”


The South Carolina Medical Malpractice Patients' Compensation Fund (PCF) was created in 1976 and began operations in 1977. The PCF provides unlimited coverage for malpractice claims that exceed the basic $200,000/$600,000 limits. Most healthcare providers in the state obtain their insurance through the Joint Underwriting Association (JUA) and PCF.

Unlike the JUA, which is a nonprofit corporation whose members are the insurance companies authorized to sell malpractice insurance, the PCF is a state agency. The PCF is governed by a 13-member board appointed by the governor. Healthcare providers are a majority on the board. By statute, the board must include three physicians, two dentists, two hospital representatives, two insurance representatives, two attorneys, and two consumer members. The PCF functions as a payment mechanism for any malpractice award that exceeds $200,000.


At the legislature's request, the Legislative Audit Council audited the fund and published its findings and recommendations in 2000.

The audit was critical of the fund's operation and viability and made numerous recommendations. The recommendations dealt with such things as management, procedures, rules, rates, and actuarial viability.

According to Terry Coston, the fund's program manager, most of the audit's recommendations have been implemented. For example, the prior executive board was replaced and a new management team, including Coston. The fund has established claims procedures, significantly increased rates, adopted rate classifications that are used by many private insurance companies, and adopted a rules and rates manual.

The audit council is conducting a follow-up examination of the fund to determine the effect of the changes. The audit should be available this December.

Funding and Payments

The PCF is funded solely by member fees. In FY 1998-99, it collected $10.9 million in member fees and paid out $11.8 million in claims. The PCF has three state employees, and its operating expenses for FY 1998-99 were $291,545. The State Treasurer's Office invests the PCF's funds. As of June 30, 1999, the PCF's cash balance was $19.3 million.

Increase in Claims Activity

Over the last 10 years, the PCF's level of activity has greatly increased. The number of PCF members has increased by 67% and the number of open claims has more than doubled (see Graphs 1.1 and 1.2). Also, since it began in 1977, the PCF has paid a total of $81 million to settle 243 claims. More than half of these payments, $45.6 million for 124 claims, have been made in the last four years. Medical malpractice claims have what is called a “long tail.” It is common for claims to be reported several years after the incident occurred, and it may take several more years for claims to be resolved.

Graph 1.1: PCF Open Claims FY 1989-90 through 1998-99

Graph 1.2: PCF Claims Payments FY 1989-90 through 1998-99

Fund Membership

South Carolina healthcare providers are not legally required to obtain malpractice insurance, but most physicians do. All healthcare providers licensed in South Carolina can become PCF members, provided they have basic insurance in the amount of $200,000/$600,000. As of June 30, 1999, the PCF had 8,372 members, of whom 5,466 were physicians. This represented 79% of the approximately 6,900 nongovernmental physicians whose primary offices were in the state. The remaining members of the PCF were dentists, nurses, hospitals, professional associations, and others. Table 1 shows the growth of PCF membership during the 1990s and Table 2 shows the number and percentage of providers by type in the fund in 1999.

Table 1: PCF Membership FY 1989-90 through FY 1998-99

Table 2: Patients' Compensation Fund Members as of June 30, 1999

Type of Provider






Dentists and Oral Surgeons



Professional Associations



Nurse Practitioners, Nurses, and CRNAs



Physicians Assistants















OB-GYNs and Neurosurgeons

Tables 3 and 4 indicate how much OB-GYNs and neurosurgeons have paid for private insurance, annual fund fees, and special fund assessments for fiscal year 1999-2000 through 2002-2003. This information was provided by the fund's program director, Terry Coston.

Table 3: OB-GYNs

Fiscal Year

Premiums for Basic Coverage ($200,000


% Change

Fund Annual Fee

% Change


% Change





























Table 4: Neurosurgeons

Fiscal Year

Premiums for Basic Coverage ($200,000/


% Change

Fund Annual Fee

% Change


% Change





























Fund's Stability

Coston told us that it might be too early to say whether the fund is financially sound and stable. She said more time is needed to see if the changes and the new rates are adequate.

She also indicated that although there is no full-blown medical malpractice crisis in South Carolina, the state might be on the borderline. Doctors have expressed apprehension over the fee increases and have called for tort reforms. But the doctors recognize that the price they pay for private insurance and fund protection is less than doctors pay in many other states.

South Carolina has not yet adopted tort reform measures that many other states have adopted. For example, South Carolina does not:

1. impose damage caps,

2. limit attorney's fees,

3. mandate periodic payments of future damages, or

4. require a pre-trial screening panel.

In addition, it continues to follow the common-law rule of joint and several liability, making each person who was partially at fault liable for the full amount of damages.


The Patients Compensation Fund insures health care providers in Wisconsin against medical malpractice claims that exceed the primary malpractice insurance thresholds established in statutes. It was created in 1975 in response to concerns over the cost and availability of medical malpractice insurance. The following information concerning the Fund was taken almost verbatim from a 2001 audit of the fund and from a conversation with fund director Theresa Wedekind. The audit was conducted by the Legislative Bureau, which is a nonpartisan legislative service agency responsible for conducting financial and program evaluation audits of state agencies.

Who Governs

The Fund is managed by the 13-member Board of Governors, which is chaired by the Commissioner of Insurance. The law requires the following representation on the Board of Governors:

1. three representatives from the insurance industry, appointed by the commissioner of insurance;

2. one member appointed by the State Bar;

3. one member appointed by the Wisconsin Academy of Trial Lawyers;

4. two members appointed by the Wisconsin Medical Society;

5. one member appointed by the Wisconsin Hospital Association;

6. the Commissioner of Insurance or his designee; and

7. four public members appointed by the governor, two of whom cannot be attorneys or physicians or be affiliated with a hospital or an insurance company.

The Office of the Commissioner of Insurance administers the fund and contracts with private companies for claims administration, risk management services, and actuarial services.

Who Participates

Health care providers that operate or maintain permanent practices in Wisconsin of at least 240 hours a year must participate in the fund and maintain primary malpractice coverage of $1 million for each incident, and $3 million per year. The fund insures (1) individuals, such as physicians and nurse anesthetists; (2) institutions such as nursing homes, ambulatory surgery centers, and hospitals; and (3) entities that are owned or controlled by hospitals, as well as entities such as medical partnerships, corporations, and cooperatives.


As of June 30, 2000, 11,809 health care providers were assessed $47.9 million for coverage in FY 1999-2000. Assessment rates vary by provider type and specialty. For example, among individual providers, rates are higher for physicians than for nurses, and higher for physicians who perform surgery than for those who do not. Table 1 lists annual assessment rates for various providers from FY 1997-98 through 2003-04. Statutes limit the overall level of fees the Board of Governors may assess in any one year. In FY 1999-2000, the limit was $80.4 million.

Table 5: Annual Provider Assessments1

Provider Types

Fiscal Year








Physician Class 13








Physician Class 24








Physician Class 35








Physician Class 46








Nurse Anesthetist














Hospital--per Occupied Bed







Nursing Home--per Occupied Bed














Employees of a Partnership or Corporation:







Nurse Practitioner







Advanced Nurse Practitioner







Nurse Midwife







Advanced Nurse Midwife







Advanced Practice Nurse Prescriber





















Oral Surgeon





















Physician Assistant







1 These rates apply to providers having Wisconsin as their primary place of practice. Other rates apply to providers for whom Wisconsin is not their primary place of practice.

2 Overall, there was no change from FY 1997-98 rates. However, there were minor rate changes for certain provider types.

3 Includes family or general practice physicians not performing surgery and nutritionists.

4 Includes family or general practice physicians performing minor surgery and ophthalmologists performing surgery.

5 Includes most types of surgeons, such as plastic, hand, general, and orthopedic.

6 Includes obstetric and neurological surgeons.

Fund Payments and Earnings

The fund paid over $476 million in claims from its inception in 1975 through March 31, 2001. More than 80% of the 571 claims paid have been for amounts less than $1 million. These claims account for 32% of total claim payments. There have been 15 claims for $5 million or more each, which represents over 27% of total claim payments.

A small number of large-value claims can significantly affect the fund's operations and cash flow, but the uncertainty and long-term nature of medical malpractice makes it difficult to predict if or when large claims will be settled and paid from the fund. For example, the fund paid an $8.6 million claim in December 1999 for an incident that occurred over 11 years earlier. The variability of annual claim payments is illustrated in Graph 2. As shown, claim payments for the first three quarters of FY 2000-01 were nearly double the level in each of the previous three fiscal years, when they were at their lowest point in the past decade.

Graph 2: Annual Claim Payments 1978 through March 31, 2001*

Since its creation in 1975, the fund has typically received more in assessments and investment income than it has paid out in claims and administrative expenses. As a result, its cash and investment balances have grown to over $542 million as of June 30, 2000. Investment income accounts for $275 million of this amount, and more than 27% of the fund's total revenue since 1975.

Financial Status of the Fund

As shown in Graph 3, the fund's financial position has generally improved since 1988. Beginning in FY 1998-99, the fund has been reported an accounting surplus.

For several years, the Fund reported an accounting deficit, which reached its lowest point at a negative $122.7 million as of June 30, 1988. The accounting deficit reflected the excess of estimated loss liabilities over the cash and investments available to pay them. Loss liabilities are based on actuarial estimates of what the Fund may need to pay for medical malpractice incidents that have already occurred, although they may not yet be settled or even reported. The Board of Governors and the Legislature took number of steps through the years that contributed toward improving the Fund's financial position and eliminating the accounting deficit. In addition, the Fund's actuary decreased estimates of loss liabilities over the years, which has also decreased the accounting deficit. As of June 30, 2000, the Fund had an accounting surplus of $27.2 million. According to Theresa Wedekind, the fund's executive director, the fund currently has $665,000,000 in assets and an estimated $7,000,000 surplus over anticipated claims. She said the fund directors believe a big surplus is undesirable and are trying to keep the surplus low.

Graph 3: June 30 Accounting Balances, 1981 – 2001*

Actions that Improved the Fund's Financial Position

A number of legislative and board actions have contributed to the fund's improved financial position:

1990 statutory changes allowed the Wisconsin Investment Board to make long-term investments for the fund. The fund's consulting actuary estimates that from September 1990, when the Fund initiated a long-term portfolio, through September 30, 2000, investment returns increased by $76.6 million more than they would have if all assets had continued to be invested in a short-term account. Beginning in 2000, the Board of Governors authorized the fund to invest up to 20% of its portfolio in equity index funds.

1995 legislation re-established a cap on awards for non-economic damages, such as pain and suffering, embarrassment, mental distress, and the loss of companionship and affection. These damage awards had been limited to $1 million from June 14, 1986 through December 31, 1990. The re-established limit began at $350,000 for incidents that occurred on or after May 25, 1995 and as adjusted at least annually to reflect changes in the consumer price index. Currently, the cap is $422,632.

The statutory thresholds at which secondary coverage by the fund is to begin have been raised along with the primary insurance requirement. Initially, primary medical malpractice coverage limits were $200,000/$600,000. Currently, they are $1 million/$3 million.

The board increased assessment fees in six of the first eight years of the 1990s. From FY 1988-89 to FY 1996-97, assessments for nurse anesthetists and physicians specializing in obstetric or neurological surgery increased by 32.9% and 38.8%, respectively.

Large Awards Paid by the Fund

As shown in Table 6, the largest awards paid from the fund since its inception have been $18.0 million paid in 1993 for an incident that occurred in 1986, and $15.6 million paid in 1996 for a 1993 incident. The actuary also believes that recent claims experience has been affected by potential claimants' delays in reporting claims or bringing them to trial until the courts resolve recent challenges to the constitutionality of the cap on non-economic damages.

Table 6: Large Awards Paid by the Fund


(in millions)*

Calendar Year of Incident

Calendar Year of Payment

Claimant Allegations




Diet pills prescribed without a complete physical evaluation, causing cardiac arrest and resulting in brain damage




Negligent treatment caused quadriplegia




Initial surgery and follow-up treatment of pinched nerve were negligent, causing continuing pain




Improperly administered anesthesia caused brain damage during cardiac surgery




Overdose of morphine to infant caused cardiac and respiratory arrest and brain damage




Negligent treatment caused brain damage, and lack of informed consent




Failure to diagnose a hematoma caused brain damage, and lack of informed consent




Failure to identify high bilirubin level in a timely manner, resulting in brain damage




Failure to promptly deliver baby, causing cerebral palsy




Negligent delivery caused brain damage




Negligent treatment of brain aneurysm




Surgery caused brain injury, and lack of informed consent




Negligent treatment caused brain damage




Negligent treatment caused brain damage




Failure to diagnose and treat meningitis

* Includes interest on losses paid.

Assessment Fees

The Board of Governors has consistently accepted the actuary's estimates for loss liabilities. However, as shown in Table 7, the Board has approved assessment levels lower than those recommended by the actuary in all but two policy years since FY 1992-93. For the FY 2001-02 assessments, the actuary provided a range of assessment changes based on different scenarios for eliminating the accounting surplus, and the board approved a rate within the range offered. A noteworthy difference between the actuary's recommendation and the change approved by the board occurred in FY 2000-01, when the actuary recommended a 3.7% increase and the board approved a 25 % decrease in total assessments. The board's decision appeared to be affected, in part, by the actuary's adjustments to past loss estimates. In addition, the board noted that the fund's large investment balance and the accounting surplus would provide flexibility to respond to unfavorable experience in the future by increasing rates.

Table 7: Annual percentage Changes to Assessment Fees

Policy Year

percentage Change Recommended by Actuary

percentage Change Approved by the Board

Actual Assessments

FY 1992-93




FY 1993-94




FY 1994-95




FY 1995-96




FY 1996-97




FY 1997-98




FY 1998-99




FY 1999-00




FY 2000-01




FY 2001-02

(28.6) to 28.23



1 Adoption of limit on non-economic damages affected the change approved.

2 Fees were reduced because the Fund's threshold increased from $400,000/$1 million to $1million/$3million.

3 The actuary provided four rate recommendations ranging from a decrease of 28.6 % to an increase of 28.2 % based on four different scenarios for eliminating the surplus.

4 Projected based on FY 1999-00 assessments, adjusted for changes approved by the Board.