Wisconsin Medical Society, Inc. and David M. Hoffmann, MD v. Michael L. Morgan
Dane County Case No. 2007CV4035
Appellate Case Number 2009AP728

This summary outlines the Society’s key legal arguments concerning the State’s raid of the Injured Patients and Families Compensation Fund (Fund). It includes details on the following topics:

• The Fund’s purpose
• Why the Society filed suit
• The Society's initial argument
• The circuit court’s decision
• The Society's appeal

The Fund’s Purpose
As its name suggests, the Injured Patients and Families Compensation Fund contains money held in trust to pay the claims of injured patients and their families in medical liability lawsuits. According to the statute that describes the Fund’s purpose, this money must not be used for other reasons. The statute reads as follows:

PURPOSE AND INTEGRITY OF FUND. The fund is established to curb the rising costs of health care by financing part of the liability incurred by health care providers as a result of medical malpractice claims and to ensure that proper claims are satisfied. The fund, including any net worth of the fund, is held in irrevocable trust for the sole benefit of health care providers participating in the fund and proper claimants. Moneys in the fund may not be used for any other purpose of the state. (Emphasis added) See Wis. Stat. § 655.27(6)

Why the Society Filed Suit
In an effort to balance its budget, the State of Wisconsin transferred $71.5 million on October 29, 2007 and $128.5 million on July 1, 2008 from the Fund to the Medical Assistance Trust Fund. The Society filed a lawsuit on October 29, 2007 to recover the $200 million the State raided from the Fund.

Simply put, the State ignored that the money in the Fund is held in trust for the exclusive purpose of paying medical liability claims. The Society sued because the State’s raid of the Fund was illegal and could harm physicians, patients and Wisconsin’s medical liability environment.

The Society's Initial Argument
The Society began its legal challenge by filing a complaint in Dane County Circuit Court, then amended this complaint when David Hoffmann, MD, joined the lawsuit as an individually named plaintiff. These complaints contain several legal concepts that support the position that the State must return $200 million, plus any interest this sum would have accrued, to the Fund. These concepts illustrate that the State’s raid on the Fund was unconstitutional:

• The raid is unconstitutional because it takes the property rights of physicians and other health care professionals without paying just compensation (Wisconsin Constitution, Article I § 13). The money in the Fund is from assessments paid by health care professionals and investment earnings. There is no taxpayer money in the Fund. Health care providers have a property right in the integrity and security of the Fund and in the State using Fund money strictly in accordance with the Fund’s purpose of paying claims of injured patients. In this case, just compensation requires the State to return the money along with lost investment earnings to pay claims.
• The raid is unconstitutional because it impairs the contract rights of physicians and other health care professionals. The law establishes the Fund as an “irrevocable trust” to be used to pay the claims of injured patients and their families. The statutory language creates a contract between health care professionals who pay into the Fund and the state, which enables health care professionals to enforce the statute. In this case, the right that the raid impaired is the right of the Fund Board of Governors to administer the Fund and pay valid claims as required by the statute.
• The raid was a disguised tax on health care providers and injured patients and families. The Fund contains private money from health care professionals and interest earnings. The raid takes private money, collected for specific trust purposes and uses it for a public purpose that is not permitted under the statute. It is a tax. Wisconsin law prevents the State from imposing a tax without clear and express language. The language in the budget bill, 2007 Wis. Act 20, does not satisfy the legal requirement of clearly informing the public that money is taken for a tax.
• The raid was unconstitutional because it deprives physicians and other health care professionals of the right to equal protection of the law.
• Participation in the Fund is mandatory for most Wisconsin physicians. However, physicians employed by the state, a county, a municipality or the federal government (e.g. University of Wisconsin Hospital and Veterans Administration physicians), physicians who are retired or work part-time and health care providers who have temporarily suspended practice are all exempt from participating in the Fund.
• When the State took money from the Fund, which had the effect of taxing Fund participants, it unfairly and unlawfully treated contributing health care providers differently from noncontributing health care providers.

The Society’s brief for this case contains all of the legal arguments presented to the Dane County Circuit Court. Click here to read it.

The Circuit Court’s Decision
On December 19, 2008, Dane County Circuit Court Judge Michael Nowakowski decided that the legal principle of sovereign immunity prevents the State from being sued in this case and that the Society does not have a property interest in the Fund that would prevent the State from taking the $200 million. Click here to read Judge Nowakowski’s decision and other key court documents.

The Society's Appeal
On March 17, 2009, the Society appealed the Circuit Court’s decision because we strongly believe that the language of the statute places the Fund money in an “irrevocable trust” that demands safeguarding. We also believe that several court decisions in Wisconsin and beyond support our stance. These prior decisions make a strong case that:

• Physicians and other health care professionals who pay into the Fund have a property interest in ensuring that Fund money is used for the purpose for which it was intended, namely to pay the claims of injured patients and their families. The Society’s lawsuit is similar to cases in which the Supreme Court has concluded that individuals can have a property interest in preserving the integrity and security of a state fund.
• Sovereign Immunity does not prevent the Society from pursuing its other claims in the lawsuit because it is suing for a judicial declaration that the State violated the law by raiding the Fund, not to obtain money damages. The Wisconsin Supreme Court has ruled that actions against State employees for such a judicial declaration are not barred by sovereign immunity. Click here to read the Supreme Court’s decision in Lister v. Board of Regents.
• The raid was unlawful and the State must return the money to the Fund. The only remedy is to restore the Fund’s integrity and security by requiring the State to return the $200 million along with any interest that would have accrued to those funds.

This case raises issues that have statewide importance, and the court’s decision could affect the integrity of the Fund for many years.

The Society’s appellate brief articulates the reasons that the appellate court should overrule the trial court’s decision. Click here to read it.

The Court of Appeals’ Certification
On December 10, 2009, the Court of Appeals issued a Certification asking the Wisconsin Supreme Court to review the case. According to the Court of Appeals’ Certification, the issue of whether health care professionals have a property interest in the Fund is an issue of first impression, it is necessary for the Supreme Court to clarify the legal standard set forth in a prior case to resolve the issue and the resolution of the case will have statewide implications. Click here to read the Certification by the Court of Appeals.

The Wisconsin Supreme Court Accepts Jurisdiction
On January 13, 2010, the Supreme Court accepted the Court of Appeals’ Certification, taking jurisdiction of the appeal. Click here to read a copy of the Supreme Court’s Order.