Introduction

I. Introduction

This research paper and the majority of the contents and analysis contained here were originally prepared in 2005. The information, to the extent possible, has been reviewed and updated as of November, 2008.

The purpose of this research paper is to examine the features and evaluate the performance of existing health care stabilization funds (commonly known as Patient Compensation Funds, or “PCFs”) and to assess whether such a fund is an appropriate measure to be undertaken by the State of Missouri. First, this report will highlight important issues surrounding the creation and operation of PCFs. Next, it will examine the performance of PCFs in several states that employ them. Finally, it will evaluate the arguments and evidence in support of and in opposition to these funds and, given these investigations, explain why establishing a PCF is definitely not the best choice for the State of Missouri.

PCFs are state-created medical malpractice insurance mechanisms that function with the goal of increasing the availability and affordability of medical malpractice liability coverage. They provide excess insurance above state-mandated threshold levels and are funded through surcharges on participating healthcare providers. Based on studies of states currently operating PCFs, available empirical research on their effects, and an assessment of the current medical liability environment in Missouri, establishing a PCF is not an appropriate course of action for the State of Missouri.

Of the relatively few PCFs currently in operation, a significant number have experienced substantial problems with their administration and effectiveness in preventing medical liability problems in their respective states. Also, the entry of states into the insurance business can create problems of moral hazard for providers and primary insurers and a lack of sufficient and competent oversight of the funds can also create the problems that accompany such a deficiency. Finally, state involvement introduces new political incentives and pressures that can reduce PCF effectiveness. Studies suggest that other medical liability reform measures, such as non-economic damage caps, are far more successful ways of improving the medical liability environment of a state.