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A Review of the Medical Malpractice Patients' Compensation Fund
January 2000

FOLLOW-UP (PDF)     REPORT (PDF)     SUMMARY (PDF)

As requested by members of the General Assembly, we conducted an audit of the Medical Malpractice Patients’ Compensation Fund (PCF). The requesters were concerned about the fund’s solvency and whether the state would be liable in the event of a default. A July 1999 informal opinion from the Attorney General’s office concluded that the state should not be liable for claims made against the PCF. However, we found that the PCF operates with a high level of risk.

  • The PCF has not maintained adequate reserves to pay future claims. A Department of Insurance report estimated that the PCF had a minimum $30 million reserve deficiency as of June 30, 1999. In addition, the PCF’s methods for establishing reserves are inadequate and have resulted in a pattern of reserve deficiencies.
  • Membership in the PCF is voluntary. If faced with large or repeated assessments, many PCF members might opt to obtain their malpractice insurance from the private market.
  • The PCF has unlimited claims liability; there is no limit on the amount of an award for which the PCF could be responsible. Only one other state, Wisconsin, has an excess malpractice fund with unlimited liability.
  • The PCF is not subject to oversight by the South Carolina Department of Insurance. The majority of its board and all of its members are healthcare providers who may have inadequate expertise in issues related to insurance. To ensure they operate in a responsible manner, other insurance entities in South Carolina regularly file reports with and are examined by the Department of Insurance.

We also reviewed the purpose of the PCF and recommend that the General Assembly examine whether there is a continuing need for the fund. The private malpractice insurance market should be able to furnish malpractice coverage to healthcare providers. If the General Assembly determines there is a continuing need for the PCF, action should be taken to lower its risk and improve its management.

We found that the PCF does not have adequate management controls to ensure the proper administration of the fund.

  • The PCF does not have adequate written policies and procedures to ensure consistency and continuity of administration.
  • The PCF routinely grants retroactive coverage to members after a claim is filed.
  • The PCF does not adequately verify information received from the primary insurer about claims.
  • The PCF does not have appropriate controls to ensure the accuracy of key information about claims in its computer database.
  • The PCF does not have appropriate controls to ensure that it is informed of pending claims.
  • The PCF does not report claims payments to the National Practitioner Data Bank in a timely manner.

We also reviewed the operations of the PCF for compliance with state law and found the following:

  • The PCF has violated the Freedom of Information Act (FOIA) with its claims committee voting practices, use of proxies for voting and quorums, discussion of confidential matters in open session, and lack of minutes for committee meetings.
  • The PCF has violated the Administrative Procedures Act (APA) by not promulgating regulations to establish board policy for fund membership and administration.
  • The PCF’s executive director also works for the Medical Malpractice Joint Underwriting Association (JUA), a private organization, as part of his state job. We could identify no provision in state law that would authorize a state employee to work on state time for a private organization.

We also reviewed information about funds similar to the PCF in other states. Although healthcare providers in most states obtain malpractice insurance through the private market, we identified seven other active state programs that offer excess malpractice coverage to healthcare providers. Although it is difficult to compare malpractice insurance rates, evidence indicates that South Carolina providers pay less than providers in other states for excess malpractice coverage. Historically, the number of reported medical malpractice awards in South Carolina has been low compared to other states, but South Carolina’s incidence is rising.