• A
  • |
  • A
  • Text size

Taxation of Physicians

Pennsylvania Medical Society v. Commonwealth of Pennsylvania, 77 A.3d 587 (Pa. 2013)

39 A.3d 267 (Pa. 2012)

Outcome:    Favorable

Issue

The issue in this case was whether the State of Pennsylvania’s actions (and inactions) effectively impose a discriminatory tax on physicians.

AMA interest

The AMA opposes the imposition of selective revenue taxes on physicians and other health care providers.

Case summary

Physicians in Pennsylvania were required to carry $1 million in professional liability insurance coverage.  In response to a medical liability crisis in the early 2000s, Pennsylvania enacted a statute known as the Abatement Law, to restructure the burden of physicians’ insurance premiums, particularly for high risk specialties.  Under the Abatement Law, physicians were required to purchase $500,000 of primary malpractice coverage from the private market and purchase $500,000 of secondary coverage from either a state sponsored insurance plan known as Mcare or from the private market.

The Abatement Law also created a Health Care Provider Retention (HCPR) Program, which would be used to pay part of the Mcare expenses.  The HCPR program was to be funded by taxes on cigarettes and surcharges on violators of motor vehicle laws. 

Through 2005, the Pennsylvania government used the money in the HCPR account to abate the Mcare premiums as contemplated in the Abatement Law and its various amendments.  After that, government officials refused to pay the money to Mcare, citing a state budgetary shortfall.  In 2009, pursuant to a special legislative enactment, the Pennsylvania government transferred $100 million from the Mcare fund to Pennsylvania’s General Fund.

This action (and inaction) prompted the Pennsylvania Medical Society (PMS) and various health care providers to file two separate lawsuits against the State of Pennsylvania and several state agencies.  The first lawsuit sought an order to compel the state to pay the money in the HCPR Account to the Mcare Fund.  The second lawsuit sought restoration of the $100 million taken from the Mcare Fund.  PMS and the other plaintiffs sought summary judgment in both cases.

The trial court granted summary judgment in favor of PMS and the other plaintiffs.  Both cases were then appealed directly to the Pennsylvania Supreme Court.

On February 29, 2012, the Pennsylvania Supreme Court reversed the lower court ruling on the obligation to pay money in the HPCR Account to the Mcare Fund.  The court found it was within the State's discretion whether to pay that money.

The remaining appeal concerned restoration of the $100 million taken from the Mcare fund. On September 25, 2013, the Pennsylvania Supreme Court, in a split decision, decided various procedural issues, all in favor of PMS and the other plaintiffs. As to the merits, it held that if the money taken from Mcare fund could be deemed a “surplus,” there would be no right to require restoration of that money. However, if the money was needed for the fund to pay its ongoing obligations, there would be a right of recovery. It reversed the lower court and remanded for a factual determination of the proper characterization of the money taken from the fund. It also held that, on this issue, the Pennsylvania government would have the burden of proving that the funds it had taken were actually a surplus.

Litigation Center involvement

The Litigation Center contributed toward the PMS legal expenses and filed an amicus curiae brief in the Pennsylvania Supreme Court to support PMS.

Pennsylvania Supreme Court brief

Rhode Island Medical Imaging v. Sullivan (Providence Cnty. Ct., State of RI and Providence Plantations)

Issue

The issue in this case is whether a statute that taxes certain "providers" of medical imaging services is constitutional.

AMA interest

The AMA opposes discriminatory taxes on physician services.

Case summary

The Rhode Island Medical Society (RIMS) challenged the constitutionality of two statutory “surcharges” (actually, taxes) on medical services.  One of the surcharges was imposed on medical imaging services, and the other was imposed on ambulatory surgery and endoscopy services.  Each surcharge was equal to 2% of patient revenue received.

Four medical groups and an individual physician sued the Administrator of the Rhode Island Department of Revenue to prevent enforcement of the surcharge statutes.  The plaintiffs contended that the statutory language was vague, confusing, and illogical.  According to the plaintiffs, the statutes irrationally discriminated between taxpayers who were in the same class and provided the same services.  Specifically, the surcharges applied to certain diagnostic imaging services but not to all and to some, but not all, ambulatory surgery centers.  Thus, allegedly, the statutes were facially void under the Due Process and Equal Protection Clauses of the state and federal constitutions.

On November 9, 2010, the court entered judgment against the plaintiffs on all counts.

Litigation Center involvement

The Litigation Center paid a portion of the plaintiffs' litigation expenses.

Tuttle v. New Hampshire Medical Malpractice Joint Underwriting Association

992 A.2d 624 (N.H. 2010)

Issue

The issue in this case is whether the New Hampshire legislature can appropriate funds contributed by physicians and other health care providers and held in trust for payment of medical liability.

AMA interest

The AMA opposes the imposition of selective taxes on physicians.

Case summary

In 1975, the State of New Hampshire, by statute, created the New Hampshire Medical Malpractice Joint Underwriting Association (JUA), which provides professional liability insurance for physicians and other health care providers who practice in New Hampshire. 

Under the terms of the JUA insurance policies, if there is a financial shortfall in its insurance operations the JUA can assess its policyholders for and the policyholders are obligated to pay any additional premiums required to cover the shortfall.  Conversely, if the JUA has an excess, beyond what it needs to cover its operations, the JUA can declare a dividend, payable to the policyholders.

The JUA accrued a surplus in excess of its current needs - approximately $150 million.  Faced with a budgetary shortfall, the New Hampshire legislature enacted a law by which the state would appropriate $110 million of the JUA surplus for the state's general purposes.  When the JUA policyholders became aware of the contemplated raid on the JUA surplus, they filed a class action lawsuit to enjoin the threatened appropriation of funds.  The lead plaintiff in the suit is Georgia Tuttle, MD, a past president of the New Hampshire Medical Society.

The New Hampshire Superior Court declared the law unconstitutional, as it would appropriate private property for state purposes, without just compensation, and it would impair the policyholders' contracts with the JUA.  The state appealed this decision to the New Hampshire Supreme Court.

The New Hampshire Supreme Court affirmed the trial court, holding in Dr. Tuttle's favor.  It found that the New Hampshire law would impair the contracts between the policy holders and JUA, thus making it unconstitutional.

Litigation Center involvement

The Litigation Center and the New Hampshire Medical Society filed an amicus curiae brief to support Dr. Tuttle.

New Hampshire Supreme Court brief.

 

Wisconsin Medical Society v. Morgan, 787 N.W.2d 22 (Wis. 2010)

Issues

The issue in this case is whether the Wisconsin Legislature could legally authorize the transfer of $200 million from the Wisconsin Injured Patients and Family Compensation Fund ("the Fund") to a variety of health programs that have nothing to do with the Fund's purpose of paying medical malpractice claims.

AMA interest

The Fund transfer acts as a selective tax on physicians for general revenue purposes. The AMA opposes such taxes.

Case summary

Most physicians in Wisconsin, as well as nurse anesthetists, are required to contribute to the Fund. The Fund is obligated to provide coverage for excess medical malpractice claims (above a cap on amounts directly payable by the providers).  The Wisconsin Legislature, by statute, directed that $200 million be transferred from the Fund to various Medicaid-related health care programs, none of which had to do with excess medical malpractice claims.

The Wisconsin Medical Society ("WMS") sued various state officials to restore the $200 million to the Fund and to prevent further such transfers. The suit contended that the transfer was: (1) a "taking" without just compensation, in violation of the federal and state constitutions, (2) an impairment of contract, in violation of the federal and state constitutions, (3) a common law breach of a statutorily created contract, (4) an invalid tax, in violation of the state constitution, (5) an irrational tax classification, in violation of the federal and state constitutions, (6) a discriminatory tax, in violation of the Equal Protection Clauses of the federal and state constitutions, and (7) a common law breach of statutorily created fiduciary duties.

The trial court entered summary judgment in favor of the state.  It held that all claims other than that which asserted a taking of private property for public purposes were barred under the sovereign immunity doctrine.  It further held that physicians do not have a property interest in the Fund.  The Wisconsin Medical Society appealed to the Wisconsin Court of Appeals, but the appeal was transferred directly to the Wisconsin Supreme Court without a decision in the Court of Appeals.

The Wisconsin Supreme Court overturned the trial court, holding in favor of WMS.  The Court ordered the state to restore the $200 million to the Fund. 

Litigation Center involvement

The Litigation Center assisted WMS with its litigation expenses and also filed an amicus curiae brief in the Court of Appeals.

Court of Appeals of Wisconsin brief.