Hosp. & Healthsystem Assoc. of Pa. v. Commonwealth

• Decision Date: 26 September 2013
• Citation: 77 A.3d 587
• Court: Pennsylvania Supreme Court
• Parties: The HOSPITAL & HEALTHSYSTEM ASSOCIATION OF PENNSYLVANIA, Geisinger Health System, St. Vincent Health Center and Abington Memorial Hospital v. The COMMONWEALTH of Pennsylvania, The Department of Insurance, The Treasury Department, and The Office of the Budget of the Commonwealth of Pennsylvania. Appeal of Commonwealth of Pennsylvania, The Department of Insurance and The Office of the Budget of the Commonwealth of Pennsylvania. The Pennsylvania Medical Society, on behalf of itself and all of its Members v. The Commonwealth of Pennsylvania; The Department of Insurance, The Treasury Department, and The Office of the Budget of the Commonwealth of Pennsylvania. Appeal of Commonwealth of Pennsylvania, The Department of Insurance and The Office of the Budget of the Commonwealth of Pennsylvania.

77 A.3d 587

The HOSPITAL & HEALTHSYSTEM ASSOCIATION OF PENNSYLVANIA, Geisinger Health System, St. Vincent Health Center and Abington Memorial Hospital
v.
The COMMONWEALTH of Pennsylvania, The Department of Insurance, The Treasury Department, and The Office of the Budget of the Commonwealth of Pennsylvania.
Appeal of Commonwealth of Pennsylvania, The Department of Insurance and The Office of the Budget of the Commonwealth of Pennsylvania.
The Pennsylvania Medical Society, on behalf of itself and all of its Members
v.
The Commonwealth of Pennsylvania; The Department of Insurance, The Treasury Department, and The Office of the Budget of the Commonwealth of Pennsylvania.
Appeal of Commonwealth of Pennsylvania, The Department of Insurance and The Office of the Budget of the Commonwealth of Pennsylvania.

Supreme Court of Pennsylvania.

Argued Sept. 14, 2011.
Decided Sept. 26, 2013.

[77 A.3d 591]

Jonathan F. Bloom, Esq., Philadelphia, Thomas Walter Dymek, Esq., Harrisburg, Karl Stewart Myers, Esq., Philadelphia, Stradley, Ronon, Stevens & Young, L.L.P., for The Senate of the Commonwealth of PA, Amicus Curiae.

Christopher B. Craig, Esq., Harrisburg, Karen Spencer Kelly, Esq., Philadelphia, PA Department of Treasury, for Treasury Department, Participants.

Kevin James McKeon, Esq., Scott Thomas Wyland, Esq., Hawke McKeon & Sniscak, L.L.P., Harrisburg, for PA Medical Society, Peter Daloni, M.D., Martin Trichtinger, M.D., Participants.

Amy Griffith Daubert, Esq., Harrisburg, PA Department of Insurance, for Department of Insurance.

Gregory Eugene Dunlap, Esq., PA Office of General Counsel, for Commonwealth of PA, Dept. of Insurance, Office of the Budget of the Commonwealth.

Barbara J. Holland, Esq., Robert L. Pratter, PA Governor's Office of General Counsel, Kathleen Granahan Kane, Esq., PA Office of Attorney General, for Commonwealth of Pennsylvania.

James Daniel Neilson, Esq., PA Governor's Office of General Counsel, for Office of the Budget of the Commonwealth of Pennsylvania.

Tara Lynn Smith, Esq., PA House of Representatives, Nora Winkelman, Esq., for Rep. Todd A. Eachus, Majority Leader of the PA House of Rep., Appellant Amicus Curiae.

Philip H. Lebowitz, Esq., David Edwin Loder, Esq., Philadelphia, Nina L. Russakoff, Esq., Duane Morris, L.L.P., for Hospital & Healthsystem Assoc of PA, Geisinger Healthsystem, St. Vincent Health Ctr., Abington Memor.

Robert B. Hoffman, Esq., Eckert Seamans Cherin & Mellott, LLC, Harrisburg, for American Medical Association, Appellee Amicus Curiae.

BEFORE: CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, ORIE MELVIN, JJ.

OPINION
Justice SAYLOR.¹

In this direct appeal, we determine the constitutionality of legislation mandating a one-time transfer of money from the Medical Care Availability and Reduction of Error Fund to Pennsylvania's General Fund.

[77 A.3d 592]

I. Background

In 2002, the General Assembly enacted the Medical Care Availability and Reduction of Error Act (the “MCARE Act”),² which requires health care providers to maintain a minimum level of professional liability insurance. The MCARE Act also created the Medical Care Availability and Reduction of Error Fund (the “MCARE Fund”), which is designated as a “special fund” within the state treasury. 40 P.S. § 1303.712(a). The MCARE Fund is administered by the Insurance Department of Pennsylvania. See id. § 1303.713(a).

Under the MCARE Act, Pennsylvania physicians, hospitals, and certain other health care providers, as a condition of practicing in Pennsylvania, are required to purchase medical professional liability insurance (or provide self-insurance) in the amount of $500,000 per occurrence or claim, and to participate in the MCARE Fund. See40 P.S. § 1303.711(a), (d)(2), (e). The MCARE Fund provides a secondary layer of liability coverage to providers by paying, subject to the fund's liability limits, damages awarded in medical malpractice actions in excess of the required minimum level of professional liability coverage. See id. § 1303.711(g). Presently, the fund's liability limit is $500,000 per occurrence. See id.§ 1303.712(c). The MCARE Fund is funded by annual assessments levied upon health care providers based on a statutory formula, and loans secured, when needed, from other state funds, such as the Catastrophic Loss Benefits Continuation Fund. See id.§§ 1303.712(d), 1303.713(c).³

Although the MCARE Fund is similar to a supplemental insurance carrier, there are differences, the main one for present purposes being that there is no risk transfer in exchange for premiums. Rather, the statutory formula for assessments levied against health care providers is designed to: (i) reimburse the fund for the payment of reported claims that became final during the preceding year; (ii) pay expenses of the fund incurred during the preceding year; (iii) pay principal and interest on monies that the fund borrowed; and (iv) create a reserve that is ten percent of the sum of (i)-(iii) above. See40 P.S. § 1303.712(d). At any time there may be unfunded liability arising from unreported or unresolved claims. If and when the Insurance Commissioner determines that the private insurance market has the capacity to satisfy professional liability requirements, the MCARE Fund will cease providing coverage for new liability. See id. §§ 1303.712(c)(2), 1303.711(d)(4). The fund will not immediately terminate, however, as it will still be responsible for excess coverage on unreported or unresolved claims stemming from events that occurred during coverage years. Because assessments are based on the claims paid in the prior year, the MCARE Fund will continue to collect assessments until all claims for which it is responsible have been satisfied. The fund's actuaries have projected that it may continue to pay claims—and thus, collect assessments—for forty years after the fund ceases to provide coverage. At that time, monies remaining in the fund are to be distributed to health care providers in proportion to their assessments during the preceding year. See id. § 1303.712(k).

[77 A.3d 593]

Due to a revenue shortfall, the Commonwealth faced a budget impasse for the 2009–10 fiscal year that lasted approximately 100 days. An interim budget was passed in early August of 2009, and the impasse was finally resolved on October 9, 2009, when the Governor approved a supplemental appropriations bill, as well as implementing legislation making amendments to Pennsylvania's Fiscal Code.⁴See Act of Oct. 9, 2009, P.L. 537, No. 50 (“Act 50”). One of Act 50's provisions designed to balance the budget directed that $100 million be transferred from the MCARE Fund to the General Fund. See72 P.S. § 1717.1–K(1).⁵ That provision is at the center of this case.

On October 13, 2009, Appellees filed petitions for review in the nature of complaints for declaratory judgment and injunctive relief in the Commonwealth Court's original jurisdiction.⁶ The petitions named as respondents the Commonwealth of Pennsylvania, the Insurance Department, the Treasury Department, and the Office of the Budget (collectively, the “Commonwealth”), ⁷ and sought a declaration that: (1) the transfer of $100 million from the MCARE Fund to the General Fund extinguished vested rights or constituted an illegal taking in violation of the due process guarantees contained in Article I, Section 1 of the Pennsylvania Constitution and the Fourteenth Amendment to the U.S. Constitution (Count I); and (2) the transfer violated the Uniformity Clause of the Pennsylvania Constitution (Count II). The petitions also requested injunctive relief to prevent the transfer of funds or remediate any unlawful action taken pursuant to Act 50.

Concerned that the Commonwealth might effectuate the transfer and dissipate the funds, Appellees filed an application for preliminary injunctive relief in the nature of a temporary restraining order. They alleged that the only way to preserve the status quo pending the outcome of the litigation would be to retain the monies in the MCARE Fund, since there was no guarantee that the Commonwealth could reconstitute the funds from any other source. The Commonwealth responded that a preliminary injunction was unwarranted because, inter alia, it was not needed to prevent immediate and irreparable harm. See generally Warehime v. Warehime, 580 Pa. 201, 209–10, 860 A.2d 41, 46–47 (2004) (reciting the six prerequisites that a party must establish to obtain preliminary injunctive relief, including a showing that such relief is necessary to prevent immediate and irreparable harm). The Commonwealth suggested, in this regard, that it could “make [Appellees] whole” by depositing $100 million back into the MCARE Fund in the event of an adverse judgment. Commonwealth's Memorandum in Opposition to Petitioners' Application for Special Relief in the Nature of a Temporary Restraining Order at 15, reproduced in R.R. 202a. By order dated October 19, 2009, the Commonwealth Court expressed agreement with the Commonwealth's

[77 A.3d 594]

position in this regard, and denied the requested relief. The court noted, in particular, that Appellees based their irreparable-harm assertion on an assumption that the Commonwealth would not honor a final judicial order, which amounted to “pure speculation.” HAP v. Commonwealth, 522 & 523 M.D. 2009, Order at 6 (Pa.Cmwlth. Oct. 19, 2009), reproduced in R.R. 216a. Thereafter, the Treasury Department effectuated the $100 million transfer on October 30, 2009.

The petitions were eventually consolidated, whereupon Appellees filed an application for summary relief. SeePa.R.A.P. 1532(b). On April 15, 2010, the Commonwealth Court granted Appellees' request in a published opinion, holding that the transfer of monies from the MCARE Fund to the General Fund was unlawful in that it impaired Appellees' vested rights. See Hosp. & Healthsystem Ass'n of Pa. v. Commonwealth, 997 A.2d 392, 401 (Pa.Cmwlth.2010) (en banc) (“HAP I ”).⁸

First, the court disagreed with the Commonwealth's assertion that Appellees...