What Is a Patient Compensation Fund?

May 28, 2023

A Patient Compensation Fund (PCF), also known as a Medical Malpractice Compensation Fund, was enacted in several states in the 1970s in response to rising medical malpractice costs and an unstable insurance market that made it challenging for physicians, hospitals, and other medical facilities to obtain coverage. Tort reforms and a pro-plaintiff environment with excessive jury awards contributed to a diminishing insurance market for Medical Malpractice Liability insurance.

As a result, PCFs were set up by several states to provide excess Medical Malpractice Liability or Medical Professional Liability for health care providers, including doctors, hospitals, dentists, and some allied health care professionals. The primary purpose of a PCF is to ensure that patients receive timely and adequate compensation for medical errors or negligence while also protecting health care providers from excessive litigation costs.

States with patient compensation funds include Indiana, Kansas, Louisiana, Nebraska, New Mexico, Pennsylvania, and Wisconsin.

Following are some key features and functions of a PCF:

  • Compensation for Medical Malpractice: A PCF is designed to streamline the process of seeking compensation and may provide an alternative to traditional medical malpractice lawsuits, reducing the burden on the court system.
  • Funding Mechanism: PCFs are typically funded through various mechanisms. They are paid for by an annual surcharge on health care providers, generally a percentage of the provider’s annual Liability premium. Some funds may also receive government subsidies or contributions from insurance companies or other sources.
  • Administrative Structure: PCFs are typically managed by a governing body or board that oversees the fund’s operations, including the administration of claims, determination of compensation amounts, and the disbursement of funds to eligible patients. The governing body may consist of representatives from health care providers, patient advocacy groups, legal professionals, and other stakeholders.
  • Eligibility and Compensation Criteria: Each PCF establishes its own eligibility criteria and compensation guidelines. Generally, patients must demonstrate that their injury or harm was a result of medical malpractice within the scope of the fund’s coverage. Compensation amounts may be based on factors such as the severity of the injury, medical expenses incurred, lost wages, pain and suffering, and other relevant factors.
  • Limitations and Protections: Participating health care providers are required to maintain liability limits in an amount no less than the threshold at which the excess coverage applies. In addition, the patient compensation fund program caps a defendant health care provider’s per claim exposure at an amount specified in the state’s statute. The fund pays any amount of a claim exceeding this threshold.

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