LRGHealthcare getting $5-million from distribution of controversial JUA surplus

Published Date

LACONIA — LRGHealthcare will receive approximately $5-million from the surplus of the New Hampshire Medical Malpractice Joint Underwriting Association (JUA) when $85-million of the outstanding balance of $110-million, is distributed by a claims administrator. The distribution to eligible policyholders began last week. LRGH could receive another $500,000 to $1-million when the remaining $25-million, reserved against a possible federal tax liabilities is distributed.
The distribution to policyholders marks the culmination of litigation they brought against the JUA in 2009 when Governor John Lynch sought to transfer more than two-thirds of its surplus to the general fund to balance the 2010-2011 state budget. share of its surplus to the general fund. In January, 2010 the New Hampshire Supreme Court upheld an earlier decision by Justice Kathleen McGuire of Belknap County Superior Court that the state was not entitled toy the money, which belonged to the policyholders, including LRGH, the single largest premium payer.
Henry Lipman, senior vice-president for financial strategy and external relations at LRGH, said yesterday that in anticipation of the distribution LRGH booked $3-million in fiscal year 2011 and $2-million in fiscal year 2012. Some $300,000 of the award represents reimbursements for legal fees, which LRGH advanced to initiate the litigation, along with a matching amount.
Kevin Fitzgerald of NixonPeabody, who represented the policyholders in the litigation, said yesterday that the JUA has sought assurances from the IRS not only that it would not levy taxes against the JUA retrospectively but also that it would not not incur tax liabilities prospectively. The state had argued that if surplus funds were distributed the policyholders, the JUA could be liable for crippling amounts of back taxes and the parties to the litigation agreed to reserve $25-million of the $110-million awarded the policyholders until the tax issue was resolved.
The IRS has absolved the JUA of back taxes, but has yet to rule on its future tax status. Nevertheless, the JUA has asked the court not to release the $25-million until its prospective tax status is settled. Fitzgerald said that the $25-million was awarded to the policyholders, who bear no responsibility for the future tax status of the JUA, and should be distributed to them without further delay.
Meanwhile, at the request of Insurance Commissioner Roger Sevigny, legislation has been introduced to restructure the JUA as a nonprofit entity, separate from the state, which like its predecessor would offer medical malpractice insurance at reasonable costs to compensate for the failure of the uncompetitive private market. The bill (House Bill 489) provides that any surplus may be used to reduce costs to policyholders and fund grants to health care providers serving medically underserved populations, but stipulates that "policyholders shall not have nor shall acquire any vested right or entitlement to the surplus."
Fitzgerald said that he has advised the policyholders and other interested parties to oppose the legislation until the remaining $25-million is released and the distribution is complete.
In January 2011, LRGHealthcare joined with three other hospital systems to form Granite Shield Insurance Exchange, a reciprocal captive insurance company licensed in Vermont, which will insure the institutions and their employees against general and professional liability. LRGH's partners are Concord Hospital, Eliot Health Systems of Manchester and Wentworth-Douglass Hospital of Dover. The hospitals invested equity capital in the enterprise and pays annual premiums based on their claims experience and risk exposure.  Granite Shield provides both primary coverage and excess insurance for the hospitals as well as physicians, nurses, administrators and support staff.
While the funds are welcome, Lipman said that LRGH still has outstanding issues with the state. LRGH is among ten of the 13 largest hospitals in the state that sued the state in July, 2011, challenging cuts to Medicaid reimbursement rates that reduced outpatient payments by a third and inpatient payments by 10 percent as well as the decision to withhold funds from the Medicaid Enhancement Tax, which costs the hospitals some $15-million a year.