About two dozen tax-exempt Florida hospitals that set up medical malpractice and workers' compensation trust funds have disbanded the organizations to get better liability insurance prices through the commercial market.
A federal appeals court in Atlanta in January upheld a U.S. Tax Court ruling that income of the trust funds is taxable (Jan. 29, p. 27). However, the hospitals decided last November to purchase less-expensive commercial insurance instead of using their trust funds, said Peter Brennan, a spokesman for Sedgwick James, the Maitland, Fla.-based service agent for the hospitals.
"The decision by the federal court had no bearing on the hospitals' decision," Brennan said. "There are fewer governmental hospitals in the state to spread risk among."
In 1983, for example, there were 50 not-for-profit governmental hospitals in Florida and a total of 219 community hospitals, according to the Florida Hospital Association. In 1995, there were 25 governmental hospitals and 224 community hospitals.
From a technical standpoint, the multimillion-dollar trust funds remain intact to earn interest and comply with state regulations, Brennan said. At some future date, the Florida Insurance Department will allow the hospitals to recoup the money in the trust funds, he said.
Brennan said the three trust funds "ceased to bear risk" in November. At that time, the funds purchased insurance policies to protect their remaining capital from liability for prior incidents.
The three funds are the Florida Hospital Trust Fund (created in 1975), the Florida Hospital Excess Trust Fund (1985) and the Florida Hospital Workers' Compensation Fund (1977).
Brennan declined to reveal the amount of money in each fund or the name of the insurers that the hospitals have contracted with to provide liability and workers' compensation coverage.
"The hospitals will save money," he said, because the liability insurance market is "soft," meaning policies are available at far lower cost>