Senate Judiciary hears detailed briefing on Patient Compensation Fund deficits, hospital surcharges and insurer defense costs

Theresa Hassy, an Albuquerque attorney who represents patients in malpractice cases, told the Senate Judiciary Committee the Patient Compensation Fund was created by the New Mexico Medical Malpractice Act in 1976 as a state-sponsored backstop when private malpractice insurance was scarce. She said the fund’s revenue comes from surcharges on providers and that prior management left surcharges flat for years despite actuarial recommendations, eroding reserves.

“The strategy that the superintendent did at that time was to use today’s premiums to pay yesterday’s claims,” Hassy said, describing a practice the 2017 state auditor criticized. She warned that when reserves fall short, future surcharges must rise or taxpayers may be asked to intervene.

Hassy and OSI Superintendent Alice Kane also described how hospitals were admitted into the PCF en masse without truly independent, individualized risk assessments. Hassy cited one example she said illustrates the mismatch: “Loveless Health System… paid a premium or surcharge of $2,600,000. And as of 2022, the patient compensation fund had paid out over $8,400,000 in claims just for that year, showing a net loss to the patient compensation fund of over $5,000,000 for one hospital for one year.”

Kane, who leads the Office of the Superintendent of Insurance, emphasized the market concentration among malpractice carriers and the role of defense costs in loss ratios. “New Mexico does have the highest medical malpractice loss ratio in the country,” she said, noting that defense spending is a large component of the industry’s costs.

Legislative Finance’s Julius Rodriguez summarized recent appropriations into the PCF: a $30 million transfer in 2022 and two special transfers of $32.5 million (2023) and $35.9 million (2024). He said OSI’s HB2 budget accounts for the PCF program line and contains language allowing intra-year budget increases to cover settlements.

Committee members pressed presenters on apparent discrepancies between single-year figures and 10‑year averages, why some carriers showed rising premiums with lower paid claims, and how PCF settlement trends differ from primary-carrier loss ratios. Hassy and Kane said reporting windows and differing products (primary layer, PCF layer, excess carriers) explain some differences but acknowledged the data are complex and merit closer, ongoing review.

Kane advocated for stronger governance and investment practices for the PCF, pointing to Wisconsin’s program as a model: “What I really would like to do… is follow what the successful Wisconsin PCF has done,” she said, describing an investment committee chaired by the commissioner with actuarial and financial expertise.

The committee did not act on legislation at this time; members said they will use the briefing to inform decisions this session on proposals that affect surcharges, fund governance, and whether hospitals may re-enter the PCF under revised terms.