CHICAGO — A Wisconsin Supreme Court decision overturning the state diversion of $200 million from a medical malpractice fund will force a new round of budget cuts, Gov. Jim Doyle’s administration said Tuesday.

The court ruled 5 to 2 that the 2007 transfer violates the state constitution and it remanded the case back to a Dane County judge, who must direct the state to replenish the fund with interest. The lower court is also required to issue a permanent injunction prohibiting future transfers from the Injured Patients and Families Compensation Fund.

The state transferred the money to the Medical Assistance Trust Fund to leverage an additional $300 million in federal matching funds, then withdrew the $200 million to help balance the budget by paying for health care-related costs.

The Wisconsin Medical Society, which represents doctors who pay into the compensation fund, filed a lawsuit in state court challenging the withdrawal. The circuit court dismissed the suit on grounds that the society lacked a property interest in the fund. The society appealed to the state’s high court in January. The court heard arguments in April.

In its decision, the majority of justices said health care providers do hold a constitutionally protected property interest in the fund. They determined state statutes define the fund as an irrevocable trust.

“The structure and purpose of the fund satisfy all the elements necessary to establish a formal trust,” the Supreme Court opinion reads. “Because the health care providers are specifically named as beneficiaries of the trust, they have equitable title to the assets of the fund.”

The court determined that “any transfer of money from the fund for an improper purpose infringes” upon these rights. The opinion can be found at

The Legislature established the compensation fund in 1975 in response to the rising cost of professional liability insurance coverage for health care providers, which was driving up costs and hurting the availability of health care services.

Department of Administration Secretary Dan Schoof issued a statement defending the transfer. He said it allowed Wisconsin to avoid the drastic benefit and provider rate cuts that have occurred in other states. Schoof said officials would work with legislative leaders on a repayment plan and warned that cuts and other measures will now be needed.

“An additional $200 million in cuts authorized in the budget, which we hoped to at least partially avoid, and other savings measures will now need to be implemented,” he said. “We will also need to make additional cuts to the Medicaid and BadgerCare Plus programs through across-the-board reductions in provider rates.”

The state has no reserves and its $61.8 billion budget for fiscal 2010-11, signed into law last year by Doyle, is narrowly balanced. It relied on the restructuring of $285 million of debt along with a mix of federal stimulus funds, spending cuts, and tax and fee increases to wipe out a $6.6 billion deficit. The state expects to end fiscal 2010 with a $207 million ending balance and a $476 million cash deficit in fiscal 2011. Wisconsin’s GOs are rated AA by Fitch Ratings and Standard & Poor’s and Aa2 by Moody’s Investors Service.

The Wisconsin Medical Society praised the decision. “This ruling sends an important message that the fund is not a piggy bank,” said president Thomas Luetzow. “The raid was wrong, and justice has been served.”

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