Office of the President
August 15, 2000

Members, Board of Trustees:


                ESTABLISHMENT OF CHANDLER MEDICAL CENTER
                MEDICAL MALPRACTICE QUASI-ENDOWMENT FUND

Recommendation: that the Board of Trustees authorize the establishment of the Chandler
Medical Center Medical Malpractice Quasi-Endowment Fund consisting of voluntary payments
previously made to the Secretary of Finance and Administration Cabinet and being returned to
the University for creation of a quasi-endowment to fund payments of claims, demands and
judgments made against agents, officers, employees, students and volunteers of the Chandler
Medical Center arising out of claims of medical negligence. The fund may be supplemented by
additional payments from the Chandler Medical Center. Payment of claims, insurance premiums
and the statutory contributions to the Basic Coverage Compensation Fund are authorized to be
made on an annual basis from principal or investment income as determined by the Medical
Malpractice Claims Committee.

Background: In 1978, the General Assembly authorized the establishment of a University of
Kentucky Medical Center Malpractice Insurance program. The program was established by the
Board of Trustees, with annual contributions made, pursuant to statute, to the Basic Coverage
Compensation Fund at a rate of 150% of the previous five-year average of claims. Initially, the
University also carried excess commercial insurance. In the face of rising premiums for the
commercial insurance, the Medical Malpractice Claims Committee developed a new strategy in
1985 of making additional voluntary contributions to the Secretary of Finance and
Administration and required Kentucky Medical Services Foundation, Inc. to segregate additional
funds to meet claims. This practice continued until 1995, when the Chandler Medical Center
was again able to purchase excess commercial insurance at more reasonable rates. These
voluntary payments, inclusive of interest earnings, now total thirteen million three thousand nine
hundred fifty-seven dollars and twenty cents ($13,003,957.20), through June 30, 2000. The
Secretary of Finance and Administration has authorized return of the funds to the University for
investment in a quasi-endowment which is expected to produce a greater return on investment.
These funds, together with the Basic Coverage Compensation Fund held by the Secretary for
Finance and Administration and designated invested funds of Kentucky Medical Services
Foundation, Inc., will continue to be available to meet claims which may arise from the provision
of medical care by agents, officers, employees, students and volunteers of the Chandler Medical
Center.



Action taken:      Approved      U Disapproved        L Other