According to Beckers Hospital Review, the state of New York has agreed to pay medical bills for newborns who suffer brain injuries during birth. This will mean that the state, not the hospital, will be responsible for footing the bills.

A new fund has been created in New York’s 2011-2012 budget to pay the newborns’ bills. Supports of the fund say the change will reduce medical malpractice premiums. However, the critics say the fund will create an unnecessary layer of burden on the state and forgive hospital for avoidable medical errors.

The fund plans to cover all newborns who experience a brain or spinal cord injury due to oxygen deprivation or mechanical injury during labor, delivery or resuscitation. Meanwhile, families of injured newborns will need to file lawsuits and prove medical negligence in court. Families that win a judgment will receive coverage for lifetime medical costs from the state. Providers found negligent will have to pay attorney fees and punitive damages.

The medical community hoped that new legislation would cap jury awards for punitive damages at $250,000 in medical malpractice cases, but the proposal failed to get approval.

New York’s hospitals will save about $320 million in malpractice premiums but will pay a new $30 million tax on revenue from their obstetrics programs. The tax is subject to increase based on the health care Consumer Prince Index. The state’s portion of the neurological fund will be $30 million in the first year and will increase with each coming year.

A study published in the American Journal of Obstetrics and Gynecology found that most hospitals can dramatically reduce birth injuries by improving medical care.