By JACK ROBERTS, who consults with insurance brokers, carriers, risk managers and media companies
Until 2008, Albert Einstein Healthcare Network was part of Jefferson Health System, the Philadelphia area's largest hospital and healthcare organization.
Einstein, which serves a low-income community in North Philadelphia and operates Belmont Behavioral Health and MossRehab, a well-known inpatient and outpatient medical rehabilitation facility, had relied on Jefferson's insurance captive for its professional liability insurance coverage.
As a large hospital system, Einstein faces sophisticated malpractice risk. A teaching institution, Einstein employs about 500 physicians in a large number of medical specialties. Its mental health facility holds a variety of risk challenges. It provides Philadelphia's low-income Germantown neighborhood with community health services, including primary and ambulatory care.
Malpractice costs can be very high, especially in the tort environment in Philadelphia and Pennsylvania.
Under the separation agreement from Jefferson in 2008 the Einstein hospital network knew it would lose access to Jefferson's risk retention group in 2010, said Brian K. Derrick, Einstein's chief financial officer.
For large city hospital systems like Einstein, professional liability coverage may not be available in the traditional commercial markets. Like Jefferson, Einstein now relies on an alternative risk strategy to manage and control liability costs and losses.
Einstein General Counsel Penny J. Rezet said that the system typically will face about 60 new professional liability claims each year. Claims frequency, she said, has been "stable" but costs have been rising. "There was a spike in claims about six to eight years ago," she said.
Working with Einstein's board of directors, Derrick said the decision was to start its own risk retention group. Einstein hired Marsh to recommend a domestic captive domicile and to manage the formation of the new captive.
Derrick said, "The board ruled out considering any offshore domicile in the search." Marsh identified five captive domestic domiciles and Einstein picked Vermont. "We knew the value of Vermont regulators from our experience at Jefferson," he said. Jefferson also has a risk retention group domiciled in Vermont.
"We knew it's easy to get to Vermont. Vermont has a very strong captive infrastructure," Derrick said. Clearly, however, for a medical institution like Einstein, the public perception of an offshore domicile like the Cayman Islands just wouldn't work.
"Our board tends to be involved in these kinds of decisions," Derrick said. "And the formation of a risk retention group was no exception." In June 2010, Einstein, working with Marsh, received approval for the license for its new risk retention group: the Broadline Risk Retention Group Inc.
What was the most difficult part of the process? Rezet said Marsh had warned them that finding the right name for the captive could be the toughest issue to resolve.
Most healthcare captives don't want the name of the sponsoring medical institution incorporated into the name of the captive.
"Nothing came quickly to mind," Rezet said, so she conducted a contest among employees to suggest a name. A member of her staff suggested "Broadline" which combines "Broad Street," the main street adjacent to its large hospital, and "Broad Street Line," the Philadelphia subway line that goes up and down Broad Street.
Einstein funds the captive with more than $10 million in annual premiums. Daily operations are overseen by Sara Potter, Einstein's corporate director of insurance and risk management. She works with Marsh, now the captive manager, and claims are handled in-house in Rezet's department.
Not yet a year old, the captive places strong emphasis on risk management. "We're beginning to fund some new risk management initiatives through the captive," Rezet said.
May 1, 2011
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