Captives can serve as focal points for the captive owners’ collective efforts to promote safer healthcare environments and improved patient outcomes.
Only 1% of doctors account for almost one-third of paid medical malpractice claims, according to a recent study in the New England Journal of Medicine. The study also found that just 6% of physicians had a paid malpractice claim during the study’s time period of 2005 to 2014.
Although these percentages are very low, hospitals and other healthcare providers must nevertheless insure themselves against the unlikely event of a costly malpractice claim occurring, and the cost of that insurance is substantial. In an industry in which there is constant pressure to reduce costs, these providers need to examine all options available to them in order to ensure that the protection that they obtain is both appropriate and cost-effective.
One option to consider is a group captive. In essence, a captive is an insurance company that is wholly owned and controlled by its insureds; its primary purpose is to insure the risks of its owners, who also benefit from the captive insurer’s underwriting profits.
In addition to providing protection from liability exposures and potentially, generating equity from favorable operating results, however, captives can serve as focal points for the captive owners’ collective efforts to promote safer healthcare environments and improved patient outcomes. This combination of shared risk and shared learning is what sets some group healthcare captives apart.
How the captive works
In a group captive, hospitals and other healthcare providers agree to share each other’s risk of loss from professional liability and other exposures. The element of shared risk results in a requirement of greater accountability for each member. That accountability and the constant communication and knowledge-sharing among members that the group captive fosters are pivotal to the success of the organization.
With patient safety and high-quality care as the primary goals of the organization, members of the captive can rely on one another to offer insights to improve patient safety and prevent hospital errors from occurring.
This is an opportunity that can distinguish captive insurance groups from traditional commercial insurance solutions, which tend to be focused exclusively on claims. Group captive member hospitals can participate in collective and cooperative efforts, sharing best practices and identifying emerging trends and issues, in order to have a true learning organization.
A group healthcare captive’s ability to thrive will ultimately depend on the engagement of each of the members in the group’s activities. A member that is not prepared to participate in management of the captive and in the programs offered by the captive will not maximize the benefit of its involvement in the organization and may not contribute positively to the captive’s overall results. This is a risk that is inherent in group captives.
Ensuring at the outset that each member has the same goals and expectations as the rest of the group and is willing to make the investment of time and resources should go a long way toward eliminating this concern.
Hospitals must scrutinize every line item in their budgets, and as they do so they will continue to look at how they can reduce the cost of their liability exposures. Properly structured and utilized, a group captive that incorporates rigorous risk management and patient safety components might provide a superior solution.
Eric W. Dethlefs is president and CEO of Cassatt Insured Group.