In 1976 Controlled Risk Insurance Company, Ltd. (CRICO), became the first “hospital”-sponsored captive in the Cayman Islands. The formation of CRICO was prompted by the withdrawal of commercial insurance carriers from the Massachusetts insurance market due to deteriorating underwriting results.
Cayman, in 1976, was an island with a population of 11,500 and was already a center for banks and trust companies. The needed infrastructure for captives was therefore, in place, and, by 1979 specific insurance company regulations were legislated by the Cayman Government to better regulate the influx of healthcare captives.
The story of CRICO and its evolution reflects the story of the many captives formed since 1976. There were many variations in structure and in board composition in the captive industry, but rarely any severe financial issues or captive insolvencies. Cayman financial oversight and institutional sponsorship of healthcare captives made for a winning combination.
The economics of captive financial structures were and are also very appealing. CRICO’s ability to manage claims, access world reinsurance markets, and reduce overhead, compared with commercial products, led to very competitive insurance rates. In CRICO’s case, rates were 40 percent to 50 percent below market rates and that differential has been sustained over much of CRICO’s operating history.
CRICO was founded by thirteen not-for-profit (501C3) charitable organizations. Their common bond was an affiliation with Harvard Medical School but, in reality, they also competed among themselves for patients, grants and providers. It was quite unprecedented that this group came to the table and agreed on a structure and governance model for their captive.
Thirty-seven years later they still compete but still come together to agree on risk management and patient safety initiatives, which benefit patients and reduce the cost of malpractice coverage. The interesting story within the story is how these efforts were sustained as the healthcare marketplace evolved and as competition for shrinking reimbursement and research dollars intensified. While there have been mergers among CRICO’s sponsors and the addition of MIT, none of the original shareholders left the program. Today, CRICO insures 15,000 physicians, 37,000 nurses and 26 hospitals.
There were several elements in the formation of CRICO which formed the basis for later successes and stability:
- A. Governance: The initial Board was comprised of senior trustees and administrators and has evolved to include proportionate representation of senior providers, operating officers and trustees. This balance has enabled the organization to have a mature and realistic strategic process closely tied to the institutional realities. The CRICO Governance Committee has always been active in vetting new board members, maintaining a focus on recruiting influential leaders and populating committees with members who have the necessary technical expertise to fulfill the board’s oversight and strategic planning mandates.
- B. Bylaws which made it very difficult to withdraw from the organization.
- C. Management control of all claims and settlement decisions. The CRICO philosophy was to settle claims which needed to be settled but defend doctors without hesitation when also needed.
- D. All member organizations were required to be active participants in risk management activities. CRICO has always been a national leader in risk management, and through its website, has shared much of its material and results for the betterment of all medical provider organizations. Risk management and close collaboration with the hospital risk managers continue to be cornerstones of the CRICO program.
In 1999 the Institute of Medicine published a report titled ‘To err is human’. This report focused on the impact of systems, either poorly planned systems or the complete lack of a system, as contributors to the estimated 50,000 to 100,000 deaths linked to medical error. These findings were, in many ways, similar to CRICO’s case analysis. After reading and absorbing the lessons in the IOM report, CRICO staff, with full backing from the board, embarked on a series of major patient safety initiatives.
CRICO’s patient safety initiatives involve use of premium incentives, simulation and team training, research grants, and a “spread” committee consisting of specialty physicians and patient safety directors who oversee implementation.
One notable and highly successful initiative was an obstetrics (OB) program designed by CRICO staff and the OB chiefs of member hospitals. OB physicians were offered a 10 percent premium discount if they attended simulation and team training, adopted CRICO endorsed OB guidelines and completed online OB risk management courses. The almost immediate drop in claims resulted in lower premiums and a significant improvement in patient outcomes.
More than any other factor, CRICO has benefitted from the active participation of board members and trustees from member institutions. The CRICO Investment Committee is a good example of this participation. The committee is comprised of CRICO board members and hospital trustees and officers who have extensive investment experience. This committee has directed CRICO’s investment program and has had outstanding results during difficult financial markets.
The CRICO board has always had a great deal of involvement in financial and capital planning, with extensive use of financial models. Board meetings often include a discussion of model assumptions and achievement of benchmarks based on a surrogate “A” rating.
There are many fundamental changes in healthcare delivery and reimbursement impacting the member organizations, and by extension, CRICO and other captives. One significant trend is hospital and physician group mergers and the pace at which they are occurring. Some mergers result in the captive being absorbed into the new organization.
Other mergers or acquisitions result in instant growth of the captive and substantial changes in the risk profile of the insured base. CRICO is a good example of the latter, with most growth occurring in the community-based practices and in the community hospital sector. Community-based practices have, by their nature, less structure and support for introducing patient safety and risk management programs.
Higher patient volume per provider can also present a greater risk of failure to diagnose claims. CRICO performs office practice evaluations to examine several key risk areas. The examination includes a review of medical records, referral management systems and the handling of adverse test results. Practices are provided support for improvement efforts
Another major impact comes from the new Accountable Care Organizations (ACO’s) formed by hospitals, insurance companies and physician groups. These ACO’s are a result of changes in Medicare reimbursement. The ACO’s are being established to respond to risk based reimbursement mandated by Medicare. The major implication of this new reimbursement structure is a massive shift of insurance risk from the federal government to the provider community. ACO contracts will, eventually, put providers at financial risk.
ACO’s will function like managed care organizations and bear more managed care risks than just reimbursement. Products such as managed care errors and omissions policies will be needed by the ACO’s. It is an open question as to whether captives will step up and fully insure managed care E&O policies, rely on the commercial market or create hybrid products.
In addition, medical stop-loss coverage will be needed. Once again, it is not clear that captives have the experience and capital capacity to enter this historically price sensitive and volatile line of insurance, but the captive industry’s long collaboration with reinsurance companies represents a significant capability.
CRICO and other captives have proven to be highly adaptable as various changes have impacted captive sponsors. Captive based malpractice insurance has become a superior product and serves captive owners well. This base of insurance acumen will, increasingly, be married to objectives in quality improvement and patient safety to the benefit of patients, providers and the sponsoring organizations.