Hospital system urges creation of 'captive' insurer

By Robbie Dingeman
Advertiser Health Writer

The company that provides medical malpractice insurance to the state hospital system is pulling out of that business, leaving Hawai'i Health Systems Corp. searching for coverage, said chief executive officer Tom Driskill Jr.

Driskill said Farmers Insurance Group notified officials nationwide in September that the company would not renew its malpractice policies after June 30.

If Hawai'i's 12 community-based hospitals cannot find coverage, Driskill said the worst-case scenario would be that hospitals would cut back on services because doctors will not work in a hospital that doesn't have adequate insurance.

But Driskill said, "One way or the other, we're going to have coverage."

One option would be for Hawai'i Health Systems Corp. to insure itself by creating a so-called "captive insurance" company, Driskill said. Healthcare entities such as Hawai'i Pacific Health and The Queen's Medical Center have switched to self-insurance through captive insurance.

The 12 community-based hospitals are Hilo Medical Center, Hale Ho'ola Hamakua, Ka'u Hospital, Kona Community Hospital and Kohala Hospital on the Big Island; Maui Memorial Medical Center, Kula Hospital and Lana'i Community Hospital in Maui County; Le'ahi Hospital and Maluhia on O'ahu; and Kaua'i Veterans Memorial Hospital and Samuel Mahelona Memorial Hospital on Kaua'i.

Driskill is supporting a bill that asks state lawmakers to provide between $8 million and $10 million to start a captive insurance company.

He said Farmers provided comprehensive coverage at a good price from 1988 until after Sept. 11.

"Their market went south; their rates went way up," he said.

Until then, Driskill said the state hospital system paid about $1.5 million to $2.5 million a year for its insurance. In the currently tight market, that cost could easily rise to $7 million a year "if it was available at all," he said.

Relying on an insurance company owned and operated by the business entity likely would provide a better solution than continuing to rely on other companies with ever-increasing costs, Driskill said.

By going with an insurance company that you own and operate, Driskill said the business can put its profits back into operations and reduce premiums.

He said such a company also could cover doctors working within the state Department of Health and the University of Hawai'i's John A. Burns School of Medicine, who also are struggling with malpractice coverage.

He said another option would be setting up a trust to provide the insurance.

"The concern is doing it right," Driskill said. "If all we do is buy more insurance, it's going to be outrageously expensive."

Driskill said the community-based hospitals have an excellent claims record, although he declined to provide specific figures.

Reach Robbie Dingeman at rdingeman@honoluluadvertiser.com or 535-2429.