Copyright 2009 Insurance Communications The Risk Retention Reporter

February 2009

Vol. 23, No. 2

1468 words


Harvard-Sponsored Medical Malpractice Risk Retention Group Puts Safety First - Leads National Movement to Improve Care

Featuring Jack McCarthy, President & CEO Controlled Risk Insurance Company of Vermont, Inc. (A Risk Retention Group)

At Controlled Risk Insurance Co. of Vermont, Inc. (A Risk Retention Group), (CRICO), the medical malpractice insurer owned by The Risk Management Foundation of the Harvard Medical Institutions (RMF), the top priority is safety, and that's turned out to be good business for the 32-year old institution. John L. "Jack" McCarthy, President, has built a rock-solid financial base, kept premiums below market, and emerged as a nationally acclaimed expert in how data-driven risk management improves patient care.


McCarthy is an interesting combination of businessman, idealist, and educator. Graduating from Villanova University in 1969 with a B.S. in accounting, he enlisted in the Air Force. He won a direct commission in the Medical Services Corps and became Chief Financial Officer of the Tactical Air Command Hospital in Phoenix. While on duty, McCarthy began to develop a serious, professional interest in healthcare.


After leaving the Air Force, he obtained an M.B.A. at the Wharton School. In the seventies, Health Management Organizations (HMOs) were coming into their own. "At Wharton, I became intrigued with the concept of managed care," said McCarthy. "This led to 20 years organizing, managing, and consulting with HMOs. In that business, I had to learn insurance," he observed.


Harvard Faces "Liability Crisis"


In 1989, McCarthy joined RMF as Chief Operating Officer of the Foundation and its Cayman captive - Controlled Risk Insurance Co. Ltd. The captive was formed in 1976 when commercial liability insurers were pulling out of Massachusetts. Harvard's vast network of affiliated medical institutions faced a crisis. With backing from the University, they took control of their own destiny. Two years later, RMF was created as the on-shore, parent company to administer claims, underwriting, risk management, finance, and other services. The Cayman captive became responsible for reinsurance.


McCarthy was named CEO of the RRG when it was launched in 1995. Why restructure after almost 20 years of successful operation? According to McCarthy: "The RRG allowed Harvard's insured hospitals and affiliated managed care organizations to expand into other states without having to obtain liability insurance from the traditional market on a state-by-state basis."


CRICO Transformed Risk Management


What sets CRICO apart from many other RRGs? Under McCarthy's leadership, the Company transformed risk management from a sideline service to the organization's top priority. Result: "Over a three-year period when premiums in the malpractice market went up 100 percent, CRICO's rose only 35 percent. For the last three years, we raised prices only about three percent," McCarthy answered. "For example, we charge obstetricians $65,000 for $5-$10 million coverage, while Pro-Mutual, a major Massachusetts market, charges $125,000 for $3-$6 million coverage," he explained.


CRICO's stunning success story is data driven. Incidents are reported, coded, and analyzed. The results are translated into educational programs worthy of Harvard's tradition. CRICO was one of the first to adapt simulator training to healthcare. "Obstetricians who take simulator training get a 10 percent premium discount, and we've seen a 50 percent reduction in claims," McCarthy reported proudly.

How did McCarthy and his team convince physicians and surgeons from some of the most prestigious hospitals in America to accept the idea that they needed to do a better job of risk management? He showed them data. "If you go to them without credible data, they get their backs up," McCarthy explained. CRICO's rich mine of claims and incident data has been compiled over 25 years. Trends are established beyond doubt and new causes of potential action are immediately flagged.


Unlike some other RRGs, CRICO's risk management officer, known as Vice President-Loss Prevention and Patient Safety, reports to a Chief Medical Officer who is a respected physician. McCarthy pointed out that the Chief Medical Officer works with his fellow physicians in analyzing claims data and designing prevention programs. "We're more of a convener," McCarthy explained. "We set agendas, collect data, and provide analysis. Working with our Chief Medical Officer, the insured physicians on our board and committees decide what to do."


Claims Managed Start to Finish


How are claims handled? "We manage claims from start to finish. We don't just hand them over to lawyers. We create a team to decide whether to settle or go to trial. Our team includes adjusters, medical reviewers, representatives of the affected institution, and defense counsel. If we decide to litigate, our lawyers are prepared," according to McCarthy.


What about the trial bar. Don't they see the Harvard affiliation as deep pockets? "Early on that was true. Now they understand that if we find negligence, we pay promptly; and if we go to court, we win," said McCarthy. On average, CRICO wins 95 percent of the time. In an average year, the Company handles some 225 claims, 65-70 percent of which are closed with no payment. The remaining claims are settled or litigated. "In any year there may be 20 to 30 trials and 8 to 10 cases handled through mediation or arbitration."


Even with the best safety programs, claims arise that pose daunting challenges, such as whether to settle and save the cost of an uncertain trial judgment or to stand on principle and go to court. It's doubly daunting when the plaintiff is a celebrity. McCarthy recalls the case of Reggie Lewis of the Boston Celtics who dropped dead on the basketball court during practice. He had been treated at Harvard's Brigham Hospital for a heart problem.


It was a big story in Boston. The Lewis family alleged misdiagnosis of the underlying condition and failure to meet the standard of care. This was a case where some would have argued for a settlement, but the CRICO team studied the record and decided to defend in court. "The physician had prescribed a limited activity regimen for Reggie," said McCarthy. "The diagnosis was reasonable, and the jury ruled in favor of the doctor."


Missionary for Patient Safety


McCarthy has taken the message of data-driven risk management as a tool to improve patient care to hospitals and medical groups across the country. He is a frequent speaker at seminars and conferences. The goal of McCarthy's outreach to other institutions is to help make the healthcare system safer. Today's challenges include how to manage risk in the diverse ambulatory networks of walk-in clinics and surgical centers, as well as to help physicians in private practice improve record keeping and management of test results.


McCarthy is Chairman of the Hospital Insurance Forum, composed of 30 Risk Retention Groups in the U.S. and Canadian self-insurers. He has served as Chairman of the Massachusetts Professional Liability Foundation and on the Board of the American Society of Law and Medical Ethics. Recently, he was elected to the Board of Transatlantic Reinsurance Company.


McCarthy and his wife of 36 years, Geri, divide their time between an apartment in Boston and a condo in Rhode Island where she teaches world history at Barrington High. With his schedule, it's hard to believe, but McCarthy finds time for fly fishing, learning to play golf, a squash game twice a week, and the occasional ski weekend.


Under Jack McCarthy's leadership, CRICO provides Harvard medical institutions the best liability coverage at a cost below the traditional market. Most important, CRICO has set the standard for patient safety through data-driven risk management.


Box insert:


John L. McCarthy, President & CEO


RRG: Controlled Risk Insurance Company of Vermont


Organizational Structure: Stock insurance company wholly owned by The Risk Management Foundation of the Harvard Medical Institutions, Inc.


RRG Member / Insureds: Harvard affiliated medical institutions, their 11,000 physicians, and all other employees


Education: B.S. Accounting, Villanova University; M.B.A., Wharton School, University of Pennsylvania


Experience: Twenty years in senior management at CRICO preceded by 20 years in medical administration where he became known as a leading expert in Health Management Organizations


Proudest Achievement: Helping make the healthcare system safer; developing credible data to create a dialogue with physicians and hospitals to involve them directly in risk management


Greatest Challenge: How to manage risk in diverse, ambulatory networks while healthcare law continues to evolve


In His Words: "Develop good data, create dialogue with physicians and hospitals, and engage them in all aspects of risk management. Avoid the tendency of the insurance business to be at arms length with the medical community."




February 17, 2009

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