NYC hospitals selling companies at center of captive insurance scheme
Prominent New York City health systems are ridding themselves of an insurance company that engaged in hidden scheme to funnel hundreds of millions of dollars back to the hospitals, and pledge to use the sale proceeds to improve services.
Montefiore Health System, Maimonides Medical Center, Mount Sinai Health System and Beth Israel Medical Center, which is part of Mount Sinai, are selling the professional liability insurer Hospitals Insurance Company and its third-party administrator, FOJP Service Corporation, to The Doctors Company for $650 million.
The deal, which is subject to approval by New York's Division of Financial Services, is expected to close next year. The hospitals have used HIC and FOJP for medical malpractice insurance for 40 years, and will continue to use both companies for such services even under their new ownership.
DFS determined last year that HIC illegally kept secret the fact that its offshore captive insurance company soaked up more than $160 million in premium payments that yielded more than $200 million in investment income over a two-decade period, all while avoiding domestic regulation. The violations came to light in a 2017 settlement agreement.
According to the settlement agreement, HIC broke state insurance laws by hiding the existence of its captive insurance companies from state regulators, failing to get state approval to perform retrocession transactions among the insurers and working with an unlicensed adjuster—FOJP—for nearly 40 years. The company was fined $3 million.
Stephanie Reichin, a spokeswoman for FOJP and HIC, said the sale allows the hospitals to unlock capital HIC holds but which the providers do not currently have access to. The hospitals will receive 100% of the sale price, which she said they plan to reinvest into their operations. Under the deal, FOJP and HIC will become wholly owned subsidiaries of The Doctors Company, Reichin said.
Under the deal, Mount Sinai will receive half of the proceeds, which the system said will go toward its downtown transformation, including the construction of a new Mount Sinai Beth Israel Hospital, Reichin said.
Another 25% of the proceeds will go to Montefiore, which plans to will spend the money on IT platforms designed to reduce fixed costs and infrastructure to aid the transition to value-based care.
The remaining 25% will go to Maimonides, which plans to spend it on ambulatory facilities, modernization of its main campus and technology.
In a news release, FOJP and HIC said The Doctors Company shares their mission of protecting hospitals' and physicians' abilities to provide the best possible care to patients. They said deal also aligns with state policymakers' goal of expanding competition among medical malpractice insurers in the state, while remaining under the full authority of the DFS.
"The Doctors Company understands the needs of our member hospitals and physicians, and shares our mission of protecting their ability to provide the best possible care to all patients," Walter Harris, CEO of HIC and FOJP, said in a statement.
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