Three prominent New York City health systems have received regulatory approval on the sale of an insurance company whose reputation was tarnished in 2017 by the revelation that it had secretly funneled hundreds of millions of dollars back to the providers.
Montefiore Health System, Mount Sinai Health System and Maimonides Medical Center are selling their professional liability insurer, Hospitals Insurance Company, and the assets of its third-party administrator, FOJP Service Corporation, to The Doctors Company for $650 million. The proceeds will go back to the three providers.
The companies said deal will officially close on July 31.
The Doctors Company is renaming the companies Healthcare Risk Advisors, although the scope of services they offer will not change. The Doctors Company is the country's largest physician-owned medical malpractice company, according to the New York Division of Financial Services, which announced Thursday it had approved the deal.
New York's Acting Financial Services Superintendent Linda Lacewell said in a statement her office carefully reviewed the deal to ensure the protection of HIC's policyholders.
"The measured expansion of competition in the medical malpractice market by a DFS-regulated insurer is positive for doctors, and ultimately good for consumers," she said. DFS did not return a request for further comment.
The DFS revealed in a late 2017 settlement agreement that HIC had 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 hospitals involved used the money to obtain cheaper insurance and pay dividends, according to DFS. All three systems have said they will continue to use Healthcare Risk Advisors as clients.
Bill Fleming, chief operating officer of The Doctors Company, said he's comfortable with the companies' history. He said FOJP and HIC were forthcoming about the violations, which took place under prior leadership.
None of FOJP or HIC's roughly 160 employees will lose their jobs as a result of the sale, said Rob Kauffman, senior vice president, secretary and general counsel for both FOJP and HIC. Kauffman will co-lead Healthcare Risk Advisors.
In today's healthcare industry, there's less need for traditional medical liability insurance, which is how The Doctors Company started out, and more demand for self-insured policy management, Fleming said.
"Healthcare Risk Advisors gives us the ability to have a company that's within that space," he said. "Whether it's an academic medical center or a very large physician group that no longer needs a traditional primary insurance product, we still have a member of the family who can take care of them."
The Doctor's Company will now use its "buy and grow" strategy to eventually sell its services beyond New York, Fleming said.
Mount Sinai gets half of the proceeds from the sale, which the system said last year would go toward its downtown transformation, including the construction of a new Mount Sinai Beth Israel Hospital.
Montefiore will receive 25% of the proceeds, which it will spend on IT platforms designed to reduce fixed costs and infrastructure to transition to value-based care. Maimonides will get another 25%, which it plans to spend on ambulatory facilities, modernization of its main campus and technology.
In a joint statement, the health systems wrote they were pleased to have the deal finalized. Mount Sinai, Montefiore and Maimonides formed HIC in the 1970s to help physicians and hospitals continue to provide quality care to communities around New York, they wrote.
"The finalized sale of HIC to The Doctors Company means we will no longer be in the medical malpractice insurance business, and we can focus on what we do best—providing high quality healthcare to our communities," they wrote.
The deal also received approval from New York's Attorney General's office and regulators in California, where The Doctors Company is headquartered. The Federal Trade Commission also had to ensure the deal did not violate federal antitrust regulations.
Napa, Calif.-based The Doctors Company was founded in 1976 and has more than $4.8 billion in assets, 80,000 members nationwide and a member surplus of about $2.1 billion.
Correction: An earlier version of this story misstated when the sale will close. This error has been corrected.