Non-profit hospitals in New York State have invested heavily in opaque offshore investments that are removed from regulatory scrutiny in the United States and are also intended to cut their costs for malpractice insurance.
That's the conclusion of the Democrat & Chronicle, part of the USA Today network, which examined the investments of 16 hospitals in New York, including giant providers such as Mount Sinai Hospital in New York City. Through the Federation of Philanthropies, it invested in captive insurance companies, which are based in Bermuda and Barbados. White Plains Hospital, Phelps Memorial Hospital and the three-hospital Health Quest Systems had also similarly parked money with captive insurers.
“Frankly, there is no better place in the world of insurance to monkey with the numbers, and do what I generally describe as cooking the books,” Thomas Gober, a financial fraud examiner, told USA Today. “The bottom line is that it’s much more difficult to find out what they’re investing in once they’re offshore.”
The article did note that many hospitals still use U.S.-based insurers because they are more reliable. But many acute care providers are under financial pressure. Hospitals in Indiana, for example, have experienced three straight years of double-digit premium increases. But other hospital operators have found that apologizing to patients for care misadventures can cut down their claims.
USA Today cited one instance of what can go wrong when investing in a captive insurer: The collapse of liability insurer Reciprocal of America in 2003 after executives with the firm stole millions. The case left thousands of medical malpractice cases up in the air, the publication reported, with hospitals having no financial backstop to litigate or even settle them.