When Johns Hopkins Hospital agreed this week to a $190 million settlement with thousands of patients who were secretly photographed during gynecological exams, it put a number of prominent East Coast medical institutions on the hook.
Hopkins joined with hospitals and schools affiliated with Yale, Cornell and Columbia universities and the University of Rochester years ago to create a pair of insurance companies to save money and pool risk, but they now face one of the largest claim settlements of its kind.
Hopkins has said little about the settlment with patients of Dr. Nikita Levy, who worked in a Hopkins clinic in East Baltimore, and how it will be paid, aside from saying it would be covered by insurance and the hospital's quality of care wouldn't be affected.
Kim Hoppe, a spokeswoman for Hopkins, reiterated in a statement: "All funds will come from insurance. As a result, this settlement will not in any way compromise the ability of the Johns Hopkins Health System to serve its patients, staff and community."
The details of the insurance arrangements are complex, and the specifics of the settlement have not been disclosed. But MCIC Vermont and Medical Centre Insurance Company Ltd., based in Bermuda, likely will be responsible for about $25 million, according to documents filed with Vermont regulators. Both companies are owned by the medical centers.
The remainder would be paid by additional coverage the insurance companies purchased from commercial insurers to pay claims in excess of the cap on the medical centers' self-insurance pool, documents show.
The settlement amount is more than all the claims in each of the past five years paid by the two companies, which cover 16 hospitals, 12,000 physicians and 50,000 total employees. The payout comes close to the $200 million cap the commercial insurers agreed to pay for a claim, according to the documents.
Despite the size of the payout, the insurance companies will remain intact, according to the Vermont regulator who oversees such companies.
"The program is working as designed," said David Provost, deputy commissioner of captive insurance in Vermont. "The member institutions combined can handle small- to medium-sized claims through the resources they have pooled … but the occasional large claims are spread into the worldwide marketplace."
MCIC Vermont referred questions to Hopkins officials.
When Hopkins and the other institutions formed the insurance company in 1996 in Vermont, where many medical centers have chosen to locate their malpractice insurance companies because of the tax benefits, hospital leadership might have had fewdomestic options because such coverage was becoming difficult if not impossible to acquire, Provost said.
The Bermuda company was formed years earlier and provided insurance to the members from a country that the insurance industry saw as having fewer regulatory and tax burdens. The offshore company still offers the medical centers most of their basic coverage — the Vermont company is expected to pay about $100,000 of the Levy settlement, while the Bermuda company would pay about $25 million.
At the time the Vermont company was formed, executives told an insurance publication that the domestic presence gave them "coverage and operational flexibility."
That company, formally called a risk retention group, provides only liability insurance and is a type of "captive" insurer, which refers to a wider range of self-insuring groups.
Provost said risk retention groups have served a valuable purpose in Vermont, which hosts the largest domestic captive insurance industry. The Cayman Islands and Bermuda remain the largest hosts for captive insurance companies.
Captive insurers allow the participants to share operating costs and save on taxes while sharing risk when there are claims and savings when there aren't. And in the case of hospitals, they may serve another purpose, Provost and others say.
"Hospitals get the insurance they need," Provost said. "And they do everything they can not to have claims and the circumstances that lead to claims, because it's essentially their own dime, so it's good for patient care."
Members typically monitor each other and their liability through the insurance company, said Scott Harrington, professor and chair of the health care management department at the University of Pennsylvania's Wharton School.
And when there are claims, members usually have a say in which are settled and which are fought, he said. Harrington, who has no connection to the Hopkins case, said company members might have decided not to put up a defense because the total payout per victim is likely relatively little: There could be 8,000 or more people — leaving no more than $24,000 apiece from the settlement before lawyers are paid.
Because no one disputes that there are photos of victims, Harrington said Hopkins' available defenses may have been procedural or technical. And while Hopkins potentially could have saved on settlement costs and likely premium increases, defending itself could have been highly risky.
"Reputation is very important and this is an ugly event," he said. "Hopkins obviously is regarded as one of the pre-eminent institutions in the world, and they certainly don't want to damage that in any way by appearing to be greedy or tightfisted."
Observers say some of those defenses could have involved statutes of limitations to reduce the number of victims, or arguments that Levy was acting outside the scope of his employment at Johns Hopkins Community Physicians.
Or the hospital could have contended that no victims suffered physical harm or could even be identified by the photos secretly taken with cameras in pens and key fobs. The photos are of sex organs but not faces.
Without more details, it's unclear how strong any of those avenues of defense would have been, said Michelle Mello, a professor of law and health policy research in Stanford University's schools of law and medicine.
"It would appear that unless a procedural issue such as statute of limitations precludes many of the patients from joining the suit, there would not be much purpose in Hopkins fighting the case," she said.
"The evidence that the violations occurred appears strong and the settlement amount, although large in total, is modest when divided by the potential pool of 10,000 plaintiffs," she said. "A lack of physical harm does not preclude the plaintiffs from recovering damages, it just circumscribes the amount of damages."