Harvard Insurance Firm To Up Malpractice Fees

Responding to a nationwide upswing in malpractice suits, the company that insures Harvard doctors will raise its rates by an estimated 67 percent, one board member said yesterday.

The Controlled Risk Insurance Company (CRICO), a "captive" insurance firm owned by Harvard and based in the Cayman Islands for tax purposes, will set the new rates effective April 1 at its annual meeting this weekend there.

Hospital spokesmen this week said they were uncertain how the increase will affect patient costs, adding that they want to see what transpires at the CRICO meeting.

Dr. Warren E.C.Wacker, director of University Health Services (UHS) and a non-voting CRICO member, said he attributes the increase in malpractice fees to both the increasing number of suits and larger awards.

Put the two things together and you have to increase the rates to remain financially stable," he said, adding, "If you have a claim, you have to reserve money against that claim."

"There are only two responses to this wave," said Laurens McClure, director of New England Deaconess Hospital. "We can increase rates or intensify our loss-control activities," he said. He added that Deaconess has a "pioneering" system of monitoring its health care to prevent mishaps, such as patients falling out of beds.

The upcoming increase is not out of proportion with recent CRICO premiums. In each of the last two years, the company has raised its rates by 40 percent, reflecting the increase in claims, according to Daniel F. Creasey, a CRICO board member and the president of its operating company, the Risk Management Foundation of the Harvard Medical Institutions.

Creasey said the increase does not reflect a high rate of malpractice among Harvard doctors, who he said, have a very good record compared to the rest of the state, He added. "It's a myth to say that Massachusetts is an atypically had malpractice state. It's got the third lowest rate in the country.

"Malpractice seems to go in waves, and it seems to be on an 'up' wave right now. Harvard Treasurer George Putnam '49, who is the University's representative to CRICO, said recently.

CRICO insures and the 12 Harvard-affiliated teaching hospitals.

Formed in 1975 to combat rapidly rising costs of malpractice insurance, CRICO charges lower rate than Massachusetts Joint Underwriting Association (JUA), a state backed agency which offers the only other policies in the state.

The JUA still has not set rates--due last July--for this year, although a spokesman for Insurance Commissioner Peter Hiam said he expects the commissioner to announce them by Friday.

Malpractice is probably the most difficult area of insurance for which to set rates, Creasey said, because of the "long tail" of claims, which are paid out an average of three years after they are made.

When CRICO was first established, it had no claims to settle. With zero employees and no overhead costs, almost all of its revenues were pure profit. With an estimated $-40 million in assets. Creasey said he expects $26 million in revenues next year.

Although patients have made 475 claims in the eight years since CRICO's inception, Creasey said most are settled out of court. He added that the doctors win about two-thirds of those cases that go to trial.

The company, which pays "about $1.5 million a year in outside legal fees, has gone to trial only about 40 times in eight years, he added.

Obstetrics and gynecology, two of the more costly areas have led to more than $6 millions of claims in those fields for CRICO.

This month Creasey said, the firm has settled three cases, involving awards from $250,000 to $1 million.

Its biggest loss so far was a case decided last fall, where the judge awarded a patient $1,250,000 for damages suffered when Beth Israel doctors accidentally cut her renal cave artery while cleaning out her spinal column, Creasey said. But he stressed the difficulty of distinguishing between the high risks of some procedures and actual malpractice.

"That case was a travesty of justice," he added. Although he said doctors had to "flip [this patient] through the abdomen to repair the damges," he added that "the surgeons didn't do anything wrong. In any other hospital, she would have been dead.