Captives have become an important vehicle for health care organizations that are seeking ways to improve patient safety and claims experience.

While several health care organizations initially created captives in response to the hardening of the U.S. medical malpractice market, now they are utilizing their captives to fund risk management initiatives.

Irving, Texas-based CHRISTUS Health implemented a loss prevention initiative sponsored by its captive—Emerald Assurance Cayman Ltd.—that provides startup funds for innovative approaches to reduce claims frequency and size and to improve patient and employee safety, said Sheila Hagg-Rickert, Houston-based associate system director of risk management for the organization.

The captive provides funding for risk management initiatives at the organization's 40 facilities, most of which are in Texas and Louisiana, via direct grants, insurance premium discounts or a combination of the two, she said.

The organization has spent $4 million on risk management initiatives since establishing its captive in 2003.

"People say they want to fund loss prevention out of their captives, but it doesn't always happen," Ms. Hagg-Rickert said.

Initially, CHRISTUS used its captive to cover professional liability, general liability and self-insured workers compensation risks but expanded to other risks in subsequent years. The organization added property coverage to its captive in 2004 because the hospital system's facilities are in the Gulf of Mexico region, a decision that proved prescient because several facilities were damaged during Hurricane Rita in 2005, she said.

Another health care-related captive, Controlled Risk Insurance Co. Ltd. set up by Harvard Medical Institutions, has produced positive financial returns for the system and has a philosophy of reinvesting the funds with its insured physicians and hospitals, said Jack McCarthy, president of the CRICO/Risk Management Foundation in Cambridge, Mass.

The captive launched a program about four years ago that provided obstetricians a 10% premium discount if they went through team and simulation training. The program resulted in the obstetrical claim rate dropping by 50%, Mr. McCarthy said.

"So we've made an investment in them and then we've actually gotten a return because the care has been safer and there have been fewer claims," he said.

The organization plans to expand the program to ambulatory care and anesthesiology, he said.

In addition to funding these risk management programs, the captive offers $500,000 grants to researchers in the Harvard system for projects and initiatives that focus on patient safety, Mr. McCarthy said.

CRICO was the first health care captive formed in the Cayman Islands in 1976. The captive provides general liability and professional liability coverage for 11,000 doctors and 18 hospitals. Directors and officers liability coverage for the boards of directors and senior executives of its member organizations was added in the early 1990s.

Having a captive enhances the focus on quality and risk management, said Alan Greghorn, chief executive officer for Champaign, Ill.ñbased Christie Clinic, which formed a Cayman Islands captive when the Illinois medical malpractice market hardened five years ago. The captive insures more than 100 medical professionals and several outpatient facilities.

Once the clinic's health care professionals realized that the organization had formed its own insurance company, they became more engaged in risk management, he said.

Elsewhere, Hallmark Health Indemnity Professional Services Ltd. was formed in October 2005 in response to a "fairly hard professional liability market in Massachusetts," said Charles Whipple, general counsel and chief compliance officer for the Melrose, Mass.-based health care organization. The captive funds general liability and professional liability for two hospitals and about 75 medical professionals, he said.

Hallmark Health built risk management grants into its captive program to allow departments to undertake projects that will result in a reduction of risk, he said. The organization hired a director of risk management who is a nurse and an attorney with experience on both sides of medical malpractice litigation. All employed physicians must participate in risk assessments, he said.

"We're proactive in our risk management," Mr. Whipple said. "If we make investments in risk management, it's going to pay off in the captive program and we've seen that so far."