FORT MYERS — The Lee Memorial Health System is going to acquire medical liability insurance to protect itself against future out-of-pocket payouts like the $15 million the Florida Legislature approved against the public hospital earlier this year.
"We relied on sovereign immunity protection forever. We thought that was all we needed," Richard Akin, Lee Memorial's board chairman, said of state laws protecting government agencies against large claims. "We believe (now) the risk is too great not to have" medical liability insurance.
The publicly elected board for the four-campus system in Lee County recently gave its legal and finance officers the go-ahead to weigh purchasing traditional insurance with $25 million in coverage and a $5 million deductible.
They also will explore the pros and cons of an alternative under which the hospital system would create its own insurance company and purchase coverage on the reinsurance market.
The staff will come back to the board within three or four months with a recommendation on which way to go, hospital spokeswoman Mary Briggs said.
The Lee Memorial board has been addressing the repercussions of state lawmakers approving the $15 million claims bill for Aaron Edwards, who suffers from severe cerebral palsy and now lives in Colorado.
The 14-year-old has been confined to a wheelchair since birth in 1997 at HealthPark Medical Center; plaintiffs' attorneys blamed his condition on mistakes by hospital staff.
Lee Memorial had never faced a medical malpractice claim in its history as a public hospital and had relied on sovereign immunity protection, which protects against large payouts, similar to that for any other government, school or law enforcement agency.
A Lee County jury in 2007 awarded Edwards and his family $31 million following a trial; Lee Memorial denied responsibility for his injuries and said key evidence wasn't heard by jurors. Florida lawmakers had considered a claims bill for Edwards in 2011, but it didn't go anywhere. It was refiled this past year.
Of eight public hospital systems in the state, only the North and South Broward districts have purchased insurance, and both are supported by tax levies to residents.
The other six public hospitals, including Sarasota Memorial, have relied on sovereign immunity protection. Unlike Sarasota, Lee Memorial officials point out that they don't have taxing authority even though Lee Memorial is the dominant health-care system in the county and operates a regional trauma center.
Two options for traditional insurance with $25 million in coverage will be considered — from Chartis with a $1.2 million premium and from AWAC/Torus with a $952,000 premium.
There are differences in what each plan offers that need to be weighed, Briggs said.
The alternative approach would mean forming an insurance company and paying premiums to the internal company, or joining a group that has an existing captive insurance group. For example, the University of Florida Shands Hospital in Gainesville is part of a captive insurance group.
"That can save money because it alleviates the middle man," Briggs said of the captive insurance model.
Akin said his sense from the board members' discussion last week was that they are leaning toward the captive insurance model, but that could change once they get the numbers and recommendation from the legal and financial officers.
"The biggest reason for trying to pursue the captive model is we have heard you can buy reinsurance for up to 30 percent less but it is risk-specific. You must define your risk," Akin said. "For a company the size of Lee Memorial, I think potentially it could save a lot of money. I don't know, but that will drive our decision."
In the meantime, the board in late May approved the creation of an internal panel that has the authority to settle medical malpractice claims on a case-by-case basis for amounts not to exceed $4 million.