An independent arbiter later found that Abel and the board of directors fully participated in the financial planning in question. Brown & Toland's problems, the arbiter said, were largely caused by the board's willingness to approve suicidal budgets, while waiting to be rescued by white knights.
Abel took charge of daily operations, but was unable to stanch the fiscal hemorrhage. The operating deficit bottomed out at $9.8 million.
Anthony Pidgeon
Brown & Toland's Flagship Hospital: California Pacific Medical Center.
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By April 1999, the company's liabilities, as reported to the state, exceeded its assets by $15 million. Bankruptcy loomed. The Department of Corporations declared the medical group insolvent. Brown & Toland surrendered its insurance license in December. The medical group now claims it made a small operating profit in 1999 through a combination of Draconian staff layoffs and the further appropriation of physician salaries.
Life did not wrap itself into the glorious denouement of the romantic novel that inspired Michael Abel's youth. Abel abruptly resigned from Brown & Toland management in January.
Brown & Toland says that it has emerged from its darkest days, and has also reduced the size of the $15 million net worth hole in its balance sheets. Expert observers with inside knowledge of the company surmise that an HMO is financially propping up the IPA for the moment, fearing the disruptive consequences of a bankruptcy. Top management declined to make the company's new financial statements public.
Managed health care was born of the need to control costs. And the rate of increase in the nation's annual trillion-dollar expenditure on health care did fall drastically after cost-saving techniques came into play. But inserting IPAs between the insurers and the consumers causes administrative expenses to be duplicated, and, while working profitably for the HMOs, the IPA system does not work well for other players.
From an economic point of view, Brown & Toland is a case study in how not to run a medical group. But there is a more important question: Did its fiscal ill health impact the prime directive of all medical workers to, first, do no harm?
In September 1998, the Department of Corporations questioned whether Brown & Toland's "medical delivery network is adequate to serve the population [of people enrolled with it]." The department was concerned not only with the group's solvency; it criticized Brown & Toland for denying a range of treatments, including breast reconstruction, dental benefits, and prescriptions for erectile dysfunction drugs, such as Viagra. The state evinced alarm that the IPA was narrowing its definition of "medical necessity" in the furtherance of its own financial interests.
The most biting criticism leveled at the IPA system by its numerous critics involves an ethical question. What happens when physicians are given financial incentives to deny treatment to patients and to minimize hospital stays and the use of expensive therapies and drugs? Dr. Ron Cohen, based at Stanford University, aptly describes the risk that IPAs take on as "a pyramid scheme that works as long as there are no sick patients."
To the credit of its rank-and-file doctors, however, there is no substantial evidence that Brown & Toland sacrificed overall quality of patient care to its bottom line. Quite the contrary. Brown & Toland's money troubles might have been alleviated if its doctors had underprescribed more often, and more regularly denied treatment to the ill. This "damned if you do, damned if you don't" conundrum demonstrates the social irresponsibility of forcing medical caregivers to choose between the wellness of their patients, and the currency of their mortgage payments.
Continuity of health care for millions of Californians has been disrupted as major IPAs fail across the state. According to the California Medical Association, more than 4,000 doctors are owed $100 million by bankrupt medical groups. If Brown & Toland were to go down, 1,400 doctors could be stiffed to the tune of tens of millions in fees. They would lose current contracts with insurers. A quarter-million San Franciscans would need to find new doctors, or new medical groups and insurers. Fortunately, California law holds the HMOs responsible for providing health care to those who pay them premiums; a Brown & Toland failure might not be catastrophic, but it would certainly be uncomfortable, especially for the elderly and the chronically ill.
As IPAs dissolve, HMOs will assume more risk, and local premium rates will, therefore, probably rise. Paperwork will mount as each physician makes a separate deal with each insurer. Doctors will become increasingly demoralized as it becomes harder to make the nice living once guaranteed to them. Patients may find it difficult to get medically necessary treatments, especially if those treatments are expensive.
The not-so-dynamic duo who created the now-insolvent medical group -- Abel and O'Hehir -- will apparently be largely unaffected by Brown & Toland's financial flu. They have, instead, been infected by the Silicon bug, and are now involved in Internet start-ups.
