Physician groups in California are never really out of the woods financially, even when they feel the sun shining down on them. But one of San Francisco's largest and most respected groups is hoping its current bright spell will last.
Brown & Toland reported a profit of $4.1 million for the six months ending June 30. (Third quarter numbers were not available at press time.) The turnaround comes just two years after the group lost $10 million and in the midst of a fiscal crisis that is affecting medical groups throughout the state.
Brown & Toland is the largest physician organization in San Francisco, other than Permanente Medical Group. It has about 1,700 doctors, comprising 400 primary care physicians and 1,300 specialists, and serves 230,000 enrollees. San Francisco itself has a population of approximately 750,000.
The California Medical Association, which has been on a death watch over the state's medical groups and IPAs, is hailing B&T's financial performance. "It's fantastic that they're doing so well," declares CMA Vice President Elizabeth McNeil.
Brown & Toland officials credit the group's recovery to reducing expenses as well as getting higher capitation rates, and decreased pharmacy and other risk, from the nine HMOs they do business with.
On the cost side, CMO Tom McAfee, M.D., says technology finally has begun to deliver on its long-awaited promise of saving money.
He cites two advances, in particular. A few years ago, B&T co-developed with WebMD Corp. an Internet-based product called RACER (referrals, authorization, claims eligibility, and reporting) at a cost of $2.7 million.
McAfee says the system has reduced administrative expenses substantially. It enables the doctor's office to perform these functions online "rather than faxing and dealing with agents on the phone," and by allowing the group to electronically download patient eligibility lists from health plans, thus obviating the need for data entry clerks to manually enter this information into the computer. McAfee says the resulting savings amount to nearly 10% of the group's overall administrative costs.
Board member Cynthia Point, M.D., says the electronic eligibility downloads are solving a headache the medical group has had for years. Before, the group often didn't know if a patient who came to the doctor's office was actually covered by a health plan.
"We were paying for services rendered to people who were not enrolled," she says, with the attendant consequence of not getting reimbursed for treatment.
Now, not only does B&T have instant access to this information, the organization no longer needs all those data entry clerks. "Banks and banks of bodies" will be reduced through attrition, Point says.
Another example of the way RACER saves administrative time and money, Point says, is through providing doctors with a single, online referral form "that goes to specialists across all health plans." Now, not only are the different forms eliminated, so is paper itself. "It's a computer entry," Point says.
Moreover, when the specialist bills B&T for the service, clerical assistants no longer need to match up the bill with an original referral form to make sure dates and other information match. The software does it automatically.
The second major area in which technology has come to the rescue is even more dramatic since it directly influences the group's ability to negotiate better terms with health plans. B&T has a contract with The TriZetto Group in which all the sources of patient information--laboratory, pharmacy and claims--are dumped into an electronic warehouse from which data can be mined, vastly improving the group's ability to analyze that data for medical management.
McAfee says he and other negotiators for the group can use this information to prove to the plans that B&T is entitled to better terms, due to the demonstrated cost of providing services. "For example, we're able to show them that, based on the data, the cost of injectable medications has gone up so much that we need an increase" in capitation rates, he says.
Typically, doctors lose such arguments because plans reply that the groups have to manage their costs better and more efficiently. But now, says McAfee, "We're able to clearly demonstrate that the increase in costs is not a management issue. You have to provide the data that justifies the price you're seeking."
Gifford Boyce-Smith, M.D., director of network and quality management for Blue Shield of California, says a physician organization that can come to him armed with proof of its legitimate costs will get a better hearing. "Brown & Toland does work hard to track this data, so we have a different level of conversation with them, as opposed to other (medical groups) that don't have that commitment to data."
Boyce-Smith won't reveal the particulars of Blue Shield's latest contract talks with B&T, but he does say, "Those who know their costs, and can manage them effectively, are in a better position to negotiate the business side."
The proof is in the pudding, and this year the group has been getting capitation rate increases of up to 20%, according to McAfee. Not all of this is solely due to the new computer-generated data, he notes. Some of it is because the plans have been pushing through double-digit premium increases and thus have more profits to spread around. But having the information helps.
A final factor responsible for the turnaround is a one-time achievement that won't be replicated. That was the group's decision to abandon 48,000 patients in the populous Peninsula/Silicon Valley region, south of San Francisco, where it had been hemorrhaging money for about a year and a half.
The group entered the area a few years ago in an expansionist mood but underestimated the work and time involved in creating specialist networks and crafting hospital contracts on the Peninsula, says Point.
The group experienced "tremendous losses," says McAfee; it's hard to say exactly how much, but it accounted for a sizable chunk of that $10 million deficit two years ago, which it still hasn't fully paid off. At any rate, the sea of red ink was stanched when B&T pulled back to its base in San Francisco. (Another result of the Peninsula fiasco, and the financial meltdown, was that top management, including founder Michael Abel, M.D., was forced to step down, although Abel remains on the board.)
Now that the group's finances are on the way to getting back in shape, the physicians in July actually got a raise for the first time in years. As McAfee points out, the "raise" was actually a restoration of half of the 10% pay cut the doctors took in 1998 as a result of the group's losses.
The group hopes to be back in the black by the end of the year. Skeptics, and they are many, doubt the group can do it.
"They are making headway, it's true," says a Bay Area managed care consultant, who did not wish to be identified, "but there's still not enough money in the system" to save B&T, or any other medical group, in the long run. But Brown & Toland is hoping that, by the end of the year, it will have left all of its debt behind. That would give it something truly unusual to boast about in California.
Steven H. Heimoff is an Oakland, Calif.-based healthcare business writer.