CALIFORNIA ADVANTAGE: Troubled Plan Files For Bankruptcy
California Advantage, the California Medical Association's managed care plan, filed for bankruptcy yesterday, the New York Times reports. "After two and a half frustrating years, three chief executives and $11 million in losses," the beleaguered plan is filing for chapter 11, according to CMA lawyer Steven Fleischer. In what the Times calls "a sobering blow to the many doctors who want to recapture control of their patients' care," the plan will be "slowly liquidated while the company's insurer fulfills the terms of its existing contracts for patient care, some extending until next May." CMA President Dr. Jack Lewin said, "It was a noble and worthy venture. Everybody liked the philosophy of putting patients first and profits second." The CMA reported earlier this month that the plan failed because it tended to attract sicker, more costly patients, didn't get the financial support of enough physicians and faced stiff competition from other HMOs in the state ( see CHL 6/3). Health care consultant Peter Boland said "unrealistic expectations and poor planning" were also factors. "They had a very well-intentioned and very naive strategy. It's a sobering event: one of the country's biggest medical organizations fails miserably" (Kilborn, 6/17). "The No. 1 problem was capital. We undertook a much larger (task) than we could realistically do with the amount of capital we had," said Fleischer.
The AP/Sacramento Bee reports that analysts say California Advantage's "fate is a common one among concerns formed in recent years by doctors hoping to avoid giving up fees and control of patients care to HMOs." Sanford C. Bernstein & Co. analyst Kenneth Abramowitz said, "They either go bankrupt ... or never make the money. No one's forming them any more, and the ones that have formed are, by and large, selling out." Bear Stearns analyst Gary Frazier noted that physician-owned managed care plans "tend not be well-run" because many people don't understand that "running networks and managing medical care and medical risk is a lot more of a complicated undertaking than a lot of people realize" (Oritz, 6/18). [Note: If you would like to read the full New York Times article, the San Jose Mercury News is running the piece.]