CEO quits $291,468 job at Doctors Health Gold says investors are ready to help firm

October 10, 1998|By M. William Salganik | M. William Salganik,SUN STAFF

Stewart B. Gold resigned yesterday as chief executive officer of financially troubled Doctors Health Inc., but said the company's investors were prepared to put up enough money to assure the company could operate through 1999.

Doctors Health, based in Owings Mills, laid off 52 of its 148 headquarters' staff two weeks ago, after losing its largest contract.

In an annual report filed Sept. 28 with the Securities and Exchange Commission, the company said that it had lost $40 million in its fiscal year ended June 30; that "there is substantial doubt as to the company's ability to continue as a going concern"; and that it might have to seek bankruptcy protection without an infusion of capital.

That infusion is on the way, Gold said. He said current investors had agreed to provide money to keep the company going, and arrangements for the additional funds should be completed next week. No further layoffs are planned, he said.

He declined to identify the investors who are providing money or how much money they would provide. Major investors in Doctors Health include The Beacon Group, a New York venture capital firm, Genesis Health Ventures Inc. of Pennsylvania and St. Joseph Medical Center.

Gold said he resigned after telling the board that, given efforts to restructure and cut administrative expenses, it didn't make sense to have a CEO at his salary level. According to the SEC filing, his salary this year is $291,486. He also said that in overseeing the layoffs, he found it difficult "to watch so many TC good people go."

New management has not been named. Several other top managers and physician-directors have left over the past few weeks, including Dr. Scott Rifkin, the company's founder, who resigned as chairman to start a venture providing health information on the Internet.

Two lines of business

Doctors Health has two principal lines of business. For one, it acquires -- generally for company stock, sometimes for cash -- and manages physician practices. That part of the business had $14.7 million in revenue and $14.3 million in operating expenses, according to the annual report.

Gold said the company had considered selling the practices it owns, but would probably continue that part of the business and look to improve profitability. He said it was also changing the method of compensation to provide incentives for doctors to provide efficient care.

The losses have occurred in the second line of business. Doctors Health had several contracts in which HMOs paid the company a flat fee per member per month, and Doctors Health would manage care and be responsible for medical claims.

That side of the business had $77.5 million in revenue, but $89.7 million in medical expenses, according to the annual report. Doctors Health had $17.6 million in administrative expenses.

Lost HMO contract

Gold said Doctors Health had lost its largest HMO contract when NYLCare decided to drop its Medicare HMO in Maryland. Doctors Health initially went to court to block NYLCare's withdrawal, but decided to cancel the contract.

Now, Gold said, Doctors Health claims NYLCare owes it $3.7 million, while NYLCare claims Doctors Health owes the HMO. The dispute will be arbitrated this month, Gold said.

Walter J. Cherniak Jr., regional media relations manager for Aetna U.S. Healthcare, NYLCare's corporate parent, said yesterday, "We don't comment on matters under litigation."

Gold said Doctors Health had also pulled out of another HMO contract, with United HealthCare, that the company felt would not be profitable.

It retains two contracts, covering more than 7,000 members of MediCareFirst, the Medicare HMO of Blue Cross and Blue Shield of Maryland. Gold said the company is negotiating with other HMOs, but will seek contracts in which the risk is shared with the HMO and doctors, rather than borne entirely by Doctors Health.

Gold joined Doctors Health in 1994. Previously, he was CEO of a managed-care subsidiary of Blue Cross of Western Pennsylvania.

Pub Date: 10/10/98

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