PHCD board dismisses doc group’s loans

The Petaluma Health Care District’s Board of Directors has taken the final step to write off more than $100,000 in loans made to the South Sonoma County Medical Group.

The board made the decision on a 3-0 vote at its Oct. 28 meeting after an independent auditor, Matson and Isom, determined that the loan money was properly handled with Generally Accepted Accounting Principles, a set of regulations established by the Accounting Practices Board of the American Institiute of Public Accountants that all accountants must adhere to on behalf of their clients.

Two board members — Dr. Bob Ostroff, who was president of the SSCMG at the time the loans were made, and Dr. Stephen Steady, a member of the group — did not vote due to a conflict of interest.

On April 11, 2007, the PHCD began providing loans to the then-newly established SSCMG, primarily for its assistance in offering more insurance plans in southern Sonoma County. Daymon Doss, executive director of the PHCD, recommended that loans, rather than a paid service agreement, be used because he felt that the SSCMG might eventually become an enterprise organization, and be able to pay back the money.

“At the beginning of the process, I told members of the SSCMG that should they not mature into a revenue-positive entity, I would take to the PHCD board the recommendation that the loan be forgiven through the normal accounting process,” Doss wrote in a statement provided to the board at the meeting. “It (also) was possible to fund this process not through a loan, but by contracting for a purchased service. This would have had the same affect, without having to forgive a loan.

“I chose to recommend the former over the latter in the interest of the possibility of repayment.”

The SSCMG used the loans to pay stipends to 11 of its members, including Ostroff, who now is president of the PHCD board. The loans totaled $107,110 when they stopped, on Aug. 24, 2007, and $22,350 had been paid in stipends to Ostroff.

The stipends helped SSCMG members arrange for local physicians to offer 11 new insurance products, and boosted SSCMG membership to include more than 70 doctors.

Rick Nadale, the PHCD’s controller, asked Ostroff about the loans, plus more than $10,000 in accrued interest, in a letter he wrote on June 30, 2008. Ostroff replied, “SSCMG has no assets and no income, and the prospects for either of these facts changing appears nil.” So, the PHCD designated the money as a non-collectible loan in reserve.

On June 26, 2009, Nadale wrote to Dr. Ray Erny, the current SSCMG president, to find out whether the loan money could be collected. “SSCMG has no ability to repay the note referenced in your June 26, 2009 letter, either now or in the foreseeable future,” Erny wrote back.

Doss removed the loans and the accrued interest, which had increased to around $20,000, as a source of collectible money on July 1, pending the results of the audit review and board vote on the matter.

At the Oct. 28 board meeting, members Josephine Thornton, Kathie Powell and Fran Adams all voted to write off the loan money. Thornton had been highly critical of the way the loan was handled.

“Let me begin by being crystal clear on one issue; it is no secret that I was very unhappy with the way the SSCMG loan was handled,” she wrote in a statement issued at the meeting. “I did not like it then, I do not like it now and I have not changed my mind in that regard.

“However, this is not the question on which we have to vote. We have to decide whether, in the context of today’s realities, it is in the best interests of our community to reopen this entire issue, or whether we better serve the public good by laying this loan to rest and moving on to address the people’s business in more constructive ways.”

She elaborated on her decision, saying that reopening the issue would revisit a period of hostility and divisiveness and enmesh the health-care community in past resentments at a time when progress is being made. Also, she stated that the SSCMG simply isn’t able to pay back the loan, and according to the PHCD staff, has no ability to do so in the foreseeable future.

“I will vote, therefore, to accept the determination that the SSCMG loan is uncollectable,” she wrote. “This may not be a universally popular decision, but we owe it to our community to use our best judgment in placing the critical priorities first.

“We have learned as much as we can from this experience. So now, let’s place our focus clearly on the future and move forward in a constructive way to meet the needs of our hospital, our medical community and the people we serve.”

(Contact Dan Johnson at dan.johnson@arguscourier.com)