The Call Doctor Story - Part 2
The history of Call Doctor - The Early Years - Part two in a series
By Doctor Gresham Bayne

Chapter Five - Learning Basic Principals:

Building the first Comprehensive Mobile Physician Treatment Center (MPTC), as the vans were originally called, was one thing; developing a business plan was another. I was most fortunate in that Ted Price, my brother-in-law, who was instrumental in building Wheat First Securities to its $500 million purchase price by First Union several years ago, was a Certified Financial Analyst and most generous with his expert advice (and financial support!). Hearing my stories of clinical advances (first chem panel done on a housecall in history (1985); first EKG on a housecall (1985); first cardiac isoenzymes ever done outside a hospital or lab (1987); first portable Xray developed in a patient’s driveway (1985); etc), Mr. Price gave me primer after primer about how to write a business plan, where to find guidance, what investors looked for...the list of educational needs I had was unlimited.

Physicians are infamous in the business world. We are almost universally "tolerated," probably because our signatures control the 1.2 trillion dollar revenue stream in America, but it is the rare businessman that even accepts the possibility that physicians can be successful chief executives - and mostly with good reason. I kept hearing the oxymoron "dumb doctor" bandied about in business meetings. Maybe it is the culture (physicians give "doctor’s orders" rather than develop a group consensus in decision-making); maybe it is our training (my Chief of Surgery seemed to take great pleasure in humiliating me for performing a needle aspiration of a thyroid cyst in 1975, years before the procedure became standard therapy and has now saved countless patients the expense and danger of a subtotal thyroidectomy). Perhaps it is the institutionalized hierarchy of medicine which presupposes to define "truth," and which can be no more questioned than the Vatican could accept Galileo in his quest to explain the absurdity of the conventional wisdom that the sun rotated around the earth in 1633. Maybe it is the selection process: getting into medical school means competing against the best college graduates with only one in sixteen applicants getting accepted to medical school. Obviously, doctors have reasons to feel overcompetent in most everything they do.

Whatever the reason, physicians tend to see any "business deal" or negotiation as an "I am right, you are wrong" exercise, rather than the more businesslike "win-win" strategy. The difficulties of raising money with this educational chip on my shoulder markedly limited my effectiveness in early presentations. The first 20-30 presentations were all received with a great deal of interest (how can one not be interested in a reforming delivery system which cuts 90% of the cost out of healthcare while giving the patient what they wanted in the first place?!); however, I was usually patronized with further repetition of the conventional business principle requiring three things to start a successful company: (1) a great idea, (2) a proven executive team to execute the business plan, and (3) capital. We only had a great idea.

I was also taught about the three stages of a company’s life and the importance of a scalable model. The scalable model is of utmost importance to the physician or entrepreneur envisioning their own growing housecall service. We needed to convince potential investors that the seed capital would get us through the "start-up" or entrepreneurial phase of growth. This is the period when the entrepreneur, or key person, is the sun AND the universe, where you not only make decisions and give orders, but you carry out the decisive actions and take the orders to completion yourself. This means you must develop the ability to answer business calls on a cell phone in the middle of a complex wound debridement; that you need to learn by doing/reading/listening/etc. while you are supporting yourself and your fledgling small group of loyal followers with a fulltime clinical practice (or in my case moonlighting with night shifts in the ER). In one sense, it is no different than the last century physicians hanging out their shingle in front of a debt-financed private office. In actual reality we were re-inventing the entire healthcare delivery system, educating patients in the practice realities, convincing healthcare detractors that you are not a heretic or charlatan, while solving delivery or systems integration problems for the first time in history...and with no proven business model to follow.

I was told the first vans wouldn’t last and were too expensive (Big Bertha, a 1984 Ford Econoline with over 240,000 miles is still making housecalls today). I was cautioned that housecalls would expose doctors (mostly male) to violence and attack for the medications we carry, despite the fact that home health nurses (mostly female) have been making over one million housecalls daily in America for decades with no known violence reported. I was told the technology was not portable, the machines would freeze or cook in bad weather despite the fact that we subsequently developed years of experience in housecalls during Chicago blizzards and Palm Springs, CA 120 degree heat. We were told by federal inspectors that the lab devices would not be stable in the mobile environment and were unsafe without regulations (our staff just completed a site CLIA federal lab inspection by mail- a privilege reserved for physician labs with a spotless inspection record for some years).

Business experts said we could never survive the second phase of a business growth, when the company structure and due process replaces the efficiencies of a small group of committed and loyal employees working for an empassioned founder. This was actually true, in conventional terms. As funding permitted growth and additions to the management team, the fact that no-one had every done high-tech housecalls outside of our practice seemed a moot point to newcomers, leading to the misapplication of standard business organizational structures to a company which needed to invent its own by flattening the typically vertical American corporate structure. How could a Chief Operating Officer, or CEO for that matter, ever control a physician’s behavior when they are never in the same building together, and state law precludes a layperson telling a physician what to do?

The third stage of a company is still novel to me, in that we have never reached the point where all decisions are made by committee with multifactorial analyses done beforehand (and I hope we never do!).

But what I learned most of all was how much I didn’t know about business, and how incredibly complex our business model was, of necessity, becoming. Ignoring the fact that Medicare in 1985-1990 paid about $50 per housecall and denied most other payments for our unique technologies in the field as "not feasible," we struggled on, motivated each day by at least one housecall which proved dramatically how much the public wanted this service, and how powerful the concept became when you elevated the simple black-bag housecall to an integrated healthcare delivery system that met over 90% of the acute and subacute needs of the aging and disabled population.

It was soon apparent that a physician housecall practice, by not having the scaled costs of an office with personnel, examining rooms and other "bricks and mortar" expenses, has what is called a "hockey-stick" profit curve. If profit is the difference between income and expenses, and a small central office could perform the upfront phone chores and back office finance functions, a breakthrough occurred when you reached a number of housecalls which supplied enough income to meet your fixed expenses.

The dirty little secret of medicine that we have kept all these years from the public is that medical supplies bought wholesale are actually quite cheap, amounting to less than $10 per housecall (including the supplies for Xray, EKGs and necessary labs!). By 1988 we were able to assign a fixed non-physician cost covering the entire mobile service, fully-capitalized van, insurance, ETAK navigator, supplies, a single tech-driver-lab-EKG-Xray-medical assistant employee for each doctor at the monthly cost of $8,000. Thus, a doctor’s income could theoretically be all income above the cost of $8,000 monthly and could be determined by their willingness to make more housecalls once patient demand was created. From the patient perspective, we were routinely performing lab panels for $9.50 which were billed at $350 in local emergency rooms. The key was fewer employees. If healthcare costs are 75% attributed to manpower, and the only manpower we needed was the doctor in the field (and a small complement of staff in a central communications and finance office), the newer, portable machines allowed a single physician to replace all fifty of the support staff on duty at the emergency room waiting for patients to come in.

Contrast this to the roughly $250,000 required to open a single physician’s office and the costs of an average 3.5 full time employees per physician in a typical clinic. It has been recently reported that managed care, contrary to the claims of increased business efficiencies, has driven the average number of employees per physician up to 5!

With a housecall practice, as soon as you met the "fixed expense" of a central office, the hockey stick shape of your profit curve leads to sharply increased margins since the incremental non-physician cost of a solo housecall was limited to gas and oil ($3.50), a few phone calls, and supplies ($5-10).

The problem was on the reimbursement side. With Medicare paying only $50 per visit for black bag housecalls (no lab or Xray, etc needed), a physician would have to make 160 housecalls a month just to pay his van and one employee costs. In my ignorance of the 1980s, I thought it would be easy to convince the Medicare Administration (HCFA) that increasing payment to $200 for a comprehensive housecall that replaced a $3,000 emergency room visit was reasonable. This was, perhaps the dumbest assumption I have made in the nearly two decades long struggle to bring back physician housecalls (more about this later).

If ignorance is bliss, sheer stupidity is the mother of invention. Failing to focus on the impossibility of making a profit, we blindly forged ahead with presentations to some of the leading business investors in the country. Not once did they fail to show real interest! During the years 1986-1986 Dr. Raeber and I made 250 housecalls, each one a moment in history. However, the conviction we had in knowing we were on the verge of a cultural revolution- but having no capital to launch was killing me!

Chapter Six - The First Real Money:

During one family vacation to my sister and brother-in-law in Richmond, Virginia, Ted took me aside with that stern, businesslike, no-nonsense look he gets when he’s made a decision. He had finished reviewing yet another business plan I had written, improved by the comments from my latest rejectors. "I have only two questions for you" he said. "First, does the van work?"

"Yes, although there are a myriad of tricky issues, it does what it is supposed to do." I replied.

"Can you make money at it?" was his second question. Armed with my blind faith in the government’s ability to recognize the value of comprehensive housecalls (and the public’s willingness to pay more than $100 for such a valuable service), I replied without hesitation "Absolutely!."

Note of caution here: entrepreneurs use superlatives like "absolutely" and "fantastic" as a matter of genomic mandate; a real businessman might have said something like "Given enough capital to attract a good management team and handle losses during a prolonged market entry, Call Doctor should be able to turn an operating profit in three years, assuming government reimbursement policy changes for the better."

"Then get some doctor friends of yours to contribute some money and find some investors to match it and GET STARTED! I will help you." I felt like Ted’s foot was in the small of my back as I left the house to fly back to San Diego. Ted Price is one of those remarkable business professionals without whose advice, many companies and the thousands of homebound patients currently receiving life-sustaining medical care in their homes would have been abandoned by "the system..."

I had at that time a list of 22 Scripps hospital specialists who had seemed interested in the idea over the years. I fed them continual stories of successful housecalls (there has really never been an unsuccessful one) in my Friday evening and Monday all-night shifts in the emergency room. As always, Dr. Kirk Raeber, the former Chairman of emergency medicine at the large Navy Hospital in San Diego, offered his support. Coming back to San Diego with Ted’s imprimatur gave me the confidence to call six of the closest contacts I had and arrange a meeting.

The meeting was held in a vacant office in Point Loma for which I had had to sign a personal guarantee for some $55,000 over three years due to the recent America’s Cup victory and speculative absorption of nearly all available space. In restrospect, this was another dumb business move I found myself making in the blind assumption that by some stroke of luck, personal sacrifice would be a predictor of success. I’m sure the entrepreneurial halls of failed American businesses are littered with good intentions like this.

Chapter Seven - The First Miracle:

The name Lou Rice is well-known in San Diego. Mr. Rice was Chairman and Founder of Rice, Hall and James, the oldest investment firm in the city. His wife, Dell, was the organizer and first President of a national society that raised money for research to benefit brain-injured patients. They lived six blocks away from me and Big Bertha parked in my driveway. Interestingly enough, one of their adult children worked in a cabinet business with Tommy Bobczynski, who with his brother Bob, had been instrumental in building the first van. Tommy had mentioned to me on an earlier occasion that his partner’s father (Lou Rice) was a big-time investor and seemed interested in what we were trying to do.

Two weeks after returning from my impromptu motivational seminar at Ted Price’s home in Richmond, Virginia, I was jogging along the San Diego Bay near the Bobczynski home when a powerful premonition overcame me. It was a Friday night, near dusk, but a strong urge to call Mr. Rice nagged me as a ran. As I ran past Tommy’s front door, he was just leaving on a date. "Sure, I’ll get Mr. Rice’s phone number for you...it’s unlisted."

Back at home cooling down, the powerful urge to call Mr. Rice harrassed me. Now, when you are raised in Virginia, you know enough not to cold-call any person, much less a man of Mr. Rice’s stature, much less at home, much less on his unlisted number, and above all when your primary purpose is to ask for money. But the insistent voice repeated "call Mr. Rice." Feeling awkward to the extreme, I dialed his number getting the ever-gracious Dell Rice on the first ring. "Oh yes," she said. "Louie told me about you, but he’s not really feeling very well right now. Perhaps I could have him call you back on Monday."

I got in the shower to bathe off the sweat and the embarassment of being a social jerk. What kind of chance would I have now raising money from the top executive in the oldest investment house in San Diego by further invading his privacy? Yet, the compulsive voice returned: "call Mr. Rice." It was as tangible an aura as I have ever had, and only weeks later did I realize I was in the middle of a miracle.

Picking up the phone again, I told Mrs. Rice that I was so sorry to bother her again, but I knew people in her husband’s age group (he was in his seventies then) could be really sick with even minor symptoms. Since I was a board-certified emergency physician working at Scripps with my own mobile emergency room six blocks away from them, I just wanted to make sure he didn’t need any medical advice.

"Oh, that is so nice of you. Louie just vomited and he never does that!" This time she sounded truly concerned. "Could you come see him?"

I parked Big Bertha in front of their home minutes later. Entering alone with my bags, I was astounded as Mr. Rice in front of my eyes had a massive stroke-in-evolution with complete paralysis of the right side, slurred speech and too confused to give any history. After telling Mrs. Rice to call 911, I was able to take his blood pressure (240/120), look at his cardiac rhythm (atrial fibrillation, a rhythm associated with embolic strokes), and examine him hearing a loud carotid bruit in his left neck (indicating cholesterol deposits nearly blocking the major artery to his brain on the left side). Giving him oxygen from a tank we carried in the van, a new drug at that time under his tongue to lower his blood pressure and an aspirin to retard further clot formation, I started an intravenous line, placed him on cardiac monitors in the five minutes it took the sirens of the 911 ambulance to reach the house.

The San Diego EMS system is arguably the best in the free world, but is seriously flawed to this day by protocol-driven behavior and a relative absence of direct physician control. Under California SB 125, the paramedics must take all victims to "the nearest appropriate facility." In 1987 there were some 30 hospital emergency rooms, including one I deemed incompetent just down the street. Like so many San Diegans, Mr. Rice chose his own doctor and hospital not by geography, like the EMS system, but by his own evaluations process, and this had led him to Scripps Memorial Hospital in La Jolla. Without my presence there as a physician requesting by radio "scene control," he would have been taken to an emergency room where his doctor had no privileges, the hospital had no records, and the emergency room not only didn’t have rapid CAT scanning available, but the physicians were not even board certified in emergency medicine.

Today, matters are complicated even more, in that the EMS system spends most of the time in "gridlock" when all major emergency rooms are saturated and paramedics have to shop around to find one that can accept a new patient. Since our specialty medical literature is replete with studies showing that over 80% of emergency room patients do not need "immediate physician attention," the solution is clearly to provide access to patients in their own settings when the chief complaint is not life-threatening.

That night in 1987 I found out yet another advantage of home visits. Not only was I able to command the paramedics, whose training is far from that required to make complicated decisions weighing the risk versus benefit of longer transport times in complex cases, to drive by at least three other emergency rooms to meet Dr. John Carson (Mr. Rice’s personal physician and then Chief of Staff of Scripps Memorial Hospital) in the emergency room. Within twenty minutes of our arrival Dr. Carson had arranged for a CAT scan showing no acute bleeding in his brain and begun emergency treatment. Of note, the loud bruit in his neck, which I had heard with his markedly elevated pressure at home, was no longer apparent after my medications had normalized his dangerously high pressures. That single fact, however, led to a operation correcting the stricture in his left carotid artery, since by the time we had arrived his neurologic symptoms had all but cleared.

I don’t know to this day if my premonition and subsequent housecall was instrumental in Mr. Rice’s excellent outcome and years of health thereafter, but the important thing was both the Rices thought I had saved his life. On April 8, 1987 at 6PM, I made my second visit to Mr. Rice’s home...but this time to discuss the capitalization of Call Doctor!

Chapter Eight - Seed Money:

Venture capitalists have a jargon like all professionals. Start-up projects, like Big Bertha, often start with family money, as I had. Sometimes they go directly to "seed capitalization," which is enough money to get a company up to a point when they can prove feasibility of the concept in making a profit. Seed money does not have to get one to a profitable state and rarely does (except in Bill Gates’ case). It is the highest of the high risk investments made by venture capitalists and, after the debacle of "dot-coms," has all but dried up. As always, the lack of start-up capital can be overcome by the "who you know" network, which now came to my aid.

Mr. Rice knew a friend of my family, Mr. Bill Grant (former President of Smith-Barney and then on the New York Life Board of Directors and Vice Chairman of Smith-Kline Beechem). He also knew Dan Lufkin, former Chairman of Coca Cola Industries, Founder of Donaldson, Lufkin, and Jenrette and majority owner of AMI, one of the largest hospital chains in America at the time.

I told Mr. Rice I thought I could raise $25,000 from each of six (out of 22) doctors I knew at Scripps. He called Mr. Grant, who offered $50K along with Mr. Lufkin. He then called a contact of his, Karen Amende (niece of Kim Fletcher, then Chairman of Great American Savings and Loan) who put together a prospectus for us and brought in Mr. Gerald Milton (Founder of the largest physician-owned malpractice insurance company in the country) at $25K. With Mr. Rice committing his $25K, we had a joint proposal for investors to put up $150K matched by my doctors’ $150K.

Flying all night April 23rd to Virginia, I met Mr. Grant at a visit to my parents house. He invigorated me to no end. Here I was, the dumb doctor with a van parked in his driveway, talking to one of the most respected businessmen in America about his investment in my company! He even indicated his plans to start his own venture firm (subsequently called Galen Partnership) and would consider a million dollar investment if we got off the ground!

I came back to San Diego and, with Karen cooking chicken legs we formally introduced our "investment opportunity" to the first six of the Scripps physicians I approached in our new office barren except for a plastic picnic table and chairs I had borrowed from Tommy Bobczynski’s sister Michelle. All six wrote checks for $25,000.

On May 3rd, Ford recalled all the Econoline 350 cargo vans, including Big Bertha, due to a series of fatal gas tank explosions. Apparantly, a defective design allowed pressure to build up in the gas tank allowing release of explosive gas fumes right when you were next to the gas pump (and maybe lighting a cigarette?). Here was a risk I had not thought about disclosing in the business plan now in the final stages of being funded.

Nevertheless, substantive meetings were held with Mr. Rice on July 27 and 30, again on August 7 and 21 with Karen Amende taking the lead to finalize the "funding instrument" for the investors. We (I was starting to think of myself as part of the management team by now) decided a "Reg D" offering under the SEC rules would be the best format. Regulation D allowed up to 30 non-qualified investors to purchase shares without registering the stock with the SEC (tantamount to "going public"). Since a qualified investor could be any wealthy businessman or person intimately associated with the company (like the doctors), we would start with all qualified investors, leaving room for future fundraising from potentially non-qualified investors.

September 17, 1987 we got the van back from Ford with assurances it could no longer blow up at the pump, and final changes to our prospectus were being made by lawyer recommendation. Herein, it became apparent that there was an unusual twist to raising capital for physician professional services. In all but 16 states, there are what is known as "corporate practice of medicine" laws restricting ownership of medical groups to only licensed healthcare professionals (like doctors and nurses). This meant the true investors could not really own stock in the Medical Group, but would have to own stock in a management group, which we created years before the concept became widespread (and infamous) in healthcare. We called the "newco" Call Doctor, Incorporated which would manage the medical group known as Call Doc Medical Group (all physician groups in California must have the terms "medical group" or "medical clinic" in their names). I applied for fictitious name permits from the Medical Board of California for every name we could think of using the trademark "Call Doc" since the only eponymal phone number we could get that made any sense was 1-800-Call Doc. Everyone hated the name.

We were starting to look like a real business, and with all letters of intent signed, we scheduled the closing, which required every doctor and investor to make good on their commitment, for the week of October 17. Since I was one of the six doctors, I made sure my home equity line of credit was good for my $25,000.

On October 17, 1987, known as "Black Monday," the stock market crashed with the largest single day drop since 1929.

Mr. Grant called to say a friend of his was caught in a massive margin call, requiring his help, so he would have to reduce his commitment from $50K to $25K. Amazingly enough, everyone made good on their investment promise despite the market collapse. With a lump in my throat I rewrote my line of credit check to cover $50,000 and collected the various checks and wiring notices and marched over the the local bank.

Armed with $300,000 of cash-equivalents, I swaggered in front of the new accounts officer in heady anticipation for the moment when she would ask how much I wanted to use to open the account. Filling out the forms, my head swelled bigger, forgetting that in the last week I had commited a total of $105,000 of money I really didn’t have between the lease and the investment. I was beyond reason in ego-land when she asked for the name of the Chief Executive Officer. The CEO in business circles is like the Chief of Surgery in an academic medical center; they are the really big cheese, and I gave her MY name (somehow the need for a proven management team had been dropped from the equation). Finishing the various signature documents, the bank official pulled out another portfolio from a drawer.

"Now, Dr. Bayne. How much did you want to put in the account today?"

This was my big moment. With $300,000 more money than I had ever seen, more than my house cost, more than my net worth, and now in the palm of my hand, I leaned forward and ceremoniously placed each check one by one in front of her, while loudly proclaiming, hoping others in the bank would hear: "Three hundred THOUSAND dollars."

"And what color check book would you like?" she said as she pushed the portfolio samples in front of me.

I felt like an idiot, a feeling I was going to have to get comfortable with in my new career.