UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q-A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (Amended)
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 33-80987
Merit Behavioral Care Corporation
(Exact name of registrant as specified in its charter)
Delaware 22-3236927
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Maynard Drive
Park Ridge, New Jersey 07656
(Address of principal executive offices)
(201) 391-8700
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes..X.. No......
As of April 30, 1996, 28,298,800 shares of the registrant's common stock, par
value $.01 per share, which is the only class of common stock of the registrant,
were outstanding.
MERIT BEHAVIORAL CARE CORPORATION
Table of Contents
Form 10-Q for the Quarterly Period
Ended March 31, 1996
PART I FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at
March 31, 1996 and September 30, 1995 3
Condensed Consolidated Statements of
Operations for the three months ended
March 31, 1996 and March 31, 1995, and
the six months ended March 31, 1996
and March 31, 1995 4
Condensed Consolidated Statements of
Cash Flows for the six months ended
March 31, 1996 and March 31, 1995 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
MERIT BEHAVIORAL CARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(dollars in thousands)
March 31, September 30,
1996 1995
---------- ------------
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . $ 46,000 $ 20,611
Accounts receivable, net of allowance for
doubtful accounts of $1,172 and $525 . . . . . . . 27,497 27,648
Short-term marketable securities . . . . . . . . . --- 1,143
Other current assets . . . . . . . . . . . . . . . 4,552 4,569
Total current assets . . . . . . . . . . . . . 78,049 53,971
Property, plant and equipment, net . . . . . . . . 61,771 54,974
Other Assets:
Goodwill and other intangibles, net of accumulated
amortization of $48,343 and $37,017 . . . . . . 170,312 171,139
Restricted cash. . . . . . . . . . . . . . . . . . 4,495 12,405
Deferred financing costs, net of accumulated amortization
of $546. . . . . . . . . . . . . . . . . . . . . 11,453 ---
Other assets . . . . . . . . . . . . . . . . . . . 13,348 12,931
199,608 196,475
Total assets . . . . . . . . . . . . . . . . . . . $339,428 $305,420
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . $ 4,953 $ 3,389
Claims payable . . . . . . . . . . . . . . . . . . 50,215 43,371
Deferred revenue . . . . . . . . . . . . . . . . . 8,961 9,582
Accrued interest . . . . . . . . . . . . . . . . . 4,854 ---
Current portion of long-term debt. . . . . . . . . 500 ---
Other current liabilities. . . . . . . . . . . . . 12,483 8,788
Total current liabilities. . . . . . . . . . 81,966 65,130
Due to parent (noninterest bearing). . . . . . . . --- 70,813
Long-term debt . . . . . . . . . . . . . . . . . . 246,000 ---
Deferred income taxes. . . . . . . . . . . . . . . 33,097 44,744
Other long-term liabilities. . . . . . . . . . . . 1,808 2,400
Stockholders' Equity:
Common stock (40,000,000 shares authorized,
$0.01 par value, 28,398,800 shares
outstanding at March 31, 1996) . . . . . . . . 284 10
Additional paid in capital . . . . . . . . . . . . (12,162) 118,877
Retained (deficit) earnings. . . . . . . . . . . . (6,115) 3,446
Notes receivable from officers . . . . . . . . . . (5,450) ---
Total stockholders' equity. . . . . . . . . . . (23,443) 122,333
Total liabilities and stockholders' equity . . . . $339,428 $305,420
See accompanying notes to condensed consolidated financial statements.
MERIT BEHAVIORAL CARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(dollars in thousands)
Three months ended Six months ended
March 31, March 31,
1996 1995 1996 1995
------ ------ ------ ------
Revenue. . . . . . . . . . . . . $111,721 $86,942 $222,641 $164,141
Expenses:
Direct service costs . . . . . 87,941 70,644 176,291 129,105
Selling, general
and administrative. . . . . . 15,707 11,398 30,015 23,379
Amortization of intangibles. . 6,522 5,263 12,837 10,289
------ ------ ------ -------
110,170 87,305 219,143 162,773
Operating income (loss). . . . . 1,551 (363) 3,498 1,368
Other income (expense):
Interest income and other. . . 797 374 1,338 665
Interest expense . . . . . . . (6,104) --- (11,549) ---
Merger costs . . . . . . . . . --- --- (3,972) ---
------ ------ ------ ------
(5,307) 374 (14,183) 665
------ ------ ------ ------
(Loss) income before income taxes
and cumulative effect
of accounting change . . . . . (3,756) 11 (10,685) 2,033
(Benefit) provision
for income taxes . . . . . . (1,151) 535 (2,136) 1,899
(Loss) income before cumulative
effect of accounting change. . (2,605) (524) (8,549) 134
Cumulative effect of
accounting change for deferred
contract start-up costs, net of tax
benefit of $757. . . . . . . . --- --- (1,012) ---
------ ------ ------ ------
Net (loss) income. . . . . . . . $ (2,605) $ (524) $ (9,561) $ 134
------ ------ ------ ------
Pro forma net income assuming the new
method of accounting for deferred
contract start-up costs is applied
retroactively. . . . . . . . . $ (2,605) $ (968) $ (8,549) $ (310)
See accompanying notes to condensed consolidated financial statements.
MERIT BEHAVIORAL CARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands)
Six months ended
March 31,
1996 1995
------ ------
CASH FLOW FROM OPERATING ACTIVITIES:
Net (loss) income. . . . . . . . . . . . . . $ (9,561) $ 134
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Cumulative effect of accounting change . . 1,012 ---
Depreciation and amortization. . . . . . . 18,098 13,206
Deferred taxes.. . . . . . . . . . . . . . (3,296) 189
Changes in operating assets and liabilities, net of the effect of acquisitions:
Accounts receivable. . . . . . . . . . . . 2,152 (485)
Other current assets . . . . . . . . . . . 392 146
Deferred contract start-up costs . . . . . (2,390) (3,677)
Accounts payable and accrued liabilities . 9,834 4,448
Net cash provided by operating activities. . 16,241 13,961
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment . (11,448) (14,951)
Sales of marketable securities . . . . . . 1,143 860
Long-term restrictions removed
(placed) on cash. . . . . . . . . . . . . 7,910 (660)
Investments in and advances
to joint ventures. . . . . . . . . . (1,221) ---
Repayments of advances from joint ventures . 120 ---
Cash used for acquisitions, contingent
consideration, and related expenses,
net of cash acquired . . . . . . . . . . . (11,058) (380)
Other. . . . . . . . . . . . . . . . . . . . (1,072) 108
Net cash used for investing activities . . . (15,626) (15,023)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from capital contribution . . . . . 114,980 ---
Borrowings from parent . . . . . . . . . . . --- 641
Proceeds from bridge loan. . . . . . . . . . 75,000 ---
Proceeds from revolving credit facility. . . 84,000 ---
Proceeds from senior term loans. . . . . . . 120,000 ---
Proceeds from sale of notes. . . . . . . . . 100,000 ---
Repayment of notes receivable from officers. 250 ---
Redemption of common stock . . . . . . . . . (259,039) ---
Preliminary adjustment to
common stock redemption. . . . . . . . . . 4,895 ---
Repayment of due to parent . . . . . . . . . (70,813) ---
Repayment of bridge loan . . . . . . . . . . (75,000) ---
Repayment of revolving credit facility . . . (57,500) ---
Payment of financing costs . . . . . . . . . (11,999) ---
Net cash provided by financing activities. . 24,774 641
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS. . . . . . . . . . . . . . . . . 25,389 (421)
Cash and cash equivalents at beginning
of period . . . . . . . . . . . . . . . . 20,611 24,730
CASH AND CASH EQUIVALENTS AT END OF
PERIOD . . . . . . . . . . . . . . . . . . . $ 46,000 $24,309
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid for income taxes . . . . . . . . . $ 801 $ 1,570
Cash paid for interest . . . . . . . . . . . $ 6,100 $ ---
See accompanying notes to condensed consolidated financial statements.
MERIT BEHAVIORAL CARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in thousands)
1. BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial statements
include the accounts of Merit Behavioral Care Corporation and its wholly-owned
subsidiaries (the "Company"), and have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
The condensed consolidated balance sheet at March 31, 1996 and the consolidated
statements of operations and cash flows for all periods presented are unaudited
and reflect all adjustments, consisting of normal recurring items, which
management considers necessary for a fair presentation. Operating results for
the fiscal 1996 and 1995 interim periods are not necessarily indicative of
results to be expected for the entire year. The consolidated balance sheet at
September 30, 1995 was derived from the Company's September 30, 1995 audited
financial statements. Certain prior year amounts have been reclassified to
conform with the current year's presentation. For further information, refer to
the Company's consolidated financial statements and notes thereto for the year
ended September 30, 1995 included in the Company's filing on Form S-4 dated
March 20, 1996.
2. MERGER
On October 6, 1995, the Company completed a merger (the "Merger") with MDC
Acquisition Corp. ("MDC"), a company formed by Kohlberg Kravis Roberts & Co.,
L.P. ("KKR"), whereby MDC was merged with and into the Company. Prior to the
Merger, the Company was a wholly-owned subsidiary of Merck & Co., Inc.
("Merck"). In connection with the Merger, Merck received $333,186 in cash and
retained approximately 15.0% of the common stock of the post-Merger Company. The
Merger was accounted for as a recapitalization which resulted in a charge to
equity of $259,039 to reflect the redemption of common stock. In conjunction
with the Merger, the Company paid a stock dividend of approximately 49.6 shares
for each share of the Company's common stock then outstanding.
The Merger was financed with $114,980 of new cash equity, consisting of $105,000
from affiliates of KKR and $9,980 from Company management and affiliated
entities ("Management"). Management acquired an additional $5,800 of equity
which was funded by loans from the Company. The balance of the transaction was
funded with a $75,000 bridge loan (the "Bridge Loan") provided by an affiliate
of KKR and $155,000 of initial borrowings under a $205,000 senior credit
facility among the Company, The Chase Manhattan Bank, N.A. and Bankers Trust
Company (the "Senior Credit Facility"). The aforementioned proceeds were
utilized to redeem common stock for $259,039, repay amounts due Merck of
$70,813, and pay certain fees and expenses related to the Merger. Of the total
fees and expenses, $5,500 was paid to KKR.
3. LONG-TERM DEBT
At March 31, 1996, long-term debt consisted of the following:
Revolving Loans $26,500
Senior Term Loan A 70,000
Senior Term Loan B 50,000
Notes 100,000
-------
246,500
-------
Less current portion (500)
$ 246,000
Senior Credit Agreement - In October 1995, the Company entered into a credit
agreement (the "Credit Agreement"), which provides for secured borrowings from a
syndicate of lenders. The Senior Credit Facility consists of (i) a six and
one-half year revolving credit facility providing for up to $85,000 in revolving
loans, which includes borrowing capacity available for letters of credit of up
to $20,000, and (ii) a term loan facility providing for up to $120,000 in term
loans, consisting of a $70,000 senior term loan with a maturity of six and
one-half years ("Senior Term Loan A"), and a $50,000 senior term loan with a
maturity of eight years ("Senior Term Loan B"). At March 31, 1996, $26,500 of
revolving loans and three letters of credit totaling $425 were outstanding under
the Revolving Credit Facility, and approximately $58,075 was available for
future borrowings.
The annual amortization schedule of the Senior Term Loans is $500 in fiscal
1997, $3,000 in 1998, $10,500 in 1999, $13,000 in 2000, $20,500 in 2001 and
$72,500 thereafter. The Senior Term Loans are subject to mandatory prepayment
(i) with the proceeds of certain asset sales and (ii) on an annual basis with
50% of the Company's Excess Cash Flow (as defined in the Credit Agreement) for
so long as the ratio of the Company's Total Debt (as defined in the Credit
Agreement) to annual Earnings Before Interest, Taxes, Depreciation and
Amortization ("EBITDA" as defined in the Credit Agreement) is greater than 3.5
to 1.0.
The Company is charged a commitment fee calculated at an EBITDA-dependent rate
ranging from 0.250% to 0.500% per annum of the commitment under the Revolving
Credit Facility in effect on each day. The Company is charged a letter of credit
fee calculated at an EBITDA-dependent rate ranging from 0.375% to 1.750% per
annum of the face amount of each letter of credit and a fronting fee calculated
at a rate equal to 0.250% per annum of the face amount of each letter of credit.
Loans under the Credit Agreement bear interest at EBITDA-dependent floating
rates, which are, at the Company's option, based upon (i) the higher of the
Federal funds rate plus 0.5%, or bank prime rates, or (ii) Eurodollar rates.
Rates on borrowings outstanding under the Senior Credit Facility averaged 8.4%
for the six months ended March 31, 1996.
Notes - On November 22, 1995, the Company issued $100,000 aggregate principal
amount of 11 1/2% senior subordinated notes due 2005 (the "Notes"), the net
proceeds of which were applied to repay the Bridge Loan (including accrued
interest) and a portion of the revolving loans under the Senior Credit Facility.
The Notes are senior subordinated, unsecured obligations of the Company.
The Company may be obligated to purchase at the holders' option all or a portion
of the Notes upon a change of control or asset sale, as defined in the indenture
for the Notes (the "Notes Indenture"). The Notes are not redeemable at the
Company's option prior to November 15, 2000, except that at any time on or prior
to November 15, 1998, under certain conditions the Company may redeem up to 35%
of the initial principal amount of the Notes originally issued with the net
proceeds of a public offering of the common stock of the Company. The redemption
price is equal to 111.50% of the principal amount if the redemption is on or
prior to November 15, 1997, and 110.50% if the redemption is on or prior to
November 15, 1998. From and after November 15, 2000, the Notes will be subject
to redemption at the option of the Company, in whole or in part, at various
redemption prices, declining from 105.75% of the principal amount to par on and
after November 15, 2004. The Notes mature on November 15, 2005.
4. NOTES RECEIVABLE FROM OFFICERS
In October 1995, the Company loaned several officers an aggregate of $5,800 for
the purchase of common stock of the Company. Each loan is represented by a
promissory note which bears interest at a rate of 6.5% per annum. These notes
are full recourse obligation of the officers, are collateralized by the pledge
of shares of common stock of the Company and may be prepaid in part or in full
without notice or penalty. One note for $250 was repaid as of December 31, 1995
and another note for $100 was canceled in January 1996. The remaining
outstanding notes are due as follows: $250 in 1997 and $5,200 in 2001. The notes
are shown as a reduction of stockholders' equity in the accompanying condensed
consolidated balance sheet.
5. ACQUISITIONS
On October 5, 1995, the Company paid an initial $8,730 to acquire Choate Health
Management, Inc. and certain related entities ("Choate"), a Massachusetts-based
integrated behavioral healthcare organization. On December 19, 1995, the Company
paid an initial $50 with a subsequent payment of $2,950 in January 1996 to
acquire ProPsych, Inc. ("ProPsych"), a Florida-based behavioral health managed
care company. These acquisitions were accounted for as purchase transactions in
accordance with Accounting Principles Board ("APB") Opinion No. 16. The
condensed consolidated financial statements include the operating results of
Choate and ProPsych from their respective dates of acquisition. Pro forma
results of operations have not been presented because the effect of the
acquisitions was not significant.
The Company is obligated to make contingent payments to the former shareholders
of Choate and ProPsych based on future financial performance. Contingent
consideration related to Choate is calculated as six times the calendar year
1997 pre-tax income of Choate, less $8,000; the maximum additional consideration
is $22,000. Contingent consideration related to ProPsych is calculated as three
times the sum of calendar year 1996 and 1997 pre-tax income of ProPsych, less
$3,000; the maximum additional consideration is $15,000. Any additional payments
related to Choate or ProPsych will be recorded as goodwill.
The purchase price for each of the aforementioned transactions was allocated to
the net assets acquired based upon their estimated fair market values. The
excess of the purchase price over the estimated fair value of net assets
acquired amounted to approximately $7,400 for Choate and $3,100 for ProPsych.
Such amounts have been accounted for as goodwill and are being amortized over 40
years using the straight line method. These allocations were based on
preliminary estimates and may be revised at a later date.
6. STOCK OPTIONS AND AWARDS
In October 1995, the Company adopted the 1995 Stock Purchase and Option Plan for
Employees of Merit Behavioral Care Corporation and Subsidiaries (the "1995
Option Plan"). The 1995 Option Plan provides for the issuance of up to 8,561,000
shares of common stock to key employees of the Company. The 1995 Option Plan
permits the issuance of common stock and the grant of non-qualified stock
options (the "1995 Options") to purchase shares of common stock. The exercise
price of the 1995 Options will not be less than 50% of the fair market value per
share of common stock on the date of such grant. Such options vest at the rate
of 20% per year over a period of five years. As of March 31, 1996, 5,288,000
options with an exercise price of $5.00 per share were issued and outstanding
under the 1995 Option Plan.
In January 1996, the Company adopted a second stock option plan, the Merit
Behavioral Care Corporation Employee Stock Option Plan ("1996 Employee Option
Plan"). The 1996 Employee Option Plan, which covers all employees not included
in the 1995 Option Plan, provides for the issuance of up to 1,000,000 shares of
common stock of the Company. The 1996 Employee Option Plan permits the issuance
of common stock and the grant of non-qualified stock options (the "1996 Employee
Options" ) to purchase shares of common stock. The 1996 Employee Options vest on
the fourth anniversary of the date of grant, provided that the employee remains
employed with the Company on such date. The 1996 Employee Options are
exercisable only after an initial public offering of common stock of the Company
meeting certain requirements. As of March 31, 1996, 818,925 options with an
exercise price of $7.50 per share were issued and outstanding under the 1996
Employee Option Plan.
7. CONTINGENCIES
The Company is engaged in various legal proceedings that have arisen in the
ordinary course of its business. The Company believes that the ultimate outcome
of such proceedings will not have a material effect on the Company's financial
position, liquidity or results of operations.
8. RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". SFAS 121 establishes accounting standards for the impairment of long-lived
assets and certain identified intangibles to be disposed of or held and used by
an entity. SFAS 121 is effective for fiscal years beginning after December 15,
1995. The Company will adopt SFAS 121 in fiscal 1997 and does not expect its
implementation to have a material effect on its results of operations or its
financial condition.
In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based
Compensation". SFAS 123 establishes financial accounting and reporting standards
for stock-based employee compensation plans. SFAS 123 is effective for fiscal
years beginning after December 15, 1995. The Company will adopt SFAS 123 in
fiscal 1997 and does not expect its implementation to have a material effect on
its results of operations or its financial condition.
9. ACCOUNTING CHANGE
Effective October 1, 1995, the Company changed its method of accounting for
deferred start-up costs related to new contracts or expansion of existing
contracts (i) to expense costs relating to start-up activities incurred after
commencement of services under the contract, and (ii) to limit the amortization
period for deferred start-up costs to the initial contract period. Prior to
October 1, 1995, the Company capitalized certain start-up costs related to the
completion of the provider networks and reporting systems beyond commencement of
contracts and, in limited instances, amortized the start-up costs over a period
that included the initial renewal term associated with the contract. Under the
new policy, the Company does not defer contract start-up costs after contract
commencement. The change was made to increase the focus on controlling costs
associated with contract start-ups.
The Company recorded a pre-tax charge of $1,769 ($1,012 after taxes) in its
fiscal 1996 first quarter results of operations as a cumulative effect of a
change in accounting. The pro forma impact of this change on the prior year
periods presented would be to increase costs and expenses by $776 ($444 after
taxes) for both the three months ended March 31, 1995 and the six months ended
March 31, 1995. The effect of the change on the current year periods presented
cannot be reasonably estimated.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Overview
The Company is one of the leading behavioral health managed care companies in
the United States, arranging for a full spectrum of behavioral healthcare
services on a nationwide basis. The Company provides managed behavioral
healthcare services through a systematic clinical approach with the objective of
diagnosing problems promptly and designing treatment plans to ensure that
patients receive the appropriate level of care in an effective and
cost-efficient manner. Behavioral healthcare involves the treatment of a variety
of behavioral health conditions such as emotional and mental health problems,
substance abuse and other personal concerns that require counseling, outpatient
therapy or more intensive treatment services. The Company manages behavioral
healthcare programs for approximately 1,000 payors accross all segments of the
healthcare industry, including health maintenance organizations ("HMOs"), Blue
Cross Blue Shield organizations and other insurance companies, corporations and
labor unions, federal, state and local governmental agencies, and various state
Medicaid programs.
Three Months Ended March 31, 1996 Compared to
Three Months Ended March 31, 1995
Revenue. Revenue increased by $24.8 million, or 28.5%, to $111.7 million for the
three months ended March 31, 1996 from $86.9 million for the three months ended
March 31, 1995. Of this increase, $25.0 million was attributable to additional
revenue from existing customers generated by an increase in both the number of
programs managed by the Company on behalf of such customers and an increase in
the number of beneficiaries enrolled in such customers' programs, as well as the
inclusion of revenue for the current three month period from certain programs
that commenced during the prior fiscal year; and $2.1 million was attributable
to new customers commencing service in the current quarter, the majority of
which was derived from the Company's contract with AT&T, services under which
commenced on January 1, 1996. This revenue increase was partially offset by a
$7.3 million decrease in revenue as a result of the termination of certain
contracts, two of which accounted for $3.4 million of such decrease. The
majority of these contracts had terminated in various periods of the prior
fiscal year. Contract price increases were not a material factor in the increase
in revenue.
The Company completed two acquisitions during the current fiscal year. On
October 5, 1995, the Company acquired Choate Health Management, Inc. and certain
related entities ("Choate"), and on December 19, 1995, the Company acquired
ProPsych, Inc. ("ProPsych"). These acquisitions, which were accounted for under
the purchase method of accounting, contributed an additional $5.0 million in
revenue for the three months ended March 31, 1996.
Direct Service Costs. Direct service costs increased by $17.3 million, or 24.5%,
to $87.9 million for the three months ended March 31, 1996 from $70.6 million
for the three months ended March 31, 1995. As a percentage of revenue, direct
service costs decreased from 81.3% in the prior year period to 78.7% in the
current year period. This decrease was primarily due to unusually high inpatient
utilization in the prior year quarter experienced under a significant contract
with an HMO focused on the Medicaid beneficiary population. Changes made by the
Company in the management of such program and in the clinical protocols utilized
to deliver treatment services had the effect of reducing such high inpatient
utilization and redirecting beneficiaries to more appropriate and cost-effective
levels of care.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $4.3 million, or 37.7%, to $15.7 million
for the three months ended March 31, 1996 from $11.4 million for the three
months ended March 31, 1995. The increase in total selling, general and
administrative expenses was primarily attributable to (i) growth in marketing
and sales administrative staff, corporate and regional management and support
systems associated with the higher sales volume, (ii) expenses associated with
the expansion of the Company's national service center located in St. Louis,
Missouri (the "National Service Center") which will allow for growth beyond its
current needs, and (iii) expenses related to the planned deployment of the
Company's new information systems. As a percentage of revenue, selling, general
and administrative expenses increased to 14.1% for the current quarter from
13.1% in the prior year quarter. The increase in the expense, coupled with the
delay in the planned start date of certain new contracts, contributed to the
increase in selling, general and administrative expenses as a percentage of
revenue.
Amortization of Intangibles. Amortization of intangibles increased by $1.3
million, or 24.5%, to $6.5 million for the three months ended March 31, 1996
from $5.3 million for the three months ended March 31, 1995. The increase was
primarily due to an increase in amortization of goodwill recognized in
connection with the acquisitions of Choate and ProPsych and the Company's joint
venture with Empire Blue Cross and Blue Shield, as well as to increases in the
amortization of deferred contract start-up costs related to new contracts.
Other Income (Expense). For the three months ended March 31, 1996, other income
and expense consisted of (i) interest expense of $6.1 million incurred as a
result of the increase in long-term debt resulting from the Merger; and (ii)
interest and other income of $0.8 million relating primarily to investment
earnings on the Company's short-term investments and restricted cash balances.
Income Taxes. The Company recorded a benefit for income taxes during the three
months ended March 31, 1996 based upon the Company's pre-tax loss in such
period.
Six Months Ended March 31, 1996 Compared to Six Months Ended March
31, 1995
Revenue. The Company's revenue increased by $58.5 million, or 35.6%, to $222.6
million for the six months ended March 31, 1996 from $164.1 million for the six
months ended March 31, 1995. Of this increase, $60.4 million was attributable to
additional revenue from existing customers generated by an increase in both the
number of programs managed by the Company on behalf of such customers and an
increase in the number of beneficiaries enrolled in such customers' programs, as
well as the inclusion of revenue for the current six month period from certain
programs that commenced during the prior fiscal year; and $2.4 million was
attributable to new customers commencing service in the current six month
period, the majority of which was derived from the AT&T contract. This revenue
increase was partially offset by a $13.0 million decrease in revenue as a result
of the termination of certain contracts, two of which accounted for $6.9 million
of such decrease. The majority of these contracts had terminated in various
periods of the prior fiscal year. Contract price increases were not a material
factor in the increase in revenue.
The Company's acquisitions of Choate and ProPsych contributed an additional $8.7
million in revenue for the six months ended March 31, 1996.
Direct Service Costs. Direct service costs increased by $47.2 million, or 36.6%,
to $176.3 million for the six months ended March 31, 1996 from $129.1 million
for the six months ended March 31, 1995. As a percentage of revenue, direct
service costs increased from 78.7% in the prior year period to 79.2% in the
current year period. The increase was principally due to the loss in the fourth
quarter of fiscal 1995 of two contracts with higher than average direct profit
margins and a renewal of a significant contract on lower pricing terms.
Furthermore, the Company earned a lower than average direct profit margin on a
significant state Medicaid program which was not in effect for the entire six
month period in the prior year. These increases were partially offset by lower
inpatient utilization in the current six month period as compared to the
corresponding period in the prior year related to a significant contract with an
HMO focused on the Medicaid beneficiary population. Such decrease resulted from
the implementation of changes in program management and modification of the
clinical treatment protocols applicable to such contract. The Company is
continuing its effort to reduce direct service costs to mitigate the effects of
pricing pressure associated with the competitive bid process for new contracts
and negotiations to extend existing contracts. In the second quarter of 1996,
related to this effort, the Company commenced a nationwide recontracting program
with its participating facilities and providers in an effort to obtain more
favorable rates.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $6.6 million, or 28.2%, to $30.0 million
for the six months ended March 31, 1996 from $23.4 million for the six months
ended March 31, 1995. As a percentage of revenue, selling, general and
administrative expenses decreased to 13.5% for the current year period from
14.2% in the prior year period. The increase in total selling, general and
administrative expenses was primarily attributable to growth in information
systems staff, marketing and sales administrative staff, corporate and regional
management and support systems associated with the higher sales volume. Because
a large portion of these expenses are fixed in nature and do not increase
directly with additional revenue, selling, general and administrative expenses
decreased as a percentage of revenue.
Amortization of Intangibles. Amortization of intangibles increased by $2.5
million, or 24.3%, to $12.8 million for the six months ended March 31, 1996 from
$10.3 million for the six months ended March 31, 1995. The increase was
primarily due to an increase in amortization of goodwill recognized in
connection with the acquisitions of Choate and ProPsych and the Company's joint
venture with Empire Blue Cross and Blue Shield, as well as to increases in the
amortization of deferred contract start-up costs related to new contracts.
Other Income (Expense). For the six months ended March 31, 1996, other income
and expense consisted of (i) interest expense of $11.5 million incurred as a
result of the increase in long-term debt resulting from the merger with MDC
Acquisition Corp. (the "Merger"); (ii) merger expenses of $4.0 million
consisting primarily of professional and advisory fees; and (iii) interest and
other income of $1.3 million relating primarily to investment earnings on the
Company's short-term investments and restricted cash balances.
Income Taxes. The Company recorded a benefit for income taxes during the six
months ended March 31, 1996 based upon the Company's pre-tax loss in such
period. The resulting income tax benefit has been partially offset by the
nondeductible nature of certain merger costs.
Cumulative Effect of Accounting Change. Effective October 1, 1995, the Company
changed its method of accounting for deferred start-up costs related to new
contracts or expansion of existing contracts (i) to expense costs relating to
start-up activities incurred after commencement of services under the contract,
and (ii) to limit the amortization period for deferred start-up costs to the
initial contract period. Prior to October 1, 1995, the Company capitalized
start-up costs related to the completion of the provider networks and reporting
systems beyond commencement of contracts and, in limited instances, amortized
the start-up costs over a period that included the initial renewal term
associated with the contract. Under the new policy, the Company does not defer
contract start-up costs after contract commencement or include the initial
renewal term in the amortization period. The change was made to increase the
focus on controlling costs associated with contract start-ups.
The Company recorded a pre-tax charge of $1,769 ($1,012 after taxes) in its
fiscal 1996 first quarter results of operations as a cumulative effect of a
change in accounting. The pro forma impact of this change on the prior years
presented would be to increase costs and expenses by $776 ($444 after taxes) for
both the three months and six months ended March 31, 1995. The effect of the
change on the current year periods presented cannot be reasonably estimated.
Liquidity and Capital Resources
For the six months ended March 31, 1996, operating activities provided cash of
approximately $16.2 million, investing activities used cash of approximately
$15.6 million and financing activities provided cash of $24.8 million, resulting
in a net increase in cash and cash equivalents of $25.4 million. Investing
activities in the current six month period consisted principally of (i) capital
expenditures of $11.4 million related to the continued development of the
Company's new information systems and expansion of the Company's National
Service Center; (ii) payments totaling $1.2 million for funding under the joint
ventures with Neighborhood Health Providers, LLC and Community Health Network of
Connecticut, Inc.; (iii) payments totaling $11.1 million for the acquisitions of
Choate and ProPsych; and (iv) a net decrease of $7.9 million in long-term
restricted cash primarily due to the reclassification of the Company's surplus
cash balance with the State of Iowa to cash and cash equivalents.
In October 1995, the Company completed a merger with MDC Acquisition Corp., a
company formed by Kohlberg Kravis Roberts & Co., L.P. ("KKR"). In connection
with the Merger, Merck & Co., Inc. ("Merck") received $333.2 million in cash and
retained approximately 15% of the common stock of the post-Merger Company. The
Merger was financed with $115.0 million of new cash equity from affiliates of
KKR and Company management. The balance of the transaction was funded with a
$75.0 million bridge loan (the "Bridge Loan") provided by an affiliate of KKR
and $155.0 million of initial borrowings under a $205.0 million senior credit
facility. The aforementioned proceeds were utilized to redeem common stock for
$259.0 million, repay amounts due Merck of $70.8 million, and pay certain fees
and expenses relate to the Merger. In November 1995, the Company issued $100.0
million aggregate principal amount of 11 1/2% senior subordinated notes due
2005, the net proceeds of which were applied to repay the Bridge Loan and a
portion of the revolving loans under the senior credit facility. As of March 31,
1996, $26.5 million of revolving loans and $0.4 million of letters of credit
were outstanding under the Company's revolving credit facility, and
approximately $58.1 million was available for future borrowing. Adjusted EBITDA
(as defined in the covenants contained in the indenture for the Notes) increased
by $4.6 million, or 67.6%, to $11.4 million for the three months ended March 31,
1996 from $6.8 million for the three months ended March 31, 1995. For the six
months ended March 31, 1996, Adjusted EBITDA increased by $7.2 million, or
47.4%, to $22.4 million from $15.2 million for the comparable period in the
prior year.
On October 5, 1995, the Company acquired Choate for $8.7 million; the Company is
obligated to make contingent payments relating to Choate based on future
financial performance. On December 19, 1995, the Company acquired ProPsych for
an initial payment of $0.1 million and a payment of $2.9 million made in January
1996; the Company is obligated to make contingent payments relating to ProPsych
based on future financial performance. From time to time, the Company has
engaged in and continues to engage in preliminary discussions with respect to
potential acquisitions.
As of March 31, 1996, the Company had total cash balances (including cash
equivalents) of $50.5 million, of which $32.0 million was restricted under
certain contractual, fiduciary and regulatory requirements; moreover, of such
amount, $4.5 million was classified as a long-term asset on the Company's
balance sheet. Under certain contracts, the Company is required to establish
segregated claims funds into which a portion of its capitation fee is held until
a reconciliation date (which reconciliation typically occurs annually). Until
that time, cash funded under these arrangements is unavailable to the Company
for purposes other than the payment of claims. In addition, California and
Illinois state regulatory requirements restrict access to cash held by the
Company's subsidiaries in such states. As of March 31, 1996, the Company also
held a surplus cash balance, classified as cash and cash equivalents, as
required by the contract with the State of Iowa to provide managed mental health
services to that state's Medicaid population (the "Iowa Mental Health Contract")
held by the Company.
Historically, the Company has funded its operations primarily with cash
generated from operations and through the funding of certain acquisitions,
investments and other transactions by its former parent, Merck. The Company
expects to finance its capital requirements in the future through existing cash
balances, cash generated from operations and borrowings under its revolving
credit facility. Based upon the current level of operations and anticipated
growth, the Company believes that available cash, together with available
borrowings under its revolving credit facility and other sources of liquidity,
will be adequate to meet the Company's anticipated future requirements for
working capital, capital expenditures, and scheduled payments of principal and
interest on its indebtedness through the foreseeable future.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company currently is involved in legal proceedings relating to the Iowa
Mental Health Contract. The proceedings arose out of the initial decision of the
Iowa Department of Human Services (the "Iowa DHS") in May 1994 to award the Iowa
Mental Health Contract to Value Behavioral Health, Inc. (the "Competitor"). The
Company contested the decision to award the Iowa Mental Health Contract to the
Competitor on the basis that, among other things, the Competitor should have
been disqualified from competing for the Iowa Mental Health Contract because of
certain conflicts of interest in the bidding process for the Iowa Mental Health
Contract. After the Iowa DHS denied the Company administrative relief, the
Company filed suit in the District Court of Iowa for Polk County (the "Iowa
District Court"), requesting that the entry into the Iowa Mental Health Contract
by the Iowa DHS and the Competitor be stayed pending the court's ruling. The
Iowa District Court granted the Company's stay motion. Subsequently, in a ruling
entered in October 1994, the Iowa District Court disqualified the Competitor
from performing services under the Iowa Mental Health Contract because of
various conflicts of interest. After the Iowa District Court decision, the Iowa
DHS withdrew the initial award of the Iowa Mental Health Contract to the
Competitor and, in November 1994, awarded the Iowa Mental Health Contract to the
Company. The Competitor appealed the Iowa District Court decision to the Iowa
Supreme Court and requested that the Iowa Supreme Court stay the Iowa Mental
Health Contract between the Iowa DHS and the Company. The Competitor also
commenced an administrative proceeding with the Iowa DHS to contest the award of
the Iowa Mental Health Contract to the Company. The Iowa DHS denied the
Competitor's protest and the Iowa Supreme Court denied the stay motion in
December 1994. In January 1995, the Company and the Iowa DHS signed the
definitive Iowa Mental Health Contract and, on March 1, 1995, the Company
commenced services thereunder.
The Competitor's appeal of the October 1994 Iowa District Court decision and its
challenge of the administrative decision by the Iowa DHS to award the Iowa
Mental Health Contract to the Company have been consolidated and are pending
before the Iowa Supreme Court. The Iowa Supreme Court is expected to rule upon
the Competitor's appeal sometime in 1996. There can be no assurance that the
Iowa Supreme Court will not overturn the Iowa District Court's ruling
disqualifying the Competitor or that, should the Iowa District Court decision be
overturned, the Iowa DHS will not terminate the Iowa Mental Health Contract with
the Company. The Iowa Mental Health Contract, which is terminable for any reason
by the Iowa DHS upon 60 days notice, generated revenue of $20.8 million for the
six months ended March 31, 1996. In connection with entering into the Iowa
Mental Health Contract, the Company agreed to indemnify the Iowa DHS for 50% of
certain damages and related expenses (up to a maximum payment by the Company of
$2.5 million) that the Iowa DHS incurs, if any, as a result of awarding the Iowa
Mental Health Contract to the Company. Termination of the Iowa Mental Health
Contract or a material damage award relating thereto could have a material
adverse effect on the Company.
ITEM 5. OTHER INFORMATION
In March 1996, Richard S. Chung, M.D., the Company's Executive Vice
President and Chief Clinical Officer, informed the Company that he will be
leaving the Company on May 31, 1996. Further, in connection with the
departure of Shannon R. Kennedy, Ph.D. from the Company on April 1, 1996,
the Company purchased all shares of Common Stock acquired by Dr. Kennedy
on October 5, 1995 in connection with the Merger. Dr. Kennedy formerly held
the positions of Director, President and Chief Operating Officer of the
Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibits required in accordance with Item 601 of Regulation S-K are
incorporated by reference herein as filed with the Registrant's Registration
Statement in Form S-4 (no. 33-80987) dated March 20, 1996.
In addition, the Company has filed herewith the following exhibits:
10.31 Amisys Implementation and Systems Integration Services Agreement
between Perot Systems Corporation and Merit Behavioral Care
Corporation, dated effective as of January 12, 1996 (confidential
treatment requested).
18 Letter regarding change in accounting principles of Deloitte
& Touche LLP.
27 Financial Data Schedule (electronic filing only).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this report
is being filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The signatory hereby acknowledges and adopts the typed form of his name in the
electronic filing of this document with the Securities and Exchange Commission.
Date: December 4, 1996 Merit Behavioral Care Corporation
By:/s/ Arthur H. Halper
Arthur H. Halper, Executive Vice President
and Chief Financial Officer (Principal
Financial Officer, Accounting Officer
and Duly Authorized Officer)
Portions of this document have been deleted pursuant to an application for
Confidential Treatment filed with the Securities and Exchange Commission.
AMISYS IMPLEMENTATION AND SYSTEMS INTEGRATION
SERVICES AGREEMENT
between
PEROT SYSTEMS CORPORATION
and
MERIT BEHAVIORAL CARE CORPORATION
dated effective as of January 12, 1996
AMISYS IMPLEMENTATION AND SYSTEMS INTEGRATION SERVICES AGREEMENT
THIS AGREEMENT made effective as of the 12th day of January, 1996 (the
"Effective Date") by and between PEROT SYSTEMS CORPORATION ("PSC") with its
principal place of business at 12377 Merit Drive, Dallas, TX, 75251 and MERIT
BEHAVIORAL CARE CORPORATION ("MBC") with its principal place of business at One
Maynard Drive, Park Ridge, NJ, 07656.
W I T N E S S E T H :
WHEREAS, PSC proposes to provide implementation services for the AMISYS
Managed Care System and systems integration services in support of MBC's managed
care system needs; and
WHEREAS, MBC desires to obtain from PSC implementation services for the
AMISYS Managed Care System and systems integration services in support of its
managed care system needs; and
WHEREAS, PSC desires MBC's participation in the configuration and testing
of the AMISYS Managed Care System and the conversion of MBC's current
Information Systems known as Bionet, HP9000, and AS400 to the AMISYS Managed
Care System; and
WHEREAS, PSC is capable and willing to provide certain systems integration
services in connection with the AMISYS System implementation;
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein and for other valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, MBC and PSC, intending to be
legally bound, agree as follows:
Article I. Definitions
The following terms shall have the meanings set forth below when used in
this Agreement and other agreements executed pursuant to this Agreement unless
the context otherwise requires:
"Acceptance" or "Acceptance of the AMISYS System" means the recognition by
MBC in writing that the AMISYS Managed Care System is implemented, installed and
operable at designated MBC sites according to the Acceptance Criteria specified
in Schedule C.
"Acceptance Criteria" means those standards and criteria for the
completion of the implementation and transition of MBC's legacy systems
to the AMISYS System to the extent described in Schedule C of this Agreement;
provided, that if MBC does not meet its obligations as specified in Article IV
or in an agreed upon project plan, then PSC shall be relieved of the Acceptance
Criteria only to the extent that MBC's failure to meet such requirements affects
PSC's ability to meet the Acceptance Criteria.
"Additional Services Fees" shall have the meaning stated in Section 5.3 of
this Agreement.
"AMISYS Managed Care System" or "AMISYS System" means the Software
applications purchased and licensed by MBC from American International
Healthcare, Inc. (currently AMISYS Managed Care Systems Incorporated) ("AMISYS
Managed Care Systems, Inc.") and other third party Software which is used with
the AMISYS applications Software and purchased and licensed by MBC from third
party vendors.
"Base Implementation Services Fee" shall have the meaning stated in Section
5.1.
"Base Index" shall mean the Consumer Price Index ("CPI") published
by the Bureau of Labor Statistics of the United States Department of Labor
in January one year prior to the Current Index.
"Contract Year" shall mean each 12-month period commencing on January 12,
1996, or any anniversary of such date during the Term.
"Current Index" shall mean the CPI published in January of the calendar
year in which an increase in the Fees is sought.
"Deliverables" shall mean the items and services which PSC must submit to
MBC for review and approval as described in Schedule B.
"Documentation" shall mean any user manuals, training materials, user
specifications and other user material related to the AMISYS System.
"Enhancement", or conjugations thereof, shall mean any creation of,
addition to, or change in, the AMISYS System which improves or adds to the
functionality of a feature of the Software for the AMISYS System other than
relating to Third Party Software, and with respect to Enhancements relating to
Third Party Software, which can be readily performed by PSC without incurring
additional costs related to such Third Party Software or the need for expanded
access to, or rights to develop or use, such Third Party Software.
"Fees" shall mean the Base Implementation Services Fees, Systems
Integration and Reporting Fees and Additional Services Fees.
"Hardware" means any computer hardware required to execute the
AMISYS System.
"Key Users" means MBC staff in Provider, Claims and other NSC departments
involved in supporting centralized functions on the AMISYS System.
"Maintenance", or conjugations thereof, shall mean the following in
relation to PSC Software: Any creation or correction of, addition to, or change
in, the PSC Software occurring in the normal course of business that does not
improve or add to the functionality of the PSC Software or the AMISYS System. In
relation to Third Party Software, including AMISYS Software, refer to Section
3.5 of this Agreement.
"MBC Affiliate" shall mean any person or entity that, directly or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control or shares control with MBC.
"National Service Center" or "NSC" means MBC operational and support
departments where consolidated functions are performed to support MBC corporate
objectives.
"PSC Software" means any Software owned by (as opposed to licensed to) PSC
and used with the AMISYS System, including integration software developed by
PSC.
"Software" means the computer application programs that are required to
meet the Deliverables of PSC, including but not limited to, the AMISYS System,
Third Party Software, PSC Software, or software owned by MBC.
"Source Code" shall mean the literal computer program(s) written in a
specified, standard programming language, from which the applications version(s)
of the program(s) are compiled.
"Systems Integration and Reporting Services Fees" shall have the meaning
stated in Section 5.2 of this Agreement.
"Third Party Software" means any Software which is licensed by and not
owned by PSC or MBC and is used with the AMISYS System, including AMISYS
application software.
Article II. Term of Agreement and Extensions
2.1 Initial Term. The initial term of this Agreement shall continue for a
period of two (2) years from the Effective Date, unless terminated earlier
pursuant to Article XII ("Initial Term"). In the event this Agreement is not
terminated prior to the expiration, or at the expiration, of the Initial Term,
the term of the Agreement shall continue indefinitely until terminated pursuant
to Article XII (the Initial Term and any continuation collectively shall mean
"Term"). After the Initial Term, this Agreement shall continue pursuant to this
Section 2.1 at the charges (as adjusted in accordance with Section 5.10) and
upon the terms and conditions in effect during the preceding 12 months of the
Term.
Article III. PSC's Obligations and Scope of Services
3.1 Base Implementation Services. PSC shall provide implementation,
conversion and transition services related to the AMISYS System ("Base
Implementation Services") according to the specifications, time schedules,
locations, and other parameters as established in Section II of Schedule B and
in accordance with the Acceptance Criteria established in Schedule C, both of
which are attached hereto and incorporated herein by reference.
3.2 Systems Integration and Reporting Services. PSC shall provide systems
integration and report development services in support of MBC's AMISYS System
implementations according to specifications established in Section III of
Schedule B. Such services will be provided in support of Base Implementation
Services as described in Section II of Schedule B as well as other AMISYS
implementation projects as specified in Section IV of Schedule B at the rate
defined in Section 5.2. All services provided by PSC pursuant to this Section
3.2 shall be specifically requested and authorized by MBC in writing pursuant to
the procedures described in Section III of Schedule B. If Systems Integration
and Reporting Services recommended by PSC are required for PSC to perform its
obligations under this Agreement, including its obligations under Section II of
Schedule B, or for PSC to meet the Acceptance Criteria established in Schedule
C, and MBC elects not to authorize the performance of such services, PSC shall
not be obligated to perform under this Agreement to the extent that PSC's
performance is adversely affected by MBC's inactions or actions.
3.3 Additional Services. PSC may provide other project and ad hoc services
not included in Base Implementation Services or Systems Integration and
Reporting Services ("Additional Services"). These Additional Services are
described in Section IV of Schedule B. All services provided by PSC pursuant to
this Section 3.3 shall be specifically requested and authorized by MBC in
writing pursuant to the procedures described in Section IV of Schedule B at the
rates defined in Section 5.3 of this Agreement.
3.4 Staffing Requirements. PSC shall provide sufficient staff, with the
necessary experience levels, to fulfill its service obligations applicable to
the AMISYS System and any other obligations specified in this Article III and
Schedule B and will not charge for such employees, except as specifically
provided in this Agreement or in Schedule B. As long as the PSC account manager,
implementation manager, technical manager, project managers and transition
managers remain employed by PSC, PSC will use its best commercial efforts to
avoid changing the personnel fulfilling these responsibilities for a period of
two (2) years from the Effective Date. For the above PSC employees that are
replaced during the Term, MBC will have the right to interview and recommend
replacement candidates provided, however, such recommendation(s) shall not be
binding on PSC. For those PSC employees that are replaced during the Term, PSC
will substitute employees with comparable levels of skill and experience.
3.5 Software Maintenance. As part of the services rendered for the Base
Services Implementation Fee, PSC shall use its best commercial efforts to assist
MBC in the management of any Third Party Software vendors to facilitate the
completion and delivery of Deliverables outlined in Sections II and III of
Schedule B. This may include any maintenance and/or support agreements
established by MBC. MBC shall be responsible for the payment of all Third Party
maintenance and/or support fees.
3.6 Subcontractors. To the extent necessary and practical, PSC may utilize
subcontractors to facilitate PSC's performance under this Agreement provided,
however, that (1) MBC shall have the right to require all such subcontractors to
be subject to the obligations of confidentiality as set forth in Article IX
hereof; and (2) PSC shall not utilize as subcontractors any former MBC employees
or third parties that have provided services to MBC within the preceding
twenty-four (24) months without MBC's prior written consent. PSC does not have
authority to bind MBC in any subcontractor agreements or any other agreements
entered into by PSC in connection herewith, including any agreements relating to
MBC's obligations under Article IV.
Article IV. MBC Obligations
Testing and Acceptance. MBC agrees to provide adequate staff to test
the AMISYS System and to provide adequate user resources for data entry during
the transition of the legacy systems to the AMISYS System as specified in each
project implementation plan and agrees to Acceptance of the AMISYS System after
testing if the AMISYS System meets the Acceptance Criteria as fully described in
Schedule C.
Hardware and Software.MBC shall provide all the Hardware and Software
reasonably necessary for PSC to utilize the AMISYS System, and shall be
responsible for all costs related to procurement of Hardware, Third Party
Software license fees to Third Party Software vendors, and Hardware and Software
maintenance and/or support fees to third party Hardware and Software maintenance
and/or support providers, including but not limited to the following:
(a) MBC will be responsible for any Hewlett Packard fees required for on-site
services related to performing system maintenance and system upgrades required
for PSC to perform services outlined in Schedule B and to meet the Acceptance
Criteria established in Schedule C.
(b) MBC will be responsible for any fees associated with software maintenance
or enhancements for (1) the transition of the legacy systems to the AMISYS
System, and (2) the AMISYS System itself related to system releases or
software upgrades provided by AMISYS Managed Care Systems, Inc., Third Party
Software providers or PSC, which are reasonably necessary for PSC to perform
the services outlined in Schedule B and to meet the Acceptance Criteria
established in Schedule C.
(c) MBC will be responsible for purchasing all equipment, maintenance, and
supplies related to the operation of the AMISYS System. This includes all
Hewlett Packard software, hardware, or any other equipment reasonably
necessary for PSC to perform the services outlined in Schedule B and to meet
the Acceptance Criteria established in Schedule C.
(d) MBC shall be responsible for all software license and maintenance/support
agreements, including its support agreement with AMISYS Managed Care Systems,
Inc., reasonably required for PSC to perform the services outlined in Schedule
B and to meet the Acceptance Criteria established in Schedule C.
4.3 Telecommunications Equipment. MBC agrees to provide reasonable
equipment, cabling, circuits, line usage, and related items required to access
the AMISYS System ("Telecommunications Equipment"), including reasonable
communication systems, Local Area Networks (LANs), modems, ports and other
interface equipment to be used at any MBC site. MBC will also be responsible for
communications equipment and circuit charges necessary for connecting MBC
systems to PSC's managed care staff in Dallas, Texas.
4.4 Manuals. To the extent procedures manuals already exist, MBC will make
such procedures manuals available for use by PSC personnel. MBC will maintain
and update all manuals as reasonably required for use by PSC and MBC personnel.
4.5 Data Entry. MBC is responsible for providing users to enter any and all
required data into the AMISYS System and to operate the AMISYS System. Such data
to be entered includes provider, membership, claims and authorization data. Such
data entry will be required for purposes of operating the AMISYS System on a
daily basis and any system testing that MBC may be required to complete as
defined in Sections II and III of Schedule B.
4.6 MBC Staffing and Project Support. MBC agrees to designate an
implementation manager at each MBC site for which the AMISYS System is
implemented. MBC, as part of meeting the implementation requirements, will
provide certain team members to assist in the implementation roll-out. Specific
staffing levels to be provided to PSC by MBC include implementation resources of
three (3) Business Analysts, three (3) Technical Specialists for conversion and
reporting, and three (3) Project Leaders that report to the PSC Project Manager.
MBC will also provide the following transition team resources to be assigned to
PSC: one (1) Business Analyst, and one (1) Technical Support Specialist. The MBC
employees assigned to this effort will report to a PSC employee and be assigned
tasks and deliverables by the PSC Management team. MBC will use its best
commercial efforts to avoid changing the employees assigned to the project. For
those MBC employees that are replaced during the Term, PSC will have the right
to interview and recommend replacement candidates provided, however, such
recommendation(s) shall not be binding on MBC. For those MBC employees that are
replaced during the Term, MBC will substitute employees with comparable levels
of skill and experience.
In the event an MBC employee fails to meet the deliverable date for
Deliverables for which he/she is responsible or does not have the skills
necessary to perform MBC's obligations under this Agreement, PSC and MBC will
agree to (1) remove such employee from the project; (2) replace such employee
with another MBC employee; or (3) authorize PSC to replace the employee with a
PSC employee at an additional costs to MBC.
MBC shall designate Key Users in all NSC departments responsible for
administering functions on the AMISYS System. Designated Key Users will have
responsibility for AMISYS configuration issues affecting their respective
departments and providing interdepartmental on-going training and support for
department staff. Designated Key Users will also be responsible for enforcing
AMISYS standard usage and coordinating additional departmental staffing
resources to support AMISYS System implementations.
MBC shall provide PSC with reasonable access to personnel as well as
appoint a specific employee to act a project liaison as reasonably required to
fulfill PSC's obligations as defined in Schedule B. Subject to Article IX
herein, MBC agrees to cooperate with PSC by making available, as reasonably
requested by PSC, management decisions, personnel, information, approvals and
acceptances so that PSC may perform its obligations in a timely and acceptable
manner.
4.7 Availability for Meeting. As reasonably requested by PSC, MBC personnel
will be available for meetings, performance reviews and approvals, and to
establish goals and objectives associated with services provided by PSC as
specified in this Agreement.
4.8 Third Party Software and Hardware. MBC is responsible for complying
with PSC's reasonable requests to use Third Party Software (including the AMISYS
application software) and Hardware in accordance with any reasonable
restrictions provided by the vendors of such Software and Hardware to the extent
required for PSC to perform its obligations under this Agreement.
4.9 Office Facilities and Supplies. MBC shall provide reasonable office
facilities and supplies to PSC to enable PSC to perform its obligations under
this Agreement. MBC shall provide equipment to PSC necessary to access the
AMISYS System.
4.10 Postage and Delivery Costs. MBC shall pay all reasonable postage,
freight, shipping and handling costs for the implementation of the AMISYS
System. MBC shall bear all expenses for the transportation, delivery and
transfer of all AMISYS Systems (for training purposes), Documentation and AMISYS
System output between PSC and MBC.
4.11 Data Center Operations and Support. MBC shall establish and operate
one Data Center, where data is processed as necessary to fulfill the Acceptance
Criteria for the transition of the legacy systems to the AMISYS System.
4.12 Use of Third Party Services. With respect to services which are
required for PSC to meet the Acceptance Criteria established in Schedule C, such
services (as described in Sections II and III of Schedule B) must either be
completed by PSC, or MBC must obtain prior approval from PSC for the use of
third parties to complete this work, which consent shall not be unreasonably
withheld.
4.13 Non-Performance By MBC. Notwithstanding anything contained herein to
the contrary, with respect to MBC's responsibilities pursuant to Sections 4.1,
4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11, MBC may, in its sole
discretion, determine not to perform any of its obligations pursuant to and
described in such sections and no such failure to perform will be deemed a
breach of this Agreement, provided, however, that if MBC determines not to
perform any such obligations, including opting not to pay any costs or expenses
otherwise required herein, (1) PSC shall not be obligated to perform under this
Agreement to the extent that PSC's performance is adversely affected by MBC's
action or inaction, and (2) neither MBC nor PSC shall be relieved of any of
their respective obligations otherwise owed under this Agreement. In the event
MBC determines not to perform one of its obligations pursuant to this Article
IV, MBC shall provide written notice to PSC thereof, and MBC shall not be
relieved of any payments otherwise due PSC as described in Article V.
4.14 Incurrence of Expenses. With respect to MBC's obligations under
Section 4.2, PSC must obtain MBC's prior written approval before incurring any
expenses for which it will seek reimbursement from MBC pursuant to this Article
IV.
Article V. Payment
5.1 Base Implementation Services Fee.
(a) MBC shall pay to PSC a base implementation fee (the "Base Implementation
Fee") of $_________ for January, 1996, and confidential $__________ for each
subsequent month during the Term of this treatment Agreement for the Base
Implementation Services specified in requested Section II of Schedule B
performed by PSC in accordance with the procedures of such Schedule B.
(b) With respect to each Implementation Site, including but not limited to
those Implementation Sites described in Section II of Schedule B, MBC and PSC
shall mutually agree on a date that implementation for each site will be
completed (the "Live Date") in accordance with the Acceptance Criteria as
described in Schedule C (the "Acceptance Criteria"). A list of the Live Dates
shall be incorporated herein and attached hereto as Exhibit A and shall be
amended from time as additional Live Dates are mutually established by MBC and
PSC.
(c) With respect to each Implementation Site, if PSC satisfies all of the
Acceptance Criteria on the scheduled Live Date, MBC's obligation to pay the
Base Implementation Fee shall remain unchanged.
(d) With respect to each Implementation Site, if PSC fails to satisfy any of
the Acceptance Criterion on the scheduled Live Date solely due to PSC's failure
to perform its obligations hereunder, and such failure continues for thirty
(30) days after the scheduled Live Date, the Base Implementation Fee for the
subsequent confidential month shall be reduced by an amount equal to $________
per day treatment until the implementation for each site is completed
consistent requested with the Acceptance Criteria, provided that PSC's failure
to complete one or more sites by their respective Live Dates shall not affect
MBC's obligation to pay the adjusted Base Implementation Fee in a timely
manner, and provided further, that MBC shall make the appropriate adjustments
to the Base Implementation Fee on a monthly basis. Such fee reduction shall
cease upon the termination of this Agreement.
(e) With respect to each Implementation Site, if PSC satisfies all of the
Acceptance Criteria by more than thirty (30) days before the scheduled Live
Date, the Base Implementation Fee for the subsequent month shall be increased
by an amount equal to confidential $________ per day until thirty (30) days
before the scheduled treatment Live Date, provided that PSC's ability to
complete one or more requested sites before their respective Live Dates shall
not affect MBC's obligation to pay the adjusted Base Implementation Fee in a
timely manner and provided, further, that MBC shall make the appropriate
adjustments to the Base Implementation Fee on a monthly basis.
(f) Nothing contained in Sections 5.1 (b) - (e) shall affect any of MBC's or
PSC's obligations, rights or remedies under this Agreement except with respect
to payment of the Base Implementation Fee.
5.2 Systems Integration and Reporting Services Fees.
MBC shall pay PSC, at an hourly rate of $_______, to provide confidential
the Systems Integration and Reporting Services as described and treatment
identified in Section 3.2 of this Agreement requested
5.3 Additional Services Fees. PSC may provide services for additional
projects not covered by the Base Implementation Services Fee and Systems
Integration and Reporting Services Fees at the following hourly rates:
Project Managers $___ per hour confidential Business, Financial, and
Systems Analysts $___ per hour treatment Network and Systems Engineers $___
per hour requested
In substitute for hourly rates for Additional Services, MBC may request, and PSC
may propose, fixed price quotes for certain Additional Services projects. Such
fixed price fees will be due and payable to PSC in equal monthly payments during
the term of the project, or as otherwise agreed.
5.4 Hardware and Software Procurement Fees. At MBC's request, PSC may
provide quotes for third party Hardware and Software required to support
services provided under this Agreement. Upon MBC's written acceptance of PSC's
third party Hardware or Software quotes, and upon PSC's delivery of requested
Hardware or Software, MBC agrees to pay PSC for such quoted fees.
5.5 Reimbursement of Travel Expenses. MBC shall reimburse PSC at PSC's cost
for such reasonable and necessary direct out-of-pocket travel expenses incurred
directly in connection with PSC's performance of its services as contemplated by
this Agreement, including reasonable air fare (coach class), accommodations and
reasonable meals, but excluding any normal scheduled travel to the offices of
AMISYS Managed Care Systems, Inc., for training classes. Such travel must be
approved in advance by an authorized representative of MBC, which approval shall
not be unreasonably withheld or delayed (but which approval shall not be
required in urgent situations). MBC shall be invoiced monthly in arrears;
provided, however, that MBC shall have no obligation to reimburse PSC for any
such expenses which are either not properly approved in advance or which are not
invoiced within one year of the date incurred by PSC.
5.6 Invoice Adjustments and Additional Charges. MBC must identify in
writing to PSC any contested invoice items within one year after receipt of the
invoice or forego any future rights to contest such invoice, except in the case
of fraud or deceit. In addition, PSC must identify in writing to MBC any
additional charges not originally included on the invoice delivered to MBC
within one year after the later of the date the costs were incurred by PSC, or
PSC agrees to forego any future rights to invoice MBC for such charges.
5.7 Invoices. PSC will invoice MBC on or about the fifth business day of
each month for: (1) the Base Implementation Services Fees for such month; and
(2) any Systems Integration and Reporting Services Fees and Additional Services
Fees relating to the performance of such services for the previous month. All
PSC invoiced amounts are due and payable thirty (30) days after receipt by MBC.
PSC shall supply supporting data for such invoices as reasonably requested by
MBC.
5.8 Proration. All periodic charges (other than hourly charges) under
this Agreement are to be computed on a calendar month basis, and will be
prorated for any partial month as follows: number of days that have transpired
in the month divided by the number of days in the month.
5.9 Pricing Adjustments. Except as otherwise agreed upon by the parties and
subject to this Section 5.9, during the Term of this Agreement, PSC may not
increase the Fees. Commencing as of January 12, 1997, and not more than once
annually, PSC may increase the Fees according to the following formula:
(1) If the Current Index is less than or equal to seven percentage points
higher than the Base Index, PSC may increase the Fees by 50 percent of the
percentage point increase of the Current Index over the Base Index (e.g.,
if the Base Index = 100 and the Current Index = 102, the Fees may be
increased by (.5 x (102 - 100)/100) = 1%).
(2) If the Current Index is more than seven percentage points higher than
the Base Index, PSC may increase the Fees by 50 percent of the percentage
point increase of the Current Index over the Base Index up to seven
percentage points and 75 percent of the percentage point increase of the
Current Index over the Base Index over seven percentage points (e.g., if
the Base Index = 100 and the Current Index = 108, the Fees may be increased
by (108-100)/100 = 8%; (.5 x 7%) + (.75 x 1%) = 3.5% + .75% = 4.25%).
(3) In the event that the Bureau of Labor Statistics ceases to publish the
CPI or substantially changes its content or format, MBC and PSC shall
substitute therefor another comparable measure published by an agreed-upon
source; provided, however, that if such change is to redefine the base year
for the CPI from 1982-1984 to some other year, the parties will continue to
use the CPI but shall, if necessary, convert either the Base Index or the
Current Index to the same basis as the other by multiplying such index by
the appropriate conversion factor.
Article VI. Books and Records; Audit Rights
6.1 Records. PSC shall make and keep complete copies of the following
written records relating to the services performed under this Agreement: (1) in
regard to any expenses charged to MBC under this Agreement, including expense
reports and receipts; (2) in regard to services provided on a time and materials
basis, copies of all timelogs relating to such services; and (3) in regard to
services provided for a fixed price, copies of all records reflecting delivery
and system acceptance of Deliverables. PSC shall preserve all such records for
no less than two (2) years after the services related to the records are
completed. During the Term of this Agreement and for two (2) years thereafter,
MBC shall have the right, at its own expense, to inspect and copy such records
during PSC's regular working hours.
6.2 Annual Audit. PSC shall cooperate and participate in an annual audit of
PSC by MBC (or a third party consistent with the provisions of this Section
6.2), conducted at MBC's option and expense, for the limited purpose of ensuring
compliance with this Agreement. PSC shall make available to MBC all pertinent
books and records, the AMISYS System and any other necessary information such
that MBC can properly evaluate the performance of PSC with respect to this
Agreement. PSC shall not be obligated by this Agreement to disclose to MBC or
any other person or entity any information which is not reasonably necessary to
conduct such an audit, nor shall PSC be obligated to divulge any trade secrets
or proprietary information of PSC or any third party except to the extent
reasonably necessary to satisfy the purpose of the audit contemplated by this
Section 6.2, and in no event shall PSC be obligated to divulge any trade secrets
or proprietary information to any competitor, or affiliate of a competitor, of
PSC. MBC may utilize third parties, which are not competitors, or affiliates of
a competitor, of PSC, to conduct such audit subject to such third party or
parties entering into a confidentially agreement reasonably satisfactory to MBC
and PSC. PSC shall perform or start to perform its obligations under this
Section 6.2 within ten (10) days of dispatch of written notice from MBC that MBC
is availing itself of the rights afforded by this Section 6.2
6.3 Article Survives Agreement. This Article VI shall survive
the Term of this Agreement for four (4) years notwithstanding the reason for
the expiration or termination of the Agreement.
6.4 HHS Audit. If required by applicable law, PSC agrees that until four
(4) years after the termination or expiration of this Agreement, PSC will make
available to the Secretary of the United States Department of Health and Human
Services (the "Secretary") and the United States Comptroller General, and their
duly authorized representatives, this Agreement and all pertinent books,
documents and records necessary to certify the nature and extent of the costs of
the goods and services provided to MBC under this Agreement, as their respective
interests may appear. This section does not obligate PSC to maintain records in
any particular format. No attorney-client, accountant-client or other legal or
equitable privilege shall be deemed to have been waived by the parties by virtue
of this provision.
6.5 Audit of PSC Subcontractors. If PSC carries out the duties of this
Agreement through a subcontract worth $10,000 or more over a twelve (12) month
period , the subcontract shall contain clauses substantially identical to
Sections 6.1 through 6.4, inclusive, of this Agreement to permit access to the
subcontractor's books and records by MBC , as their respective interests may
appear, and the Secretary, the United States Comptroller General and their
representatives.
Article VII. RIGHTS IN DATA; OWNERSHIP
7.1 Rights in Data. As between MBC and PSC, all data provided to PSC, in
connection with the AMISYS System, processing through use of the Software or in
connection with the performance by PSC of any of its obligations pursuant to
this Agreement shall be be the exclusive property of MBC. In no event shall PSC
claim any rights with respect to such data or take any action with respect to
such data that is inconsistent with the duties of a bailee for hire without the
prior written consent of MBC.
7.2 Additional Rights in Data. MBC fully reserves its rights to retrieve,
transport and deliver to third parties the data provided by MBC and all
manipulations of such data associated with the AMISYS System. PSC shall not
delay, hinder or impede MBC's exercise of such powers, not withstanding the
pendency of any dispute between MBC and PSC with respect to MBC's justification
to so act.
7.3 Ownership. For purposes of this Agreement, "Work Product" shall mean
the data, materials, documentation, computer programs, inventions (whether or
not patentable), and all works of authorship, including all worldwide rights
therein under patent, copyright, trade secret, confidential information, or
other property right, created or developed in whole or in part by PSC, whether
prior to the date of this Agreement or in the future, while retained by MBC and
that (i) are created within the scope of this Agreement, as such Agreement is
amended by the parties or otherwise in connection or in the performance by PSC
of its obligations hereunder, and (ii) has been or will be paid for by MBC
pursuant to this Agreement. All Enhancements and Maintenance created hereunder
shall be deemed Work Product. All Work Product shall be the sole and exclusive
property of MBC and shall be deemed "works made for hire" of which MBC shall be
deemed the author. If any of the Work Product may not, by operation of law, be
considered work made for hire by PSC for MBC, or if ownership of all right,
title, and interest of the intellectual property rights therein shall not
otherwise vest exclusively in MBC, PSC assigns to MBC, and upon the future
creation thereof automatically assigns to MBC, without further consideration,
the ownership of all Work Product. MBC shall have the right to obtain and hold
in its own name copyrights, registrations, and any other protection available in
the Work Product. PSC agrees to perform, during or after the term of this
Agreement, such further acts as may be necessary or desirable to transfer,
perfect and defend MBC's ownership of the Work Product that are reasonably
requested by MBC. MBC agrees that it may not transfer or disclose such Work
Product to third parties, except to MBC Affiliates to the extent (a) such MBC
Affiliate is not a competitor of PSC; and (b) such MBC Affiliate agrees not to
transfer or disclose such Work Product to a third party. MBC's ownership of the
Work Product is restricted in that MBC and MBC Affiliates may only use the Work
Product in support of their respective businesses.
MBC hereby grants to PSC an irrevocable, exclusive, worldwide, royalty-free
license to use and distribute (internally and externally) copies of, and prepare
derivative works based upon, such Work Product and derivative works thereof.
Such license shall be transferable except PSC may not transfer such license to
any competitors of MBC or affiliates of such competitors.
7.4 Pre-existing Materials. To the extent that any pre-existing materials
are contained in the materials PSC delivers to MBC, such materials will not be
deemed "Work Product" under Section 7.3, and PSC grants to MBC an irrevocable,
non-exclusive, worldwide, royalty-free license to use copies of, and prepare
derivative works based upon, such pre-existing materials and derivative works
thereof. Such license shall be non-transferable except that MBC may transfer
such license to MBC Affiliates, as defined herein, to the extent such MBC
Affiliate is not a competitor of PSC. The license granted in this Section 7.4 is
restricted in that MBC and MBC Affiliates may (a) use the pre-existing materials
only in the operation of the AMISYS System and not to provide data processing
services to third parties and (b) not disclose the PSC Software or related
Documentation to third parties; provided, however, that MBC or MBC Affiliates
may disclose the PSC Software and related Documentation to third parties who
have executed PSC's standard non-disclosure agreement as necessary for the
operation or maintenance of the PSC Software to provide such services to MBC or
its Affiliates.
Article VIII. Representations, Warranties and
Covenants
8.1 PSC'S WARRANTIES. PSC warrants and represents to
MBC as follows:
(a) PSC warrants that its services shall be performed by qualified
personnel and consistent with good practice in the computer services
industry. If PSC breaches this warranty, MBC shall notify PSC in writing
within thirty (30) days after such services are performed, setting forth
the manner in which the services are defective. Within thirty (30) days
after receipt of such notice, PSC shall supply services to correct or
replace the work at no charge. DURING SUCH THIRTY (30) DAY PERIOD, PSC'S
OBLIGATION TO CORRECT THE DEFECTIVE SERVICES AT NO CHARGE IS MBC'S
EXCLUSIVE REMEDY FOR BREACH OF SUCH WARRANTY. In the event PSC does not
correct the defect by the end of the thirty (30) day period, MBC may avail
itself of other remedies. This Section 8.1(a) shall not affect or delay
MBC's ability to terminate for cause pursuant to Section 12.1. The 30-day
notice provisions in this Section 8.1(a) and in Section 12.1 may run at the
same time.
(b) PSC owns and/or possesses all rights and interests in the PSC Software
necessary to grant the rights set forth in this Agreement.
(c) The Deliverables shall be delivered to MBC in accordance with the
agreed upon specifications pursuant to the procedures established in
Schedule B. If PSC breaches this warranty, MBC shall notify PSC in writing
within thirty (30) days after such Deliverables are delivered, setting
forth the manner in which the Deliverables do not meet the agreed upon
specifications. Within thirty (30) days after receipt of such notice, PSC
shall supply services to correct such defects at no charge. DURING SUCH
THIRTY (30) DAY PERIOD, PSC'S OBLIGATION TO CORRECT THE DEFECT AT NO CHARGE
IS MBC'S EXCLUSIVE REMEDY FOR BREACH OF SUCH WARRANTY. In the event PSC
does not correct the defect by the end of the thirty (30) day period, MBC
may avail itself of other remedies. This Section 8.1(c) shall not affect or
delay MBC's ability to terminate for cause pursuant to Section 12.1. The
30- day notice provisions in this Section 8.1(c) and in Section 12.1 may
run at the same time.
(d) EXCEPT AS SPECIFIED IN THIS AGREEMENT, PSC DISCLAIMS ALL WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE. ANY THIRD PARTY SOFTWARE, HARDWARE AND
EQUIPMENT PROVIDED BY PSC UNDER THIS AGREEMENT IS PROVIDED "AS IS", BUT PSC
SHALL TRANSFER TO MBC ANY WARRANTIES IT RECEIVES FROM THIRD PARTY
MANUFACTURERS OR VENDORS FOR SUCH SOFTWARE, HARDWARE AND EQUIPMENT, AND
SHALL USE ITS BEST COMMERCIAL EFFORTS TO HELP MBC ENFORCE SUCH THIRD PARTY
WARRANTIES.
8.2 MBC'S WARRANTIES. MBC represents and warrants that it has procured all
rights and licenses which are necessary for PSC to implement and use the AMISYS
System and the Third Party Software in order to perform its obligations under
this Agreement.
Article IX. Confidentiality and Security
9.1 Definitions. For purposes of this Agreement:
9.1.1 "Trade Secrets" means information which: (a) derives economic
value, actual or potential, from not being generally known to, and not
being readily ascertainable by proper means by, other persons who can
obtain economic value from its disclosure or use; and (b) is the subject of
efforts that are reasonable under the circumstances to maintain its
secrecy;
9.1.2 "Confidential Information" means information,
other than Trade Secrets, that is of value to its owner and is treated
as confidential;
9.1.3 "Proprietary Information" means, collectively, Trade Secrets and
Confidential Information. Proprietary Information includes, but is not
limited to, the identity of patients, patient records, patient related
materials (including, but not limited to, records or documents relating to
the management or administration of patient care or to the processing or
review of claims), the content of any AMISYS records, financial and tax
information, information regarding AMISYS claims submission and
reimbursements, and the object codes and Source Codes and Documentation for
proprietary software;
9.1.4. "Owner" or "Owning Party" refers to the party
disclosing Proprietary Information hereunder, whether such
disclosure is directly from Owner or through Owner's employees or
agents; and
9.1.5 "Recipient" or "Receiving Party" refers to the party receiving
any Proprietary Information hereunder, whether such disclosure is received
directly or through Recipient's employees or agents.
9.2 Obligation to Observe Confidentiality. Each party hereunder may
disclose to the other party certain Proprietary Information of such party or of
such party's associated companies, suppliers, customers or patients. The
Recipient of the Proprietary Information agrees to keep the Proprietary
Information confidential and not to, directly or indirectly, distribute, reveal,
publish, disclose, cause to be disclosed, or otherwise transfer the Proprietary
Information disclosed by Owner to any third party, or utilize the Proprietary
Information disclosed by Owner for any purpose whatsoever other than as
expressly contemplated by this Agreement. With regard to the Trade Secrets, this
obligation shall continue for so long as such information constitutes a trade
secret under applicable law. With regard to the Proprietary Information, this
obligation shall continue for the Term of this Agreement and for a period of
five (5) years thereafter.
9.3 Protection. The Receiving Party shall not disclose the Proprietary
Information except to those persons having a need to know for purposes
authorized in Section 9.2. Each party shall take appropriate action, by
instruction to or agreement with its employees, agents and subcontractors, to
maintain the confidentiality of the Proprietary Information. Either party may
disclose any Proprietary Information on an as-needed basis to its employees and
its nonemployee fiduciaries, including without limitation its attorneys,
accountants, auditors, controlling persons, officers, directors or trustees,
without the Owning Party's prior consent, provided that such recipients enter
into an agreement to keep such Proprietary Information confidential with
substantially the same protections as contained herein. The Receiving Party
shall promptly notify the Owning Party in the event that the Receiving Party
learns of an unauthorized release of Proprietary Information. The Receiving
Party shall be responsible for the breach of this provision by such other
parties.
9.4 Exceptions. The foregoing obligations of confidentiality shall
not apply, if and to the extent that:
(a) Recipient establishes that the information communicated was already
known to Recipient, without obligations to keep such information
confidential, at the time of Recipient's receipt from Owner;
(b) Recipient establishes that the information communicated was
independently developed or discovered by Recipient, without direct or
indirect access to such Proprietary Information;
(c) Recipient establishes that the information communicated was received by
Recipient in good faith from a third party lawfully in possession thereof
and having no obligation to keep such information confidential;
(d) Recipient establishes that the information communicated was publicly
known at the time of Recipient's receipt from Owner or has become publicly
known other than by a breach of this Agreement; or
(e) Recipient is required by an administrative agency or other governmental
body of competent jurisdiction to disclose the Proprietary Information
pursuant to subpoena or other lawful process.
9.5 Return of Proprietary Information. Except as otherwise specifically
provided in this Agreement, upon the termination or expiration of this
Agreement, each party shall (a) immediately cease to use the other party's
Proprietary Information, (b) return to the other party such Proprietary
Information and all copies thereof within ten (10) days of the termination or
expiration, unless otherwise provided in this Agreement, and (c) upon request,
certify in writing to the other party that it has complied with its obligations
set forth in this Article IX, unless otherwise provided in this Agreement.
9.6 Availability of Equitable Remedies. The parties acknowledge that
monetary remedies may be inadequate to protect rights in Proprietary Information
and that, in addition to legal remedies otherwise available, injunctive relief
is an appropriate judicial remedy to protect such rights.
9.7 Exploitation. PSC shall not use Proprietary Information received from
MBC or any Key User for the purpose of developing information or statistical
compilations for use by third parties or for any other commercial exploitation,
unless otherwise agreed upon in writing by MBC.
9.8 Reasonable Assistance. Each party agrees to provide reasonable
assistance and cooperation upon the reasonable request of the other party in
connection with any litigation against third parties to protect the requesting
party's Proprietary Information or in seeking a protective order or other remedy
designed to keep the Proprietary Information confidential, provided that the
party seeking such assistance and cooperation shall reimburse the other party
for its reasonable out-of-pocket expenses.
9.9 Nondisclosure of Existence of Agreement. Neither party shall refer to
the existence of this Agreement or disclose its terms or use the name of the
other party in any press release, advertising or materials distributed to
prospective customers, without consulting the other party. MBC shall consult
with the PSC Account Manager. PSC shall not represent, directly or indirectly,
that any product or service of PSC has been approved or endorsed by MBC or any
Authorized User.
9.10 Section Survives Contract. This Article IX shall survive the
termination or expiration of this Agreement indefinitely without regard
to the cause of such termination or expiration.
Article X. Indemnities
10.1 Indemnification. Each party shall indemnify and hold harmless the
other party and its affiliates, directors, officers, employees and agents
(collectively, the "indemnitee") against any and all losses, liabilities,
judgments, awards and costs (including legal fees and expenses) (collectively
"Losses") arising out of or related to any claim (1) for personal injury of any
agent, employee, customer, business invitees or business visitor of the
indemnitor; (2) damage to real property or tangible personal property (other
than intellectual property infringement claims) in the possession or under the
control of the indemnitor; and (3) any claim by a third party arising from
indemnitor's violation of its obligations of confidentiality hereunder,
including, but not limited to, obligations relating to patient identities,
patient records, or patient related materials under Article IX of this
Agreement, including any damages finally awarded attributable to such claim and
any reasonable expense incurred by indemnitee in assisting indemnitor in
defending against such claim, that arises out of any action or inaction by the
indemnitor or its employees or agents; provided, however, that indemniteegives
indemnitor: (a) written notice within a reasonable time after indemnitee is
served with legal process in an action asserting such claims, provided that the
failure or delay to notify indemnitor shall not relieve indemnitor from any
liability that it may have to indemnitee hereunder so long as the failure or
delay shall not have prejudiced the defense of such claim and then only to the
extent that the indemnitor actually is prejudiced; and (b) reasonable assistance
in defending the claim. The indemnitor shall be entitled to have sole authority
to defend or settle such claim, provided that, within fifteen (15) days after
receipt of such written notice, the indemnitor notifies the indemnitee in
writing that it acknowledges its responsibility to indemnify indemnitee for
losses from such claim hereunder, and that it has elected to assume full
control. In the event indemnitor fails to acknowledge its responsibility to
indemnify indemnitee in respect of such claim, or elects not to defend any such
claim, indemnitee shall have the option but not the duty to reasonably settle or
defend the claim at its cost and indemnitor shall indemnify indemnitee for such
settlement or any damages finally awarded against indemnitee attributable to
such claim, reasonable costs and expenses (including attorneys' fees), and
interest on such recoverable funds advanced.
10.2 PSC Infringement Indemnity. PSC agrees to indemnify and hold harmless
MBC and its affiliates, directors, officers, employees and agents against any
and all losses, liabilities, judgments, awards and costs (including legal fees
and expenses) arising out of or related to any third-party claim that MBC's use
or possession of any PSC Software (including for thissubsection but not limited
to any Source Code and related Documentation) provided by PSC for use by MBC
under this Agreement, when used as provided in this Agreement, infringes or
violates the U.S. copyright, patent, trade secret or other proprietary rights of
any third party, including any damages finally awarded attributable to such
claim and any reasonable expense incurred by MBC in assisting PSC in defending
against such claim; provided, however, that MBC gives PSC: (a) written notice
within a reasonable time after MBC is served with legal process in an action
asserting such claims, provided that the failure or delay to notify PSC shall
not relieve PSC from any liability that it may have to MBC hereunder so long as
the failure or delay shall not have prejudiced the defense of such claim and
then only to the extent that the PSC actually is prejudiced; and (b) reasonable
assistance in defending the claim. PSC shall be entitled to have sole authority
to defend or settle such claim, provided that, within fifteen (15) days after
receipt of such written notice, PSC notifies MBC in writing that it acknowledges
its responsibility to indemnify MBC for losses from such claim hereunder, and
that it has elected to assume full control. In the event PSC fails to
acknowledge its responsibility to indemnify MBC in respect of such claim, or
elects not to defend any such claim, MBC shall have the option, but not the
duty, to reasonably settle or defend the claim at its cost and PSC shall
indemnify MBC for such settlement or any damages finally awarded against MBC
attributable to such claim, reasonable costs and expenses (including costs of
investigation and legal fees and expenses) and interest on such recoverable
funds advanced. PSC will cooperate with MBC to pass through any applicable
indemnity received by PSC from Third Party Software vendors with respect to such
vendors' software.
If use of the PSC Software by MBC is disrupted as a result of a third party
claim, MBC may, in addition to any other rights and remedies provided in this
Agreement, require PSC to perform one or more of the following actions:
(a) Replacement: Replace the PSC Software by implementing
a non-infringing product of equivalent functional and
performance capability of the PSC Software as described in
the Project Plan and/or respective specifications;
(b) Modification: Modify the PSC Software to avoid the
infringement, provided, however, no such replacement or
modification shall substantially impair the functionality or
performance of such software;
(c) Obtain License: Obtain a license from the third party
claiming infringement for MBC's use of the PSC Software.
PSC shall have the sole discretion of electing which of the three options or
combination thereof it will perform, provided that PSC's choice ameliorates the
disruption.
10.3 MBC Copyright Indemnity. MBC agrees to indemnify and hold harmless PSC
and its affiliates, directors, officers, employees and agents against any and
all losses, liabilities, judgments, awards and costs (including legal fees and
expenses) arising out of or related to any third-party claim that PSC's use or
possession of any MBC owned software (including for this subsection but not
limited to any Source Code and related Documentation) provided by MBC for use by
PSC under this Agreement, when used as provided in this Agreement, infringes or
violates the U.S. copyright, patent, trade secret or other proprietary rights of
any third party, including any damages finally awarded attributable to such
claim and any reasonable expense incurred by PSC in assisting MBC in defending
against such claim; provided, however, that PSC gives MBC: (a) written notice
within a reasonable time after PSC is served with legal process in an action
asserting such claims, provided that the failure or delay to notify MBC shall
not relieve MBC from any liability that it may have to PSC hereunder so long as
the failure or delay shall not have prejudiced the defense of such claim and
then only to the extent that the MBC actually is prejudiced; and (b) reasonable
assistance in defending the claim. MBC shall be entitled to have sole authority
to defend or settle such claim, provided that, within fifteen (15) days after
receipt of such written notice, MBC notifies PSC in writing that it acknowledges
its responsibility to indemnify PSC for losses from such claim hereunder, and
that it has elected to assume full control. In the event MBC fails to
acknowledge its responsibility to indemnify PSC in respect of such claim, or
elects not to defend any such claim, PSC shall have the option, but not the
duty, to reasonably settle or defend the claim at its cost and MBC shall
indemnify PSC for such settlement or any damages finally awarded against PSC
attributable to such claim, reasonable costs and expenses (including costs of
investigation and legal fees and expenses) and interest on such recoverable
funds advanced. MBC will cooperate with PSC to pass through any applicable
indemnity received by MBC from Third Party Software vendors with respect to such
vendor's Software.
10.4 Subrogation. In the event that an indemnitor shall be obligated to
indemnify an indemnitee pursuant to this Article X, the indemnitor shall, upon
payment of such indemnity in full, be subrogated to all rights of the indemnitee
with respect to claims to which such indemnification relates.
10.5 Exclusive Remedy. The indemnification rights of each indemnitee
pursuant to this Article X shall be the exclusive remedy of such indemnitee with
respect to the claims to which such indemnification relates; provided, however,
that such indemnitee shall retain the right to seek injunctive or other
non-monetary equitable remedies with respect to such claims.
Article XI. Remedies
11.1 Measure and Limitation of Damages. The measure of damages recoverable
from one party by the other for any reason, whether arising by negligence,
intended conduct or otherwise, shall not include any amounts for indirect,
special, consequential or punitive damages of any party, including third
parties, even if such damages are foreseeable. In the event one party shall be
liable to the other party for damages arising under or in connection with this
Agreement, whether arising by negligence, intended conduct or otherwise, then
that party may recover from the other its actual direct damages only. Such
damages will be limited to one-half of all Fees paid by MBC to PSC on the date
of the event giving rise to the claim, provided the total actual damages shall
not exceed confidential $______________ for the Term of this Agreement.
treatment
requested
11.2 Exclusion. The limitations set forth in Section 11.1 are not
applicable to (a) any breach of the nondisclosure and confidentiality of Article
IX of this Agreement, (b) the failure of one party to make payments due under
this Agreement to the other, or the (c) indemnification claims as set forth in
Article X.
11.3 Limitation Period. Neither party to this Agreement may assert against
the other party any claim in connection with this Agreement unless the asserting
party has given the other party written notice of the claim within two (2) years
after the asserting party first knew or should have known of the facts giving
rise to such claim.
Article XII. Termination
12.1 Termination for Cause. If either party defaults in the performance of
any of its material obligations under this Agreement (other than a payment
default), and such default is not cured within 30 days after written notice is
received by the defaulting party specifying, in reasonable detail, the nature of
the default, the non-defaulting party may, upon further written notice to the
defaulting party, terminate this Agreement as of the date specified in such
notice of termination.
12.2 Termination For Convenience: Commencing eighteen (18) months from the
Effective Date, at any time MBC or PSC may terminate this Agreement for any
reason by providing the other party 180 days' prior written notice of its
decision to terminate.
12.3 Termination for Nonpayment. If MBC defaults in the payment of any
amount due to PSC pursuant to this Agreement and does not cure such default
within ten (10) days after being given written notice of such default, PSC may
terminate this Agreement upon further written notice to MBC.
12.4 Termination for Insolvency Either party may, by giving the other
notice, terminate this Agreement with immediate effect:
(1) upon the institution by the other party of proceedings to be
adjudicated bankrupt or insolvent, or the consent by the other
party to institution of bankruptcy or insolvency proceedings
against it or the filing by the other party of a petition or
answer or consent seeking reorganization or release under the
Federal Bankruptcy Act, or any similar applicable Federal or
state law, or the consent by the other party to the filing of any
such petition or the appointment of a receiver, liquidator,
assignee, trustee, or other similar official of the other party
or of all or any substantial part of its property, or the making
by the other party of an assignment for the benefit of creditors,
or the admission in writing by the other party of its inability
to pay its debts generally as they become due or the taking of
corporate action by the other party in furtherance of any such
action; or
(2) if, within sixty (60) days after the commencement of an action
against the other party seeking any bankruptcy, insolvency,
reorganization, liquidation, dissolution or similar relief under
any present or future law or regulation, such action shall not
have been dismissed or all orders or proceedings thereunder
affecting the operations or the business of the other party
stayed, or if the stay of any such order or proceeding shall
thereafter be set aside; or if, within sixty (60) days after the
appointment without the consent or acquiescence of the other
party of any trustee, receiver or liquidator or similar official
of the other party or of all or any substantial part of the
property of the other party, such appointment shall not have been
vacated. In the event either party becomes or is declared
insolvent or bankrupt, is the subject of any proceedings related
to its liquidation, insolvency or for the appointment of a
receiver or similar officer for it, makes an assignment for the
benefit of all or substantially all of its creditors, or enters
onto an agreement for the composition, extension or readjustment
of all or substantially all of its obligations, then the other
party may, by giving notice thereof to such party, terminate this
Agreement as of a date specified in such notice of termination.
12.5 Transition Fees/PSC Software. Notwithstanding anything in the
Agreement to the contrary, whenever the Agreement is terminated or expires the
following shall apply, in addition to any rights or remedies of the parties
under the Agreement:
12.5.1 Transition Charges. If (1) MBC terminates this Agreement at the
end of the second year pursuant to Section 12.2; or (2) if PSC
terminates this Agreement during the Initial Term pursuant to Section
12.1, 12.3 or 12.4 of this Article XII, PSC may charge MBC required,
reasonable termination costs, including relocation charges,
transportation charges, equipment charges, and other reasonable
documented expenses related to termination or migration, provided PSC
provides estimates of all transition charges fees at the time PSC
employees are relocated to perform services under this Agreement, and
MBC approves of such transition charges. MBC's obligation for such
fees shall not exceed the approved estimate.
12.5.2 PSC Software. PSC Software is and shall remain PSC's property
and MBC shall have no rights or interests to the PSC Software except
as described in this Section 12.5.2. PSC hereby grants to MBC a
perpetual, non-exclusive, restricted license to use the application
software programs (including all related Documentation) of any PSC
Software then being used by PSC in connection with the AMISYS System
upon expiration of this Agreement or termination of this Agreement.
Such license shall be non-transferable except MBC may transfer such
license to MBC Affiliates, as defined herein, to the extent such MBC
Affiliate is not a competitor of PSC. The license granted in this
Section 12.5.2 is restricted in that MBC and MBC Affiliates may (a)
use the PSC Software only in the operation of the AMISYS System and
not to provide data processing services to third parties and (b) not
disclose the PSC Software or related Documentation to third parties;
provided, however, that MBC or MBC Affiliates may disclose the PSC
Software and related Documentation to third parties who have executed
PSC's standard non-disclosure agreement as necessary for the operation
or maintenance of the PSC Software to provide such services to MBC or
its Affiliates.
12.6 Rights upon Termination. Upon termination of this Agreement at the
expiration of the Initial Term or any Renewal Term or by MBC pursuant to Section
12.1, 12.2, 12.3 or Section 12.4 hereof, PSC will, if requested by MBC, provide
reasonable training for MBC personnel or the personnel of a designated third
party to permit continuity in the performance of implementation services for
MBC, said training to be provided during any notice period hereinabove specified
and for up to six (6) additional monthly increments commencing with the date of
termination, and MBC shall pay PSC for such training at PSC's then current rates
(PSC will provide estimates of these rates upon thirty (30) days notice at any
time within the last one hundred eighty (180) days of the then current term).
Such payment will be billed monthly by PSC and PSC may cease to deliver such
services if such invoices are not paid in full within thirty (30) days of
receipt. In the event PSC terminates this Agreement pursuant to Sections 12.1 or
12.3, MBC shall immediately pay PSC all amounts due and payable hereunder as of
the termination date; a partial month's fee shall be prorated as set forth
pursuant to Section 5.8 of this Agreement.
12.7 Duties Upon Termination. Upon termination of this Agreement by either
party under the provisions of this Article XII, PSC shall take reasonable
efforts to minimize any further costs, subject to MBC's obligations to pay PSC
reasonable termination costs under Section 12.5.1. PSC shall be reimbursed only
for the services actually performed and the expenses actually and reasonably
incurred as of the date of such termination, subject to MBC's obligations to pay
PSC for services pursuant to Section 12.5.
Article XIII. Taxes
13.1 Taxes. MBC shall pay, or reimburse PSC for payment of, any taxes or
amounts paid in lieu of taxes, however designated or levied, based upon this
Agreement, the charges of PSC for the services or materials provided under this
Agreement, except for taxes based on the net income of PSC or employment taxes
for PSC employees.
Article XIV. Independent Contractor Status
14.1 Independent Contractor Status. PSC, in performance of this Agreement,
is acting as an independent contractor and shall have the exclusive control of
the manner and means of performing the work contracted for hereunder. Personnel
supplied by PSC hereunder, whether or not located on MBC's premises, are PSC
employees or agents and shall not represent themselves to be otherwise.. Nothing
contained in this Agreement shall be construed to create a joint venture or
partnership between the parties.
Article XV. Force Majeure
15.1 Force Majeure. Neither party hereto shall be liable for any failure or
delay in performance of its obligations hereunder (other than payment
obligations) by reason of any event or circumstance beyond its reasonable
control, including without limitation, acts of God, war, riot, strike, labor
disturbance, fire, explosion, flood, or shortage or failure of suppliers.
Article XVI. Headings
16.1 Headings. The article and section headings used herein are for
reference and convenience only and shall not bear upon the interpretation of
this Agreement or Schedules hereto.
Article XVII. Severability
17.1 Severability. All agreements, clauses and covenants contained herein
are severable, and in the event any of them shall be held to be
unconstitutional, invalid, illegal, or unenforceable, the remainder of this
Agreement shall be interpreted as if such unconstitutional, invalid, illegal or
unenforceable agreements, clauses or covenants were not contained herein. IT IS
EXPRESSLY UNDERSTOOD AND AGREED THAT EACH AND EVERY PROVISION OF THIS AGREEMENT
THAT PROVIDES FOR A LIMITATION OF LIABILITY, DISCLAIMER OF WARRANTIES OR
EXCLUSION OF DAMAGES IS INTENDED BY THE PARTIES TO BE SEVERABLE AND INDEPENDENT
OF ANY OTHER PROVISION AND TO BE ENFORCED AS SUCH.
Article XVIII. Waiver/Modification
18.1 Waiver/Modification. The failure by either party to exercise any right
provided hereunder shall not be deemed a waiver of such right. This Agreement
may be amended, modified or supplemented only by a writing signed by the parties
to this Agreement. Such amendments, modifications or supplements shall be deemed
as much a part of this Agreement as if so incorporated herein.
Article XIX. Binding Nature of Contract, Informed Exchange
for Value
19.1 Binding Nature of Contract, Informed Exchange for Value. MBC and PSC
represent that both have the legal capacity to enter into this Agreement and
Schedules. This Agreement and Schedules shall therefore be binding on the
parties which have entered into this Agreement.
Article XX. Notices to Parties
20.1 Notices to Parties. All notices required or permitted under this
Agreement shall be in writing or by facsimile and sent to the other party at the
address or the facsimile number specified below or to such other address or
facsimile number as either party may substitute from time to time by written
notice to the other and shall be deemed given upon receipt of such notice
whether by certified mail, postage prepaid, or personal or courier delivery or,
in the case of facsimile transmission, when confirmation is received, as
follows:
If to PSC: 12377 Merit Drive
Suite 1600
Dallas, TX 75251
Attn: Joseph E. Boyd
Facsimile Number: (214) 383-5739
with a copy to: 12377 Merit Drive
Suite 1100
Dallas, TX 75251
Attn: General Counsel
Facsimile Number: (214) 383-5735
If to MBC: Merit Behavioral Care Corporation
13736 Riverport Drive
Maryland Heights, Missouri 63043
Attn: Charles Mangene
Facsimile Number: (314) 595-3526
with a copy to: Merit Behavioral Care Corporation
One Maynard Drive
Park Ridge, New Jersey 07656
Attn: General Counsel
Facsimile Number: (201) 573-1324
Article XXI. Attorney's Fees
21.1 Attorney's Fees. If any legal action or other proceeding is brought
for the enforcement of this Agreement, or because of the alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of
this Agreement, the prevailing party shall recover reasonable attorney's fees
and other court costs associated with the proceeding. This shall in no way
diminish or preclude any other relief to which the prevailing party is entitled.
Article XXII. Integration/Counterparts
22.1 Integration. The parties hereto acknowledge that they have read this
Agreement in its entirety and understand and agree to be bound by all of its
terms and conditions, and further agree that this Agreement and any Schedule
executed hereunder and any exhibits or schedules hereto or thereto constitute a
complete and exclusive statement of the understanding between the parties with
respect to the AMISYS System and the related delivery of professional services
by PSC and the subject matter of this Agreement which supersede any and all
other communications between the parties, whether written or oral, with respect
thereto. Any prior agreements, promises, negotiations or representations related
to the delivery of the services, as contemplated by this Agreement and Schedules
hereto, by PSC which are not expressly set forth in this Agreement or Schedules
executed hereunder are of no force and effect.
22.2 Counterparts. This Agreement may be executed in one or more
counter-parts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document. In making proof of this
Agreement, it shall not be necessary to produce or account for more than one
such counterpart executed by the party against whom enforcement of this
Agreement is sought.
Article XXIII. No Third Party Beneficiaries
23.1 No Third Party Beneficiaries. Nothing in this Agreement or Schedules
hereto shall be construed as to create any right or privilege enforceable by any
party other than MBC or PSC and except as specifically provided otherwise in
this Agreement and Schedules.
Article XXIV. Assignment
24.1 Assignment.This Agreement and all of its provisions hereof will be
binding upon and inure to the benefit of each party and its respective
successors and permitted assigns; however, except as specifically set forth in
this Agreement, including the provisions of Sections 7.3, 7.4 and 12.4.2,
neither MBC nor PSC shall assign or transfer this Agreement or any of its rights
or obligations hereunder without the prior written consent of the other party,
which consent shall not be unreasonably withheld, except MBC may assign this
Agreement to its wholly-owned subsidiaries, provided MBC is not released from
any of its obligations hereunder.
Article XXV. Governing Law
25.1 Choice of Law. This Agreement shall be interpreted, enforced and
otherwise governed according to the laws of the State of Missouri.
25.2 Venue. In the event that either party elects to institute legal
action, such event shall be brought in any court of competent jurisdiction
within the State of Missouri exclusive of all other jurisdictions except that in
the event such action cannot be brought in Missouri, the action may be brought
in any court of competent jurisdiction in the United States of America. The
parties hereby consent to the establishment of jurisdiction of the State of
Missouri and waive any objections to the establishment of jurisdiction in the
State of Missouri.
Article XXVI. Right To Perform For Others
26.1 Right to Perform for Others. MBC understands and agrees that PSC may
perform data processing and other services for third parties, some of which may
be competitors of MBC, including at locations where PSC processes MBC's data.
Article XXVI. Hiring Of Employees
26.1 Hiring of Employees.MBC and PSC each agrees that, during the term of
this Agreement and for one (1) year thereafter, neither it nor any of its
subsidiaries or affiliates that it controls shall, except with the prior written
consent of the other, offer employment to or employ any person employed then or
within the preceding twelve (12) months by the other or any affiliate of the
other if such person was involved directly or indirectly in the performance of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
PEROT SYSTEMS CORPORATION
By: /s/ Charles Lyles
Title: Director of Managed Care
MERIT BEHAVIORAL CARE CORPORATION
By: /s/ Dennis P. Moody
Title: Executive Vice President
National Service
INDEX TO SCHEDULES
SCHEDULE A: Generic Business Evaluation & Project Plan
SCHEDULE B: Services and Standards
SCHEDULE C: Implementation and Software Development
Acceptance Criteria
SCHEDULE A
IMPLEMENTATION PLAN AND BUSINESS EVALUATION
Hours Hours Resource
Task Name Duration Start Finish Total ToDate Names
Project Organization 301d 1/31/96 12/11/96 0h Define Project Structure 1806h
1/31/96 12/11/96 0h Establish Steering Committee 1806h 1/31/96 12/11/96 0h
Establish Implementation Task Force/
membership/roles/respond 806h 1/31/96 12/11/96 0h
Establish Communication Medium 301d 1/31/96 12/11/96 0h
Meetings 1806h 1/31/96 12/11/96 0h
Status Reporting 1806h 1/31/96 12/11/96 0h
BUSINESS EVALUATION 301d 1/31/96 12/11/96 0h
Executive Overview/Kickoff Meeting 1806h 1/31/96 12/11/96 0h
Review Implementation Process 1806h 1/31/96 12/11/96 0h
Departmental Interviews 301d 1/31/96 12/11/96 0h
Membership/Eligibility 1806h 1/31/96 12/11/96 0h
Provider/Contracting 1806h 1/31/96 12/11/96 0h
Inpatient/Alternative Level of Care 1806h 1/31/96 12/11/96 0h
Outpatient 1806h 1/31/96 12/11/96 0h
Claims Payable 1806h 1/31/96 12/11/96 0h
Benefits 1806h 1/31/96 12/11/96 0h
Claims/Liability Recovery / COB 1806h 1/31/96 12/11/96 0h
1099's 1806h 1/31/96 12/11/96 0h
Customer Service 1806h 1/31/96 12/11/96 0h
Business Analysis Document 301d 1/31/96 12/11/96 0h
Prepare Business Analysis Document 1806h 1/31/96 12/11/96 0h
Review Business Analysis Document 1806h 1/31/96 12/11/96 0h
Present Business Analysis Document 1806h 1/31/96 12/11/96 0h
Sign-Off on Business Analysis Document1806h 1/31/96 12/11/96 0h
BUSINESS PROCESS DEVELOPMENT 301d 1/31/96 12/11/96 0h Review Current Processes
1806h 1/31/96 12/11/96 0h Review Business Policies/Procedures 1806h 1/31/96
12/11/96 0h REFERENCE & CONTROL FILES 301d 1/31/96 12/11/96 0h Enter Files 1806h
1/31/96 12/11/96 0h Client Information Configuration
(Intake) 1806h 1/31/96 12/11/96 0h
Proof Entries 1806h 1/31/96 12/11/96 0h
Document Acceptance (Sign-Off)/MBC 1806h 1/31/96 12/11/96 0h
BENEFIT ANALYSIS 301d 1/31/96 12/11/96 0h
Provide Benefit Plans 301d 1/31/96 12/11/96 0h
Benefit Plans/Naming Conventions 1806h 1/31/96 12/11/96 0h
Review for AMISYS Exception 301d 1/31/96 12/11/96 0h
Benefit Plans 1806h 1/31/96 12/11/96 0h
Document Exceptions 301d 1/31/96 12/11/96 0h
Benefit Plans/LD exclusions 1806h 1/31/96 12/11/96 0h
BENEFIT PACKAGE DEVELOPMENT 301d 1/31/96 12/11/96 0h
Define Benefit Team 1806h 1/31/96 12/11/96 0h
Build Benefit Packages 301d 1/31/96 12/11/96 0h
Benefit Plans 1806h 1/31/96 12/11/96 0h
Test Benefit Packages 301d 1/31/96 12/11/96 0h
Benefit Plans 1806h 1/31/96 12/11/96 0h
Document Benefit Acceptance(Sign-Off)301d 1/31/96 12/11/96 0h
Benefit Plans 1806h 1/31/96 12/11/96 0h
Move to Production 301d 1/31/96 12/11/96 0h
Benefit Plans 1806h 1/31/96 12/11/96 0h
PRICING 301d 1/31/96 12/11/96 0h
Configuration 1806h 1/31/96 12/11/96 0h
Fee Schedule 301d 1/31/96 12/11/96 0h
Identify Arrangement 1806h 1/31/96 12/11/96 0h
Pricing Load 301d 1/31/96 12/11/96 0h
Identify Arrangements 1806h 1/31/96 12/11/96 0h
Individual Arrangements 1806h 1/31/96 12/11/96 0h
Group Arrangements 1806h 1/31/96 12/11/96 0h
Facility Arrangements 1806h 1/31/96 12/11/96 0h
Document Acceptance (Sign-Off) 1806h 1/31/96 12/11/96 0h
PROVIDERS 602d 1/31/96 10/23/97 0h
AMISYS Provider Numbering Scheme 1806h 1/31/96 12/11/96 0h
Provider Configuration 602d 1/31/96 10/23/97 0h
Provider Identification 1806h 1/31/96 12/11/96 0h
Document Identification 1806h 1/31/96 12/11/96 0h
Document Acceptance 1806h 12/11/96 10/23/97 0h
Provider Entry 301d 1/31/96 12/11/96 0h
Provider 1806h 1/31/96 12/11/96 0h
Proof 1806h 1/31/96 12/11/96 0h
Acceptance Test(withBenefitPackages) 301d 1/31/96 12/11/96 0h
Provider 1806h 1/31/96 12/11/96 0h
Provider Affiliations 1806h 1/31/96 12/11/96 0h
Document Acceptance 301d 1/31/96 12/11/96 0h
Provider 1806h 1/31/96 12/11/96 0h
Provider Affiliations 1806h 1/31/96 12/11/96 0h
Move Provider Information
to Production 1806h 1/31/96 12/11/96 0h
MEMBERSHIP 602d 1/31/96 10/23/97 0h
Group & Division Configuration 301d 1/31/96 12/11/96 0h
Identify Configuration 1806h 1/31/96 12/11/96 0h
Document Configuration 1806h 1/31/96 12/11/96 0h
Document Acceptance 1806h 1/31/96 12/11/96 0h
Group & Division Load 602d 1/31/96 10/23/97 0h
Information Entry 1806h 1/31/96 12/11/96 0h
Proof 1806h 1/31/96 12/11/96 0h
Acceptance Test 1806h 1/31/96 12/11/96 0h
Document Acceptance 1806h 12/11/96 10/23/97 0h
CORRESPONDENCE 301d 1/31/96 12/11/96 0h
Correspondence Set-Up 301d 1/31/96 12/11/96 0h
Information Entry 1806h 1/31/96 12/11/96 0h
Proof 1806h 1/31/96 12/11/96 0h
Acceptance Test 1806h 1/31/96 12/11/96 0h
Document Acceptance 1806h 1/31/96 12/11/96 0h
CLAIMS 301d 1/31/96 12/11/96 0h
Configure Claims 1806h 1/31/96 12/11/96 0h
Proof 1806h 1/31/96 12/11/96 0h
Acceptance Test 1806h 1/31/96 12/11/96 0h
Document Acceptance 1806h 1/31/96 12/11/96 0h
CLAIMS PAYABLE 602d 1/31/96 10/23/97 0h
Configuration 301d 1/31/96 12/11/96 0h
Identify Configuration 1806h 1/31/96 12/11/96 0h
Configuration 1806h 1/31/96 12/11/96 0h
Proof 1806h 1/31/96 12/11/96 0h
Acceptance Test 1806h 1/31/96 12/11/96 0h
Document Acceptance 1806h 1/31/96 12/11/96 0h
Liability Recovery Set-Up 602d 1/31/96 10/23/97 0h
Information Entry 1806h 1/31/96 12/11/96 0h
Proof 1806h 1/31/96 12/11/96 0h
Acceptance Test 1806h 1/31/96 12/11/96 0h
Document Acceptance 1806h 12/11/96 10/23/97 0h
Claims Payable Test Cycle 301d 1/31/96 12/11/96 0h
Document Test Results 1806h 1/31/96 12/11/96 0h
Make Necessary Changes 1806h 1/31/96 12/11/96 0h
Perform Claims Payable Test Cycle 1806h 1/31/96 12/11/96 0h
AUTHORIZATION CONFIGURATION 301d 1/31/96 12/11/96 0h
Requirements 301d 1/31/96 12/11/96 0h
Identify Configuration 1806h 1/31/96 12/11/96 0h
Authorization Configuration Set-Up 301d 1/31/96 12/11/96 0h
Information Entry 1806h 1/31/96 12/11/96 0h
Proof 1806h 1/31/96 12/11/96 0h
Acceptance Test 1806h 1/31/96 12/11/96 0h
Document Acceptance 1806h 1/31/96 12/11/96 0h
MEDICAL MANAGEMENT CONFIGURATION 301d 1/31/96 12/11/96 0h
Requirements 301d 1/31/96 12/11/96 0h
Concurrent Review 1806h 1/31/96 12/11/96 0h
Physician Review 1806h 1/31/96 12/11/96 0h
Appeals 1806h 1/31/96 12/11/96 0h
Diversions 1806h 1/31/96 12/11/96 0h
Identify Configuration 1806h 1/31/96 12/11/96 0h
Document Configuration 1806h 1/31/96 12/11/96 0h
Document Acceptance 1806h 1/31/96 12/11/96 0h
Medical Management Set-Up 1806h 1/31/96 12/11/96 0h
SECURITY (On-Going) 301d 1/31/96 12/11/96 0h
MBC Security Templates 1806h 1/31/96 12/11/96 0h
Security Set-Up 301d 1/31/96 12/11/96 0h
Information Entry 1806h 1/31/96 12/11/96 0h
Proof 1806h 1/31/96 12/11/96 0h
Acceptance Test 1806h 1/31/96 12/11/96 0h
Document Acceptance 1806h 1/31/96 12/11/96 0h
AMISYS REPORTING 301d 1/31/96 12/11/96 0h
MBC Standard Reports 301d 1/31/96 12/11/96 0h
Identify Requirements 1806h 1/31/96 12/11/96 0h
Deficiencies/Client Specific 301d 1/31/96 12/11/96 0h
Identify Deficiencies 1806h 1/31/96 12/11/96 0h
Identify Solutions 301d 1/31/96 12/11/96 0h
Document Solutions 1806h 1/31/96 12/11/96 0h
Document Acceptance 1806h 1/31/96 12/11/96 0h
TRAINING 301d 1/31/96 12/11/96 0h
Staff 301d 1/31/96 12/11/96 0h
Membership 1806h 1/31/96 12/11/96 0h
Providers 1806h 1/31/96 12/11/96 0h
Phone Log 1806h 1/31/96 12/11/96 0h
Claims/Stop Loss/Liability
Recovery/COB 1806h 1/31/96 12/11/96 0h
Inpatient/Alternate Care 1806h 1/31/96 12/11/96 0h
Outpatient 1806h 1/31/96 12/11/96 0h
Intake 1806h 1/31/96 12/11/96 0h
Inquiry 1806h 1/31/96 12/11/96 0h
Reporting 1806h 1/31/96 12/11/96 0h
INTERFACES 301d 1/31/96 12/11/96 0h
Identify Interface 1806h 1/31/96 12/11/96 0h
Document Interface Requirements 1806h 1/31/96 12/11/96 0h
Accept Interface Parameters 1806h 1/31/96 12/11/96 0h
Perform Interface 1806h 1/31/96 12/11/96 0h
Verify Data 1806h 1/31/96 12/11/96 0h
Load to Production 1806h 1/31/96 12/11/96 0h
Conversion Activities 301d 1/31/96 12/11/96 0h
Project Management 301d 1/31/96 12/11/96 0h
Go Live Support 1806h 1/31/96 12/11/96 0h
Create File Extracts 1806h 1/31/96 12/11/96 0h
Membership 301d 1/31/96 12/11/96 0h
Collect detailed info 1806h 1/31/96 12/11/96 0h
Create file extracts 1806h 1/31/96 12/11/96 0h
Membership Configuration 1806h 1/31/96 12/11/96 0h
Write specs & test plan 1806h 1/31/96 12/11/96 0h
Present specs, make corrections 1806h 1/31/96 12/11/96 0h
User sign off on specs & test plan 1806h 1/31/96 12/11/96 0h
Program & unit test 1806h 1/31/96 12/11/96 0h
Perform 'test' conversions 1806h 1/31/96 12/11/96 0h
Assist w/ error corrections 1806h 1/31/96 12/11/96 0h
Error corrections - users 1806h 1/31/96 12/11/96 0h
Assist with user testing 1806h 1/31/96 12/11/96 0h
User testing - users 1806h 1/31/96 12/11/96 0h
User task sign-off 1806h 1/31/96 12/11/96 0h
Perform final conversion 1806h 1/31/96 12/11/96 0h
Clean Up 1806h 1/31/96 12/11/96 0h
Membership-Remarks 301d 1/31/96 12/11/96 0h
Collect detailed info 1806h 1/31/96 12/11/96 0h
Create file extracts 1806h 1/31/96 12/11/96 0h
Membership Configuration 1806h 1/31/96 12/11/96 0h
Write specs & test plan 1806h 1/31/96 12/11/96 0h
Present specs, make corrections 1806h 1/31/96 12/11/96 0h
User sign off on specs & test plan 1806h 1/31/96 12/11/96 0h
Program & unit test 1806h 1/31/96 12/11/96 0h
Perform 'test' conversions 1806h 1/31/96 12/11/96 0h
Assist w/ error corrections 1806h 1/31/96 12/11/96 0h
Error corrections - users 1806h 1/31/96 12/11/96 0h
Assist with user testing 1806h 1/31/96 12/11/96 0h
User testing - users 1806h 1/31/96 12/11/96 0h
User task sign-off 1806h 1/31/96 12/11/96 0h
Perform final conversion 1806h 1/31/96 12/11/96 0h
Clean Up 1806h 1/31/96 12/11/96 0h
Authorizations 301d 1/31/96 12/11/96 0h
Collect detailed info 1806h 1/31/96 12/11/96 0h
Create file extracts 1806h 1/31/96 12/11/96 0h
Auths Configuration 1806h 1/31/96 12/11/96 0h
Write specs & test plan 1806h 1/31/96 12/11/96 0h
Present specs, make corrections 1806h 1/31/96 12/11/96 0h
User sign off on specs & test plan 1806h 1/31/96 12/11/96 0h
Program & unit test 1806h 1/31/96 12/11/96 0h
Perform 'test' conversions 1806h 1/31/96 12/11/96 0h
Assist w/ error corrections 1806h 1/31/96 12/11/96 0h
Error corrections - users 1806h 1/31/96 12/11/96 0h
Assist with user testing 1806h 1/31/96 12/11/96 0h
User testing - users 1806h 1/31/96 12/11/96 0h
User task sign-off 1806h 1/31/96 12/11/96 0h
Perform final conversion 1806h 1/31/96 12/11/96 0h
Clean Up 1806h 1/31/96 12/11/96 0h
Auth Remarks 301d 1/31/96 12/11/96 0h
Collect detailed info 1806h 1/31/96 12/11/96 0h
Create file extracts 1806h 1/31/96 12/11/96 0h
Auths Configuration 1806h 1/31/96 12/11/96 0h
Write specs & test plan 1806h 1/31/96 12/11/96 0h
Present specs, make corrections 1806h 1/31/96 12/11/96 0h
User sign off on specs & test plan 1806h 1/31/96 12/11/96 0h
Program & unit test 1806h 1/31/96 12/11/96 0h
Perform 'test' conversions 1806h 1/31/96 12/11/96 0h
Assist w/ error corrections 1806h 1/31/96 12/11/96 0h
Error corrections - users 1806h 1/31/96 12/11/96 0h
Assist with user testing 1806h 1/31/96 12/11/96 0h
User testing - users 1806h 1/31/96 12/11/96 0h
User task sign-off 1806h 1/31/96 12/11/96 0h
Perform final conversion 1806h 1/31/96 12/11/96 0h
Clean Up 1806h 1/31/96 12/11/96 0h
Claims 301d 1/31/96 12/11/96 0h
Collect detailed info 1806h 1/31/96 12/11/96 0h
Create file extracts 1806h 1/31/96 12/11/96 0h
ClaimsConfiguration 1806h 1/31/96 12/11/96 0h
Write specs & test plan 1806h 1/31/96 12/11/96 0h
Present specs, make corrections 1806h 1/31/96 12/11/96 0h
User sign off on specs & test plan 1806h 1/31/96 12/11/96 0h
Program & unit test 1806h 1/31/96 12/11/96 0h
Perform 'test' conversions 1806h 1/31/96 12/11/96 0h
Assist w/ error corrections 1806h 1/31/96 12/11/96 0h
Error corrections - users 1806h 1/31/96 12/11/96 0h
Assist with user testing 1806h 1/31/96 12/11/96 0h
User testing - users 1806h 1/31/96 12/11/96 0h
User task sign-off 1806h 1/31/96 12/11/96 0h
Perform final conversion 1806h 1/31/96 12/11/96 0h
Clean Up 1806h 1/31/96 12/11/96 0h
Claim - Remarks 301d 1/31/96 12/11/96 0h
Collect detailed info 1806h 1/31/96 12/11/96 0h
Create file extracts 1806h 1/31/96 12/11/96 0h
ClaimsConfiguration 1806h 1/31/96 12/11/96 0h
Write specs & test plan 1806h 1/31/96 12/11/96 0h
Present specs, make corrections 1806h 1/31/96 12/11/96 0h
User sign off on specs & test plan 1806h 1/31/96 12/11/96 0h
Program & unit test 1806h 1/31/96 12/11/96 0h
Perform 'test' conversions 1806h 1/31/96 12/11/96 0h
Assist w/ error corrections 1806h 1/31/96 12/11/96 0h
Error corrections - users 1806h 1/31/96 12/11/96 0h
Assist with user testing 1806h 1/31/96 12/11/96 0h
User testing - users 1806h 1/31/96 12/11/96 0h
User task sign-off 1806h 1/31/96 12/11/96 0h
Perform final conversion 1806h 1/31/96 12/11/96 0h
Clean Up 1806h 1/31/96 12/11/96 0h
Claims - Counters 301d 1/31/96 12/11/96 0h
Collect detailed info 1806h 1/31/96 12/11/96 0h
Write specs & test plan 1806h 1/31/96 12/11/96 0h
Present specs, make corrections 1806h 1/31/96 12/11/96 0h
User sign off on specs & test plan 1806h 1/31/96 12/11/96 0h
Program & unit test 1806h 1/31/96 12/11/96 0h
Perform 'test' conversions 1806h 1/31/96 12/11/96 0h
Assist w/ error corrections 1806h 1/31/96 12/11/96 0h
Error corrections - users 1806h 1/31/96 12/11/96 0h
Assist with user testing 1806h 1/31/96 12/11/96 0h
User testing - users 1806h 1/31/96 12/11/96 0h
User task sign-off 1806h 1/31/96 12/11/96 0h
Perform final conversion 1806h 1/31/96 12/11/96 0h
Clean Up 1806h 1/31/96 12/11/96 0h
AMISYS Acceptance TESTING 301d 1/31/96 12/11/96 0h Develop Test Plan/User
Community 1806h 1/31/96 12/11/96 0h Create Test Scenarios/MBC 1806h 1/31/96
12/11/96 0h Input Test Cases/MBC 1806h 1/31/96 12/11/96 0h Review Test
Results/User Community 1806h 1/31/96 12/11/96 0h Document Test Results/MBC 1806h
1/31/96 12/11/96 0h Sign off/Testing/User Community 1806h 1/31/96 12/11/96 0h
AMISYS Integration Testing
/User Community 301d 1/31/96 12/11/96 0h Authorization Testing/In&Out
Patient1806h 1/31/96 12/11/96 0h Claims Testing/In & Out Patient 1806h 1/31/96
12/11/96 0h Membership Testing 1806h 1/31/96 12/11/96 0h Provider Testing 1806h
1/31/96 12/11/96 0h
CLIENT REVIEW, APPROVAL & LIVE 301d 1/31/96 12/11/96 0h Client Reviews Test
Results 1806h 1/31/96 12/11/96 0h Client Approves Test Results 1806h 1/31/96
12/11/96 0h
Client Approves AMISYS
for Installation 1806h 1/31/96 12/11/96 0h
Move Modules to Production 1806h 1/31/96 12/11/96 0h
GO LIVE SUPPORT 301d 1/31/96 12/11/96 0h
1806h 1/31/96 12/11/96 0h
POST-LIVE Support 301d 1/31/96 12/11/96 0h
Implementation 1806h 1/31/96 12/11/96 0h
Training 1806h 1/31/96 12/11/96 0h
Job Scheduling 1806h 1/31/96 12/11/96 0h
POST-LIVE ANALYSIS/ACTIVITIES 301d 1/31/96 12/11/96 0h On-Site Production
Support 1806h 1/31/96 12/11/96 0h Response Time 1806h 1/31/96 12/11/96 0h
Accuracy 1806h 1/31/96 12/11/96 0h Efficiency 1806h 1/31/96 12/11/96 0h
Transition 1806h 1/31/96 12/11/96 0h
AMISYS SYSTEM IMPLEMENTATION SURVEY
GLOBAL REQUIREMENTS (These answers apply across all lines of business for
your area)
1. List the offices in your area:
What do Address Administrative Number of Will Site Use
you call it? Telephone Continuum Other Employees AMISYS
2. List your client contracts: (Attach all copies of contracts)
Name of Client Name of Program Product # of # Groups Start Date
Company (i.e. Members # Bene. Pkg. Renewal Date
Sanus, Humana)
3. Please attach an organizational chart. NOTE: If you are considering
adding or reorganizing any positions, describe what you have in mind:
4. Are you anticipating any contractual changes in your area? Include any
increases, losses or possible new contracts.) Please explain.
5. Do you maintain PCP's? IF YES, please explain how is it done?
6. What types of reporting are mandated by the state you are operating in?
Please include report samples.
7. Please circle the software systems that are presently being used/planned
at your site?
<PAGE>
PC Application Software Managed Care Applications
WordPerfect AS400
Word Bionet
Lotus HP9000/DEC
Excel
Harvard Graphics
Power Point
dBase
Paradox
PFS First Choice
Other
8. Do you have a Local Area Network? [ ] Yes [ ]No
If YES, do you have a router?
9. Are you currently using e-mail on your LAN System?
10. Are your PCS currently running Windows? [ ] Yes [ ]No
11. Please provide an inventory of the following Hardware at your site(s):
386s--on Net 486s--on Net Description
PCS
LAN Ports
Dumb Terminals
Printers
<PAGE>
General Requirements
Please complete pages 2-20 for each client contract that you administer.
The following categories will be questioned:
General
Enrollment
Benefits management
Providers
Provider Credentialing
Pricing
Medical Management
Authorizations
Utilization Review and Case Management
Appeals
Quality Assurance/Quality Improvement
Customer Service
Reporting
Claims Adjudication
Claims Payable
Work Flows
<PAGE>
NAME OF CLIENT:
Does this client support any of these products?
o ASO
o HMO
o PPO
o Integrated EAP
o POS
o Medicare
o Medicaid
o Indemnity
o Others (specify)
2. Do you require the system to accommodate a specific check stock for
this line of business?
[ ] Yes [ ] No
3. Who are your contracts at the client site and which of your local
staff do you prefer to work with the client?
4. List any service guarantees and corresponding penalties that you have:
5. Are you in any type of transition period? Please describe.
6. Do you pay any claims in your administrative offices?
(Be specific by outpatient, inpatient, etc.)
7. How many Intake Coordinators are on your staff?
8. How many Case Managers (Outpatient) are on your staff?
9. How many Utilization Managers (Inpatient/Alternative Levels of Care)
are on your staff?
ENROLLMENT
1. Do you receive a membership tape from this client? If yes, attach the
format requirements that you have given to your clients and complete
the following.
[ ] Yes [ ] No
Complete or Frequency of Where is tape
Update Tape Received Type of Media originally mailed? # of Members
2. What is the process for receiving and loading membership tapes?
3. What subsets of the entire enrollment need to be identified for
reporting purposes (e.g., COBRA, Medicare, etc.)?
4. What types of reporting are required by your client, based on the
membership tapes received? Please provide examples (i.e., error
reports, paid claim tape formats, etc.).
5. How does your client identify the contract holder/subscriber.
How do you identify the member's relationship to the subscriber?
6. Do you administer a waiting period (pre-existing clause) before
benefits are paid? Please explain.
[ ] Yes [ ] No
7. Is dual enrollment a consideration with this client Please explain.
[ ] Yes [ ] No
8. Do you have a procedure for detecting subscribers or members with other
insurance? Please describe.
[ ] Yes [ ] No
9. If this client requires your tracking of PCPs in any way, does the
membership tape provide PCP information?
[ ] Yes [ ] No
10. Does the client require PCP reporting?
[ ] Yes [ ] No
BENEFITS MANAGEMENT
1. How many benefit packages do you administer? Identify and attach each
benefit package using the following grid.
Benefit Identifier Client Group Membership Handbook
Attached
2. Describe the basic limitations/exclusions and general covered services
for your major benefit plans.
3. Do you track the following counter information? Any additional
counters not listed?
[ ] Yes [ ] No
o Days
o Visits
o Dollar limitations
o Maximums
o Copays
o Coinsurance
o Deductibles
<PAGE>
4. What is your definition of a visit? An encounter?
5. What types of penalties are imposed when authorization is required
but not obtained?
6. Are there certain diagnoses or procedures that should always be
flagged for further review?
[ ] Yes [ ] No
PROVIDER
1. Provide informal number of contents of each client network for
individuals, facilities, groups agencies and any other category you track.
Provide a description of each type.
2. Provide lists of all providers with whom you now have or at any time
contracted and all non-participating providers to whom you leave paid a
claim within the past year. These lists should be completed in the
following stages:
a) Identify the system where the list was produced
b) List as much information as your systems will provide, including
o service address and telephone number
o billing address
o TIN #
o Fully credentialed and is there a file with
all the information
c) Sort and clearly identify by:
o Individual
o Facility
o Groups
o Agencies
d) Provide a description of each of the categories listed in
(b) mentioned above
e) Under each client contact identify participating
vs. non-participating.
f) Under each client contact identify leased vs. MBC.
g) Indicate the following category by each: (If there are
more than one, list each that applies)
o MD - Physician
o DL - Doctoral Level
o MS - Master's Level
<PAGE>
o OT - Other
o FC - Facility
o LF - Leased Facility
o GR - Group
o LG - Leased Group
h) Identify by "A", "B", etc...each fee schedule that you
use and attach it to your
lists of providers.
i) Indicate by each provider the appropriate fee schedule
as "A", "B", etc... If
you have more than one category as indicated in (e) above,
provide a fee schedule for each category.
PROVIDER CREDENTIALING
Do you do credentialing or contracting for this client? If so, please complete
the following section.
1. Briefly describe your Credentialing process.
2. How frequently do you re-credential? Does it vary for different
types of providers. How do you track the next Credentialing date?
3. Does your client require any special audits? (e.g., NCQA).
[ ] Yes [ ] No
PRICING
1. Describe criteria for varying payment, e.g., geographic location of
provider, location of service procedure code, etc.
2. What funds are defined? (e.g., referral, hospital)
3. Describe late claims submission requirements.
4. Describe any unusual or difficult pricing schemes that are in place.
5. Do you use any prompt pay discounts?
[ ] Yes [ ] No
<PAGE>
Please describe.
6. Attach all fee schedules and identify each one as "A", "B", etc.
Be sure each schedule is clearly identified for type of provider and
network, if applicable.
MEDICAL MANAGEMENT
Authorizations
1. Describe the process of entering referrals. Are they entered on-line
or on paper? Please have available examples of the forms used to track
referral information.
2. Describe the types of service that will always require an authorization
in order to be paid.
3. Describe the type of services that if unauthorized will pay a
reduced benefit.
4. Describe the types of service that will be denied if unauthorized.
5. Do you automatically assign next review date for Hospital authorizations?
[ ] Yes [ ] No
Describe:
6. Describe reasons for pending or denying authorizations.
7. What information from the actual service needs to be updated on
the authorization?
Utilization Review And Case Management
1. Are prospective, concurrent and/or retrospective case reviews performed
at your site? Specify.
2. When do you require a physician review and what is the process?
3. Describe the process of concurrent review for inpatient admissions.
Is any of this automated?
<PAGE>
4. What inquiry capabilities are required for case management?
5. How do you determine when to begin a new episode?
6. How do you handle multiple "cases" for the same member?
How do you determine when the same member has a new "case"?
7. Do you track diversions? If so, how?
Appeals
1. How many levels of appeal does this client require?
2. What is your appeals process?
3. Who can initiate an appeal?
4. Do you generate any correspondence related to appeals?
Quality Improvement/Quality Assurance
1. What is the structure of your QI/QA department?
2. What types of quality issues do you monitor?
TECHNICAL
1. Where do you process the following:
Application Bionet Other System (including
Manual)
Authorizations
Customer/Member Services
Appeals
Grievances
Physician/Management
Review
1099's
<PAGE>
Utilization Management
EAP
Intake
Case Management
Provider Contracting
Credentialing
Negotiating
Claims Payable
CUSTOMER SERVICE
1. How many representatives are there currently?
2. How do you categorize types of calls?
3. From what areas do the representatives need to access information?
4. How do you measure productivity?
5. How do you identify the representative on each call?
6. What types of correspondence are generated?
7. What types of follow-up systems are used? Are they manual or system
generated? Are there any routing systems in place?
8. How do you identify the status of a phone call?
REPORTING
1. Provide a listing of ALL reports that you presently use.
This list should include the REPORT NAME and a brief DESCRIPTION.
2. Sort the above mentioned list by department where the report is used.
Use the following classifications:
<PAGE>
o Inpatient/Alternative Level of Care Utilization Management (UM)
o Outpatient Case Management (OP)
o TQM
o Intake (IN), Customer Service (CS)
o Provider Relations (PR)
o Claims (CA)
o Client Required (CR)
o Regional (RG)
Indicate on each identified report a priority of:
(A) Required By GO LIVE (B) Required but not critical for GO LIVE
(C) Seldom used, may not be necessary.
4. List your client required "special reports":
(Attach copies of ALL client reports)
Name of Report Frequency Description
8. Does the client require HEDIS or GHAA reporting?
CLAIMS ADJUDICATION
NOTE: Claims Adjudication and Claims Payable to be completed by
the Claims Department at NSC.
1. What training will be needed for this area/client contract?
Specify type and estimate number of processors.
2. Describe the customer service functions, if any, that you perform for
these contracts?
3. Describe the eligibility process for this contract.
4. Does the current system handle adjudication of such processes as copays,
deductibles, member benefit limits, family benefit limits and withhold.
Describe all cases that are handled manually.
[ ] Yes [ ] No
5. Describe all systems that have been utilized to pay claims for this
contract. Indicate corresponding dates and whether the claims were
inpatient, alternative levels of care, outpatient, all, or any other
combination.
6. Describe the identifiers you use to classify types of services,
such as physician services and laboratory services.
7. How do you identify locations of service? Are they determined by
procedure, diagnosis, provider, or by some other element?
8. Do you have special cases where certain types of services must be
performed in certain location? Describe.
[ ] Yes [ ] No
9. Are certain procedures or diagnoses pended automatically?
[ ] Yes [ ] No
10. Describe the reasons for pending claims.
11. Describe your COB process.
12. What are your special requirements regarding your lag date and
pending claims? Do you use any client interfaces in claims?
CLAIMS PAYABLE
1. How often is claims Payable run?
2. Do you currently support 1099's? If Yes, from which system?
[ ] Yes [ ] No
3. Do you do any electronic transfers for this client?
[ ] Yes [ ] No
<PAGE>
4. Does this client require a specific client stock? Attach a sample.
5. If you have underpaid/overpaid the provider, do you net the
difference from the next check to the provider?
6. If you have underpaid/overpaid the provider, does he ever return the
check to you or cut a check to you for the difference?
WORK FLOWS:
This section describes proposals for each of the major network flows at the
site. Each description consists of a summary of impacts to the work flow, a list
of recommendations, and a detailed work flow narrative, and work flow schematic
recommendations as well.
<PAGE>
SCHEDULE B
AMISYS IMPLEMENTATION AND SYSTEMS
INTEGRATION SERVICES AGREEMENT
SERVICES AND STANDARDS
SCHEDULE B
TABLE OF CONTENTS
Section I - Scope of Responsibilities Page
Section II - Base Implementation Services Page
Section III - Systems Integration and Reporting Services Page
Section IV - Additional Services Page
<PAGE>
SECTION I
SCOPE OF RESPONSIBILITIES
Capitalized terms not defined in this Schedule have the meaning given such terms
in the Agreement. PSC will provide services in three categories under the
Agreement: Implementation services, systems integration and reporting services
and additional services. The implementation services, which are described in
Section 11 of this Agreement ("Base Implementation Services"), are included as
part of the Base Implementation Fee described in Section 5.1 of the Agreement.
The System Integration and Reporting Services are described in described in
Section III of this Schedule B. Payment for such services will be provided under
the terms described in Section 5.2 of the Agreement. Other services beyond the
scope of the services described in Sections 11 and III of this Schedule are
considered Additional Services and shall be provided in accordance with the
terms of Section IV of this Schedule B and will be billed pursuant to the hourly
rates specified in Section 5.3 of the Agreement or at such other rates as the
parties may agree.
Base Implementation Services
PSC and MBC are responsible for the migration of MBC's Bionet systems in 1996
and HP9000 systems in 1997 to the AMISYS Managed Care system ("AMISYS System").
If MBC and PSC choose to renew the Agreement in 1998, PSC will be responsible
for providing services to migrate MBC's AS/400 managed care systems to the
AMISYS System. PSC will provide the Base Implementation Services described in
Section 11 of this Schedule B in support of this migration. PSC will deliver
such Base Implementation Services necessary to comply with the implementation
Acceptance Criteria described in Section I of Schedule C.
System Integration and Reporting Services
PSC will provide the Systems Integration and Reporting Services required to
deliver AMISYS implementations as described in Section III of this Schedule B.
PSC is responsible for developing technical specifications, programming, unit
and systems testing of necessary interfaces and reports. MBC is responsible for
acceptance testing requested interfaces and reports to insure that they comply
with applicable business requirements.
<PAGE>
Additional Services
PSC will provide cost and time estimates related to Additional Services
requested by MBC. These services are more fully defined in Section IV of this
Schedule B.
The specific services included in each of these categories to be provided by PSC
are more fully described in Sections 11, III, and IV of this Schedule B.
SECTION II
BASE IMPLEMENTATION SERVICES
Project Management, Planning, and Analysis
o For each MBC site at which PSC will implement the AMISYS System, PSC
will develop a business evaluation for each legacy system migration
followed by the development of a project plan detailing specific tasks,
time frames, responsibilities, and Deliverables. A generic business
evaluation document and project plan is set forth in Schedule A. These
generic documents w ill be used to develop a site specific project
plan. The scope of each project plan will include project management,
training, configuration and conversion of MBC's legacy systems to the
AMISYS System
o PSC will develop, execute and maintain a Master Project Plan ("MPP")
schedule and the coordination of the updates on an as needed basis.
o PSC will maintain the MPP to reflect actual project completion dates
and make any work plan changes as mutually agreed upon between PSC and
MBC. PSC will distribute project updates to the project team (MBC and
PSC key management personnel) as needed, but no less than monthly. With
specific references to the MPP, PSC shall be responsible for:
o Providing project status reports to the project team on
a weekly basis.
o Reporting variances between the planned and actual completion
dates to the project team. A joint assessment will be made by
the project team to determine the cause and impact of the
project variance. Project scheduling will be done based on the
monthly, or as needed, project assessment.
o Reporting any late and potentially late project tasks that, if
not addressed, will impact the project schedule. Develop short
interval schedules that will address management issues
identified in the monthly report.
o Reporting key accomplishments along with those activities
scheduled for the
<PAGE>
next reporting period to the project team.
o Assisting with additional tasks, when mutually agreed upon
by MBC and PSC.
PSC Project Team
o PSC Management Team. PSC shall provide a Core Management Team c
onsisting of an Account Manager, Implementation Manager and Technical
Manager to direct and oversee all aspects of the AMISYS System
implementations and migration from the MBC legacy systems. The
Account Manager will report to the MBC Project Manager and be
accountable for all related projects and deliverables for services
provided by PSC. The Core Management Team will be responsible for
coordinating PSC staff, AMISYS(R)staff and MBC employees assigned to
the project. The Core Management Team will be responsible for
tasking each MBC employee assigned to the AMISYS(R) System
implementations. Each member of the Core Management Team will be
dedicated to MBC for a minimum of two (2) years, provided such
individuals employment with PSC continues for this period.
o Project Managers. PSC shall provide Project Managers to support three
(3) concurrent implementations. Each Project Manager will report to a
PSC core manager and be responsible for an installation. Project
Managers responsibilities include management of all aspects of an
installation including project plan development and oversight, task
development and assignment to PSC staff, AMISYS staff, and MBC staff
assigned to the projects. Tasks to be included and managed by the
Project Manager include system configuration, conversion, systems
integration and software development.
o Transition Manager and Team. PSC shall provide a Transition Team to
assist in the completion of implementations performed by PSC and to
transition the support responsibility to the MBC customer service
team ("MBC Support Team") who will be responsible for the on-going
support of all AMISYS sites. The Transition Team will manage all
aspects of post-implementation issue resolution and site migration
to MBC Support. The Transition Team will lead each implementation
after the Live Date (as defined in Schedule C) for a period of no
more than ninety (90) days. During this ninety-day transition period,
the Transition Team will complete turn-over documentation in
preparation for MBC to assume support responsibilities. The
Transition Team's responsibilities include resolution of initial
conversion issues, configuration issues, problem resolution and
procedural use of the AMISYS system.
o Business Analysts. PSC will provide Business Analysts to provide
configuration support, training, and transition support to the MBC
Support team. As implementations are defined, PSC will assign Business
Analysts to complete required tasks. These tasks include Benefit Plan
configuration, testing, training and any other related configuration
requirements defined in a Project Plan.
<PAGE>
o System Engineers. PSC will provide technical resources as required
("Systems Engineers") to meet required system conversion requirements.
As implementations are defined, PSC will assign System Engineers to
complete required tasks.
AMISYS Applications
o As part of the AMISYS System implementations, PSC will implement the
AMISYS subsystems described below. PSC shall provide implementation
management, system configuration, training and transition support
services for each site defined. AMISYS modules to be implemented as
part of the Base Implementation Services Fee include-.
- Security
- Membership
-Authorizations
-Claims / Liability Recovery
-Phone Log
-Correspondence Generator
-Configuration Testing
-Benefits Configuration
-Provider
-Clinical
-Pricing
-MURS
Conversion Services
o PSC shall provide required Systems Engineers in the data conversion of
the Bionet, HP9000 and AS400 systems. The following Conversion
services, when appropriate, are included as part of the Base
Implementation Fee.
o Membership - conversion for each site will include the actual
membership data and miscellaneous membership. The data sets included
in Membership conversion are: Contracts, Contract-Spans, Members,
Member-Spans and Member Addresses. Miscellaneous Membership includes
the Member Remarks data sets.
o Claims - conversion of the claims files for each site include the
Claim, Service and Claim Remarks, and the Claims counters (Counter-M)
data sets only. Only paid and denied claims will be converted using the
Claim and Service data sets. Pended claims are not included in the
conversion services. Required data entry of needed data elements will
be resolved in the legacy system or manually entered by MBC users in
the new AMISYS environment.
<PAGE>
o Authorizations - conversion of the Authorization files for each site
include: the Authorization, Authorization Detail, Admission and
Authorization Remarks data sets only.
o Providers - Where possible, considering data availability and accuracy,
provider files for each site will be converted from the AS/400 system
(Bionet). These files include-. Provider, Address, Affiliations,
Remarks and all appropriate historical spans.
o Clinical - If Clinical data is captured on a legacy system an analysis
will be performed to determine whether "legacy" clinical data can be
converted to AMISYS. If this conversion analysis determines that this
"Clinical Conversion" is technically feasible, PSC will provide such
service.
o EAP - All membership related EAP data, including but not limited to,
member demographics, employment history, salary data and occupational
data will be converted to the AMISYS System when EAP functionality is
available on AMISYS.
o All other files on these systems will be data entered by MBC employees
not assigned as part of the MBC Project Team. Any requests to convert
the files will be considered as an Additional Service and may be
completed with the Service Request process described in Section IV of
this Schedule B.
o PSC conversion technicians will work with MBC users to map data
elements from legacy systems to the AMISYS System. Systematic data
clean up will be performed where possible to compensate for
deficiencies in existing MBC systems. PSC technicians will develop
conversion programs and unit test plans, support implementation teams
in systems testing efforts and provide support to MBC users during
acceptance testing.
o PSC will perform the following tasks in connection with converting data.
1. Collect detailed information on the current system.
2. Develop specifications and unit test plans for each data set
to be converted.
3. Present specifications to MBC users and make corrections.
4. Develop programs and unit test.
5. Conduct test conversions.
6. Assist with error corrections from 'test' conversions.
<PAGE>
7. Assist with user testing.
8. Conduct final conversions.
9. Migrate converted data into production.
10. Provide support to users completing manual corrections after
final conversion.
11. Provide go-live support to assist in general troubleshooting.
12. Provide Conversion project management.
13. Provide on-site visits as required
o The following items are not included in Conversion Services and, if
needed, may be facilitated using Systems Integration and Reporting
Services outlined in Section 111. These tasks will require separate
estimates and will be included in Systems Integration and Reporting
Services.
o Developing interfaces for other systems
o Developing interfaces for enrollment or claims data received
from outside sources
o AMISYS Customization and/or Custom Reports a Converting
General Ledger information
o Transferring A/R balances
o The following data will be entered manually by MBC users:
o Groups & Divisions
o Providers(to the extent not systematically converted)
o Provider Remarks(to the extent not systematically converted)
o Provider Addresses(to the extent not systematically converted)
o COBRA
o Medical Management
o COB
o Comments Other Than Membership, Claims, and Authorizations
Transition Services
The PSC Transition Team will be responsible for supporting sites for
the first ninety (90) days after the Live Date. Transition Services
will include the following activities:
1. Migrating sites to the MBC Support Team;
2. Documenting operational issues which arise from each site as
it relates to the use of the AMISYS System and resolving such
issues with MBC users and MBC management;
3. Providing and coordinating any follow-up training as needed
for MBC AMISYS
<PAGE>
users;
4. Tracking and reporting issues relating to the AMISYS System;
5. Providing all implementation documentation to MBC management
for each site; and
6. Performing with the MBC Support Team a Post Implementation
Review to assess the current environment at each site. This
review will be performed no earlier than 60 days after the
Live Date and not more than 75 days after the Live Date.
Implementation Sites and Time Frames
o PSC shall complete the required Bionet migrations for the specific
sites listed below in the 1996 calendar year. Each of these sites will
each have an implementation project plan that will be mutually agreed upon
by PSC and MBC prior to commencing the implementation. The generic
project plan set forth in Section 1 of Schedule A, shall serve as the
general framework for implementation of the AMISYS System. This
generic project plan will be customized for each MBC site. The project
plan may be amended from time to time with the consent of both parties.
The definition of completed implementations are those sites that have
either been transitioned to the MBC Support Team or are in the 90-day
transition period. The 1996 commitments include-
Indiana - This effort includes support and cleanup of Bionet
installations only. The Transition Team will develop an action plan and
use this site as the model for transition to the MBC Support Team. The
transition period will begin on February 1 and will be completed within
ninety (90) days and the MBC Support Team will assume responsibility by
April 30, 1996.
Illinois - The implementation team will complete the migration of
existing Bionet accounts. The Transition Team will develop an action
plan for the outstanding Bionet issues. The transition period of this
site begins on February 1, 1996 and the transition to the MBC Support
Team will be completed by June 15, 1996.
Massachusetts/Vermont - This implementation includes conversion of the
Bionet system only. An implementation project plan will be developed
and this site will be one of the first implementations to begin in
1996. The Live Date shall be July 31, 1996.
Ohio - This implementation will parallel the Indiana office transition
and a separate project plan will be developed to migrate the offices
and complete transition into the Indiana offices. This implementation
will be started by March 1, 1996 (implementation Start Date). A project
plan will be developed thirty (30) days after the Implementation Start
Date which will define the Live Date for this implementation in 1996.
Colorado/Arizona - An implementation project plan will be developed
and all Bionet accounts will be migrated to the AMISYS System
in 1996. This implementation will be started by March 1, 1996
(Implementation Start Date). A project plan will be developed
thirty (30) days after the Implementation Start Date which will
define the Live Date for this implementation in 1996.
Florida - An implementation project plan will be developed and all
Bionet accounts will be migrated to the AMISYS System in 1996. This
implementation will be started by June 15, 1996 (Implementation Start
Date). A project plan will be developed forty-five (45) days after the
Implementation Start Date which will define the Live Date for this
implementation in 1996.
Hawaii - An implementation project plan will be developed and all
Bionet accounts will be migrated to the AMISYS System in 1996. This
implementation will be started by July 31, 1996 (Implementation Start
Date). A project plan will be developed forty-five (45) days after the
Implementation Start Date which will define the Live Date for this
implementation in 1996.
New York Metro Region - The implementation project plan for the New
York Metro AMISYS System will be defined and initiated in 1996. The
scope of this migration is currently undefined and will not be
completed in 1996. It is expected that the Empire project will be
transitioned first followed by the remaining HP9000 accounts. This
implementation will be started by July 31, 1996 (Implementation Start
Date). A project plan will be developed sixty (60) days after the
Implementation Start Date which will define the Live Date for this
implementation in 1997.
o Requirements associated with the implementation of HP9000 and Texas IDX
sites on the AMISYS System in 1997 will be defined in a roll-out plan
which will be agreed to by PSC and MBC by September 1, 1996.
o The requirements for the transition of the AS/400 based systems to the
AMISYS System have not been defined. PSC will work with MBC in 1996 and
1997 to define the AMISYS System's capability to support this business.
Required software modifications and implementation activities will be
specified in project plans. PSC will execute AS/400 implementation
plans (assuming the continuance of this agreement) in 1998 culminating
in the transition of all MBC core business to the AMISYS System.
<PAGE>
SECTION III
Systems Integration and Reporting Services
PSC will provide systems integration and reporting services in support of MBC
sites implemented on the AMISYS System. To complete required systems interfaces,
system reporting and other related system development needs, PSC shall provide
Systems Integration and Reporting Services in addition to the Base
Implementation Services.' These services will be used in conjunction with the
implementations, and the process for initiating requirements will be through a
Service Request process defined as follows- Prior to beginning any development
projects PSC will provide an estimate of effort and duration which will be
approved by MBC. This Service Request (SR) will be approved or denied by MBC
within five (5) working days of submission of the SR. A work plan will be
developed as part of the Site Project Plan, if appropriate, or a development
work plan will be maintained as part of each SR. Each work plan will document
the applicable RADDIO processes.
o Report development services will be managed through a standardization
process directed at minimizing custom site specific reports in support
of centralized MBC corporate reporting standards.
o Required system interfaces will be implemented using a standard
approach that will promote efficiencies in data center and user
department operations.
<PAGE>
SECTION IV
Additional Services
Upon MBC's request, PSC shall provide MBC with software development,
modification services, additional implementation services for new business,
Enhancement work and other billable work related to the AMISYS System, plus
training, installation and consulting work (cumulatively "Additional Services").
MBC will submit a definition of the request in writing, including functional
specifications, sample screens and reports, data requirements and reference to
current system functions where applicable. This written request shall constitute
MBC's request for resource estimates and associated costs to MBC to complete
said project. If functional specifications are incomplete, MBC may authorize
PSC, in writing, to develop a specifications document and agrees to pay for the
time to provide it at the rates set forth in Section 5.3 of the Agreement.
Within fourteen (14) working days from: (a) PSC's receipt of MBC's written
request- or (b) MBC's approval of the specifications document developed by PSC,
if such a document is developed by PSC, PSC shall provide to MBC a cost estimate
and expected completion date for the project. For more complex projects, PSC may
extend the analysis and estimating period to thirty (30) days.
Upon MBC's approval of the estimates provided by PSC, PSC will proceed
with the project. A project plan, which will include a description of
Deliverables, will be developed and provided to MBC for approval. Upon
approval of the project plan, PSC will schedule the Deliverables. Upon
completion of the Deliverables, PSC will provide the following:
i) an acceptance plan to unit test the modification as well as system
test the changes.
ii) a written report describing documentation changes, technical
documentation and implementation procedures.
iii) copies of source code changes, screen changes or database changes.
o Except to the extent included in Base Implementation Services, PSC
shall provide to MBC other project-requested services such as network
management, AMISYS system configuration, conversion services, systems
integration services and training services. MBC will submit, in
writing, a definition of the request including any contractual
requirements. This constitutes MBC's request for resource estimates
and associated costs to MBC to complete the requested project. If
functional specifications are incomplete, MBC may authorize, in
writing, PSC development of a specifications document and agrees to
pay for the time to provide it at the rates set forth in Section
5.3 of the Agreement.
Within fourteen (14) working days from receipt of (1) the project
request; or (2) MBC's approval of the specifications document developed
by PSC, if such document is developed by PSC, PSC shall provide MBC a
cost estimate and expected completion
<PAGE>
date of the project. For more complex projects, PSC may extend the
analysis and estimating period to thirty (30) days.
Upon MBC approval of the project estimate provided by PSC, scheduling
of the project will be initiated and a proposed project plan provided
to MBC. For each project approved by MBC, a detailed project plan will
be developed detailing tasks and responsibilities of each party.
Upon approval of the project plan, PSC will schedule the . project. PSC
shall be responsible for maintaining the project plan to reflect actual
project completion dates and making any changes as mutually agreed
between MBC, customer and PSC. Project plans shall be distributed
monthly. If at any time during a project operating on a fixed price
basis, MBC or customer party does not fulfill their assigned tasks, PSC
will have the right to add additional resources to the project to
ensure completion as scheduled or inform MBC, in writing, that the
project plan will have to be modified.
<PAGE>
SCHEDULE C
IMPLEMENTATION AND SOFTWARE DEVELOPMENT
ACCEPTANCE CRITERIA
SCHEDULE C
TABLE OF CONTENTS
Section I AMISYS Implementation Projects Page 3
Section II Software Development Page 7
Section III Additional Services Page 9
<PAGE>
SECTION I
AMISYS IMPLEMENTATION PROJECTS
Master Project Plan
A Master Project Plan will be maintained to identify high-level tasks and
Deliverables necessary to meet PSC commitments and MBC stated business
objectives. The Master Project Plan will incorporate milestone dates and
activities described in site-specific project plans for the implementation
projects as defined in Schedule B. The Master Project Plan will contain the
following key milestones which will be used to monitor its status.
Milestones
o Live Date - The date that each site begins using AMISYS to
support business with production data. The Live Date also
marks the date at which each project enters the ninety (90)
day transition period as defined in Section 11 of Schedule B.
The Live Date will be used to determine each sites status as
related to PSC commitments.
o Subsystem Configuration Completion - This represents the date
by which configuration of each AMISYS subsystem is complete
and available for MBC acceptance testing.
o Subsystem Configuration Acceptance - This represents the date
by which MBC will accept subsystem configuration or identify
required changes and deficiencies.
o Subsystem Data Conversion Completion - This identifies the
date by which data for each subsystem will be converted and
available for MBC acceptance testing.
o Subsystem Data Conversion Acceptance - Identifies the date by
which MBC will accept converted data for each subsystem or
identify required changes and deficiencies. Data conversion
will be deemed to be accepted when all changes identified by
the Subsystem Data Conversion date have been resolved.
Site Project Plan
A detailed project plan will be maintained for each MBC implementation site as
described in Section 11 of Schedule B. The Site Project Plan will contain
detailed information on tasks, timeliness dependencies and responsibilities. The
information in the Site Project Plan will be updated weekly by the Project
Manager. Implementation project status will be reported weekly to appropriate
MBC and PSC staff. The Site Project Plans will be developed jointly
<PAGE>
between PSC and MBC and require the approval of both parties. In addition to the
items defined under Master Project Plan, the Site Project Plans will include the
following key Deliverables and supporting task details specific to each site:
Deliverables
o Implementation Start Date - The commencement date for each
implementation project.
o Configuration Tasks - The following activities will be defined
relating to the configuration of each AMISYS subsystem:
o Configuration Specification - Defines the
configuration parameters and the relationship to
MBC business processes.
o Configuration Specification Approval - MBC's
acknowledgment that the planned configuration meets
the configuration specifications.
o Subsystem Configuration Completion - Defines the date
for each subsystem by which PSC will have all
configuration completed and available for testing.
o Subsystem Configuration Testing - For each subsystem,
defines the plan and date for completion of subsystem
configuration testing.
o Subsystem Configuration Acceptance Test - Defines the
plan and the date by which MBC will perform
acceptance testing and either accept the system or
report to PSC changes and/or deficiencies to PSC to
the extent the subsystem configuration does not meet
the MBC approved configuration specifications or the
acceptance criteria. Each subsystem will be deemed
accepted when all Deliverables are approved by MBC
and the following Acceptance Criteria are met:
Subsystem Acceptance Criteria
Benefits 95% of test claims will map to the appropriate
benefit, or not map to any benefit as defined in
the subsystem configuration specification
Pricing 95% of test claims map to the appropriate pricing
arrangement
- - Conversion Tasks - The following activities will be defined for each
subsystem for which data is converted
<PAGE>
o Data Specification - Defines the mappings and processes to
be used in converting the data from the legacy systems
o Data Specification Acceptance - MBC approval date for data
specification
o Data Conversion Programming - Date conversion programming and
unit testing is complete and data is available for
acceptance testing
o Data Conversion Acceptance Testing - Defines the start and end
dates for MBC acceptance of converted data. The conversion
will be deemed accepted when all Deliverables are approved by
MBC and the following Acceptance Criteria are met:
Subsystem Acceptance Criteria
Provider None
Authorization 95% of authorizations will load without errors
Claims 90% of claims loaded without errors
(Any error relating to data integrity will not be used to
determine the acceptance pass rate unless that error is due to
conversion mapping or programming errors. Errors relating to
source data quality are specifically excluded from the
acceptance pass rate.)
o System Test - Defines the process of jointly testing AMISYS
configuration and converted data to insure all AMISYS modules
and data are consistent with the MBC approved configuration
and data specifications.
o Acceptance Test - Defines the process MBC users will employ to
determine that implementation tasks have been accurately
completed and are in compliance with MBC approved
configuration and data specifications. The AMISYS System will
be deemed accepted by MBC when all Deliverables are approved
by MBC and the following acceptance standards are met-.
Subsystem Acceptance Criteria
General All Deliverables have been presented to MBC
Provider A sampling of 20% of providers have been verified as
accurate
Membership Membership has been loaded with less
than a 5% error rate (Any error
relating to data integrity will not
be used
<PAGE>
to determine the acceptance pass
rate unless that error is due to
interface mapping or programming
errors. Errors relating to source
data quality are specifically
excluded from the acceptance pass
rate.)
Authorization Authorizations map to appropriate
Member Span, Provider, Affiliation
and process to a payable status in
95% of tests.
Claims Claims map to appropriate Benefit, Fee Schedule,
Pricing Arrangement, Provider Affiliation,
Authorization, and Member Span in 90% of tests.
o Go Live Plan - This plan will describe the events necessary
for a site to begin using the AMISYS System with production
data to support business. The plan will be developed by PSC
and approved jointly by PSC and MBC. The plan will describe
the process for the Live Date and go-line support and
migration to the Transition Team for on-going support.
o Transition Plan - A plan will be developed for each site to
describe the process by which post-implementation problems
will be resolved. In addition, the plan will define the
process for migrating to the on-going support of the MBC
Support Team. As part of the Transition Plan, there will be
a Post Implementation review scheduled which will be
conducted jointly by MBC and PSC. This review will document
any additional training needed by the users as well as
outstanding issues, including productivity statistics such
as claims processed per adjudicator per day for each site.
This review will be scheduled no earlier than 60 days after
the Live Date and not more than 75 days after the Live Date.
<PAGE>
SECTION 11
Software Development
Overview
For services provided that include interfaces, base system modifications and
report development by PSC, PSC has been retained to manage and implement the
required functionality as approved by MBC on a modification by modification
basis. PSC will follow its RADDIO methodology during all phases of the project.
Methodology
As part of PSC methodology, each identified function or task has been broken
down into the following processes
A. Development of Business (functional) Specification
B. Development of Technical Specification
C. Coding and Unit Testing
D. Acceptance Testing
E. Development of Production Work Flow Document
The Business Specifications will be developed by PSC associates from the basic
information gathered from MBC users. If additional information or clarification
is needed, questions will be developed and submitted to MBC. The Business
Specifications will identify Deliverables. Meetings will be scheduled as
necessary to discuss issues. These meetings will be limited to reduce the impact
on the AMISYS implementation and conversion efforts. When completed, the
Business Specification will be delivered to MBC for approval. Once MBC approves
the Business Specifications, PSC will develop a Technical Specification for MBC
approval. Acceptance Criteria will be developed by MBC and approved by PSC. The
acceptance process will test to insure that the delivered functionality
satisfies the Business Specifications and the Technical Specifications. Once MBC
and PSC approve the Business Specifications, the Technical Specifications and
the Acceptance Criteria, PSC will begin developing the software.
After all Deliverables have been presented to MBC and PSC has completed coding
and unit testing, MBC will complete acceptance testing within thirty (30) days
after delivery by PSC and notify PSC, in writing, of acceptance or set forth the
manner in which the Deliverables fail to meet the Acceptance Criteria, the
Business Specifications or the Technical Specifications. In the event that MBC
fails to notify PSC within the thirty (30) day period, such Deliverables shall
be deemed to be accepted.
For those deficiencies identified, PSC shall have thirty (30) days from receipt
of notice to
<PAGE>
either:
1. correct the deficiencies outlined in the notice,
2. respond in writing that the work requires more than thirty (30)
days to be completed, but that PSC shall use commercial best
efforts to complete such work as soon thereafter as reasonably
practicable, or
3. respond that PSC does not believe that the alleged deficiency
is truly a deficiency.
Any software development mutually agreed as necessary to a Live Date for any
Implementation as defined in Section I of this Schedule C must be completed
prior to the Live Date for that project or such project shall not be considered
"Live." In any event, all system development related to implementation projects
must be completed prior to transitioning to MBC for on-going support.
If necessary, PSC and MBC may mutually agree upon an additional time period in
order to continue Acceptance Testing of the corrected Deliverable. By accepting
a Deliverable, MBC represents that it has reviewed the Deliverable and to the
best knowledge has detected no errors or omissions unless otherwise specified in
writing.
<PAGE>
SECTION III
Additional Services
Acceptance Criteria for additional projects will be developed and presented at
the point in time when MBC approves PSC to work on the new project. The criteria
described above will be adopted as applicable for implementation or software
development projects.
Upon completion of the project, MBC shall have thirty (30) days for Acceptance
or to notify PSC in writing setting forth the manner in which the Deliverable
does not meet the Acceptance Criteria. In the event MBC fails to notify PSC
within the thirty (30) day period, such Deliverable shall be deemed to be
accepted. For those deficiencies identified, PSC shall have thirty (30) days
from receipt of a notice to either: i) correct the deficiencies outlined in the
notice; or ii) respond that the work requires more than thirty (30) days to be
competed, but that PSC shall use commercial best efforts to complete such work
as soon thereafter as reasonably practicable- or iii) respond that PSC does not
believe that the alleged deficiency is truly a deficiency. If necessary, PSC and
MBC may mutually agree upon an additional time period in order to continue
acceptance testing of the corrected Deliverable. By accepting a Deliverable, MBC
represents that it has reviewed the Deliverable and detected no errors or
omissions in meeting the Acceptance Criteria unless otherwise specified in
writing by MBC.
Merit Behavioral Care Corporation
1 Maynard Drive
Park Ridge, NJ 07656
Dear Sir:
At your request, we have read the description included in your Quarterly
Report on Form 10-Q to the Securities and Exchange Commission for the quarter
ended March 31, 1996, of the facts relating to the Company's method of
accounting for deferred start-up costs related to new contracts or expansion of
existing contracts. We believe, on the basis of the facts so set forth and other
information furnished to us by appropriate officials of the Company, that the
accounting change described in your Form 10-Q is to an alternative accounting
principle that is preferable under the circumstances.
We have not audited any consolidated financial statements of Merit
Behavioral Care Corporation and its consolidated subsidiaries as of any date or
of any period subsequent to September 30, 1995. Therefore, we are unable to
express, and we do not express, an opinion on the facts set forth in the
above-mentioned Form 10-Q, on the related information furnished to us by
officials of the Company, or on the financial position, results of operations,
or cash flows of Merit Behavioral Care Corporation and its consolidated
subsidiaries as of any date or for any period subsequent to September 30, 1995.
Yours truly,
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
May 9, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MERIT
BEHAVIORAL CARE CORPORATION'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD
ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MERIT
BEHAVIORAL CARE CORPORATION'S FORM 10-Q FOR SUCH PERIOD.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 46,000
<SECURITIES> 0
<RECEIVABLES> 28,669
<ALLOWANCES> 1,172
<INVENTORY> 0
<CURRENT-ASSETS> 78,049
<PP&E> 77,176
<DEPRECIATION> 15,405
<TOTAL-ASSETS> 339,428
<CURRENT-LIABILITIES> 81,966
<BONDS> 246,000
0
0
<COMMON> 284
<OTHER-SE> (23,727)
<TOTAL-LIABILITY-AND-EQUITY> 339,428
<SALES> 0
<TOTAL-REVENUES> 222,641
<CGS> 0
<TOTAL-COSTS> 176,291
<OTHER-EXPENSES> 12,837
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