SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 29, 1999
LONG ISLAND PHYSICIAN HOLDINGS CORPORATION
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(Exact name of registrant as specified in its charter)
New York 0-27654-NY 11-3232989
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(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
One Huntington Quadrangle Suite 4C-01, Melville, New York 11747
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(Address of principal executive offices)
(516) 454-1900
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(Registrant's telephone number, including area code)
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(Former name or former address, if changed since last report)
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Item 5. Other Events.
Background. Long Island Physician Holdings Corporation, incorporated
in October 1994 (the "Company" or "LIPH"), is a holding company owned by
physicians residing in New York State and practicing on Long Island, New York.
The Company owns 67% of the stock of MDNY Healthcare, Inc. ("MDNY"),
an independent practice association-model health maintenance organization
("HMO"), that currently operates primarily in Nassau and Suffolk counties, New
York. Catholic Health Care Services of Long Island, Inc. owns the remaining
stock in MDNY. As a result of the Company's 67% ownership of MDNY, MDNY's
financial statements are consolidated into the Company's audited financial
statements. The Company conducts no operating activities of its own and its
principal asset is its stock in MDNY.
MDNY commenced operations in January 1996. At December 31 1999, MDNY
had approximately 73,000 members, comprised of individuals and families,
enrolled in its health maintenance plans, point-of-service plans and Medicare
plans.
Certain Developments. On December 29, 1999, MDNY agreed, pursuant to
a consent (the "NYSDI Consent") with the Superintendent of the New York State
Department of Insurance ("NYSDI"), to a specified schedule of actions toward the
receipt by MDNY by March 31, 2000 of investments from one or more qualified
parties of at least $5 million. MDNY also consented, upon its failure to comply
with such conditions, to the entry of a court order for rehabilitation pursuant
to Article 74 of the New York Insurance Law. Such an order would allow the
NYSDI, as rehabilitator, to take possession of MDNY's assets and assume control
of MDNY's business. After the entry of such an order, NYSDI would also have the
right, pursuant to Article 74, to apply for a court order to liquidate MDNY if
it determined that further efforts to rehabilitate MDNY would be futile. Any
liquidation of MDNY would have a material adverse effect on the value of LIPH's
investment in MDNY. Inasmuch as such investment is the principal asset of LIPH,
a material dimunition in the value of such investment would have a material
adverse effect on LIPH's financial position (including, potentially,
insolvency), and the shareholders of LIPH could lose all or part of their
investment in LIPH.
As of the date of this report, MDNY has not met the schedule of
actions specified in the NYSDI Consent. In particular, MDNY failed to obtain a
letter of intent and to execute definitive agreements regarding the required
investment by the applicable deadlines therefor. MDNY has had further
consultations with the NYSDI. MDNY continues to pursue discussions with
potential investors and existing shareholders with regard to the required
investment. There can be no assurance that MDNY will be able to obtain the
required investment by March 31, 2000, or that any investor or any such
agreement will be satisfactory to the NYSDI. Moreover, there can be no assurance
that any such investment, even if satisfactory to the NYSDI, will enable MDNY to
address its financial difficulties (which are more fully discussed below) in the
long term or that its terms and conditions will not prove to be disadvantageous
to LIPH.
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On January 18, 2000, Richard Radoccia resigned as Chief Executive
Officer of MDNY and was replaced by Paul Accardi, who, prior thereto, had been
MDNY's Chief Financial Officer since March 1997.
Suspension of Expansion Activities. As of September 14, 1998, the
New York State Department of Health (the "NYSDH") had approved MDNY's expansion
into the Western New York region and, as of that date, MDNY began enrolling
members in Erie and Niagara counties. MDNY subsequently requested that the NYSDI
permit MDNY to withdraw all HMO products from the Erie and Niagara county
marketplace. MDNY is in the process of effecting that withdrawal and
contemplates that, after March 31, 2000, MDNY will no longer offer group
policies in Erie and Niagara counties, and that, after May 31, 2000, MDNY will
no longer offer individual policies in that service area. All expansion efforts
of MDNY have been suspended.
Certain Financial Information. The NYSDH and the NYSDI have informed
MDNY that, as of December 31,1998 and 1999, MDNY had a working capital
deficiency of approximately $829,000 and $2,664,000, respectively, and that, as
of December 31, 1998 and 1999, respectively, MDNY was not in compliance with the
reserve requirements imposed by New York State law. The NYSDH and the NYSDI
required MDNY to maintain reserves (in the form of statutory net worth) of
approximately $6.1 million and $8.0 million at December 31, 1998 and 1999,
respectively, compared to MDNY's statutory-basis financial statement net worth
at December 31, 1998 and 1999 of $3.9 million and $2.8 million, respectively.
According to the NYSDH and the NYSDI, MDNY continues not to be in compliance
with the reserve requirements imposed by New York State law.
The financial statements of the Company as of December 31, 1998 and
for the year then ended have been prepared assuming that the Company will
continue as a going concern. The auditor's report states that "the Company has
incurred losses from operations since inception and has utilized substantially
all of the cash raised in its equity infusion in funding its operations. The
ability to continue as a going concern is dependent, among other things, upon
the Company achieving profitable results from operations and obtaining positive
cash flow from operations." The financial statements do not include any
adjustments that might result from the outcome of this uncertainty. The Company
believes, based on preliminary discussions with its independent auditors, that
its financial statements as of December 31, 1999 and for the year then ended
will also be prepared assuming that the Company will continue as a going
concern, and will contain similar explanatory language regarding the Company's
ability to continue as a going concern.
MDNY has entered into agreements (the "Professional Services
Agreements") with certain affiliated independent practice associations (the
"IPAs") and non-affiliated management services organizations for the provision
of applicable healthcare and administrative services. Pursuant to the
Professional Services Agreements, total revenues paid to the IPAs in 1999 were
capitated at 82.5% and 84% of net premium for commercial and medicare enrollees,
respectively. Revenues paid to the IPAs were capitated at 80% of net premium in
1998 and 1997, respectively. As of December 31, 1998 and 1999, the IPAs had a
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collective negative net worth of approximately ($7.1) million and ($11.7)
million, respectively. The IPAs have incurred losses from operations for 1999,
1998 and 1997 and had working capital deficiencies for such years primarily
resulting from Medicare claims exceeding related revenue. In the event that the
IPAs are unable to meet their obligations to members of their provider networks,
MDNY would be responsible for ensuring that an adequate provider network is
maintained to service MDNY's current enrollees. In addition, MDNY could be
responsible for the settlement of outstanding claims to providers contracted
through the IPAs. In such event, there can be no assurance that MDNY would be
able to settle such claims in whole or part, or that MDNY's additional
obligations in respect thereof would not have a material adverse effect on
MDNY's, and, in turn, the Company's, business, financial condition, results of
operations or prospects.
Certain Factors Affecting Future Operating Results. This Report
contains "forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. Such forward-looking statements are
not based on historical facts but are management's projections or best
estimates. The Company's actual results could differ materially from those set
forth in the forward-looking statements due to risks and uncertainties. These
risks and uncertainties include a variety of factors, including but limited to
the following: MDNY's and the IPAs' ability to continue as a going concern; the
inability of MDNY to meet HMO statutory net worth requirements; that increased
regulation will increase health care expenses; that increased competition in
MDNY's markets or a change in product mix will unexpectedly reduce premium
revenue; that MDNY will not be successful in increasing membership growth; that
there may be adverse changes in Medicare premium rates set by federal
governmental agencies; that health care costs in any given period may be greater
than expected due to unexpected incidence of major cases, natural disaster,
epidemics, changes in physician practices, and new technologies; that MDNY will
be unable to successfully expand its operations into other regions of New York
State; and that major health care providers who have assumed capitation risk
from MDNY will be unable to maintain their operations and reduce or eliminate
their accumulated deficits.
Item 7. Financial Statements and Exhibits
Exhibits: 1. Consent dated December 29, 1999 by MDNY in favor of
New York Superintendent of Insurance.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant as duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LONG ISLAND PHYSICIAN HOLDINGS CORPORATION
By: /s/ David J. Weissberg
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David J. Weissberg,
President and Chief Executive Officer
Date: March 1, 2000
December 29, 1999
Hon. Neil D. Levin
Superintendent of Insurance
State of New York
25 Beaver Street
New York, New York 10004
Dear Superintendent Levin:
Pursuant to the authority vested in me by the Board of Directors of MDNY
Healthcare, Inc. ("MDNY"), I hereby confirm that MDNY consents to the entry of
an order of rehabilitation pursuant to Article 74 of the New York Insurance Law,
and to the Superintendent filing an application for such order in the Supreme
Court of the State of New York, County of New York, if MDNY fails to comply with
the following conditions:
1. MDNY shall obtain, on or before January 15, 2000, a letter of intent
from one or more qualified parties that describe a commitment, either by a
single party or in the aggregate by more than one party, to invest at
least five million dollars ($5,000,000) in MDNY by no later than March 31,
2000; and
2. MDNY shall execute, on or before February 15, 2000, a definitive
agreement for the cash infusion of at least $5 million to MDNY by March
31, 2000. The commitment shall be from a party or parties satisfactory to
the Superintendent and in a form satisfactory to the Superintendent. Such
infusion shall in fact be completed by March 31, 2000, and the
Superintendent shall receive, on or before said date, confirmation thereof
in a manner satisfactory to the Superintendent.
Attached hereto is a certified copy of the resolutions of the Board of
Directors which authorized the undersigned to make this consent.
MDNY Healthcare, Inc.
By: /s/ Richard Radoccia
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Name: RICHARD RADOCCIA
Title: CEO
Attachment
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RESOLUTION
Upon motion duly made, seconded and carried, the following resolutions
were adopted by unanimous affirmative vote of the directors present at the time
of the vote at a duly called meeting of the board, a quorum being present.
RESOLVED, that the corporation, by action of an appropriate officer,
consents to the entry of an Order of Rehabilitation pursuant to Article 74 of
the New York Insurance Law and to said proceeding being brought in the Supreme
Court of the State of New York, County of New York, if the corporation fails to
comply with the following conditions:
(1) MDNY shall obtain, on or before January 15, 2000, a letter of intent
from one or more qualified parties that describe a commitment, either by a
single party or in the aggregate by more than one party, to invest at
least five million dollars ($5,000,000) in MDNY by no later than March 31,
2000; and
(2) MDNY shall execute, on or before February 15, 2000, a definitive
agreement for the cash infusion of at least $5 million to MDNY by March
31, 2000. The commitment shall be from a party or parties satisfactory to
the Superintendent and in a form satisfactory to the Superintendent. Such
infusion shall in fact be completed by March 31, 2000, and the
Superintendent shall receive, on or before said date, confirmation thereof
in a manner satisfactory to the Superintendent.
And it is further
RESOLVED, that the Secretary is authorized to certify a copy of such
resolutions as having been adopted by this board in accordance with this
resolution, and the Secretary is hereby directed to affix a copy thereof to
these minutes.
I have compared the foregoing with the resolutions adopted by the board of
directors of MDNY Healthcare, Inc. at a special meeting held at One Huntington
Quad, Melville, a quorum being present, on the 27th day of December, 1999, as
recorded in the minute book of said company, and I hereby certify that the same
is a true, correct, and complete copy thereof, and that the same has not been
rescinded.
Dated:
/s/
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Secretary
