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PROSPECTUS SUPPLEMENT NO. 5 FILED PURSUANT TO RULE 424(B)(3)
TO THE PROSPECTUS DATED JANUARY 24, 1997, REGISTRATION NO.: 333-01926
AS SUPPLEMENTED TO DATE
715 SHARES
CLASS B COMMON STOCK
This Prospectus Supplement No. 5 relates to the issuance by Doctors Health
System, Inc., a Maryland corporation ("Doctors Health") of 715 shares of its
Class B Common Stock, par value $.01 per share (the "Class B Common Stock")
pursuant to the Primary Care Participation Agreement (the "Participation
Agreement") to be entered into among Manuel J. Sevilla ("Physician"), and
Doctors Health. This Prospectus Supplement should be read in conjunction with
the Prospectus dated January 24, 1997 and the Prospectus Supplement No. 1 dated
March 10, 1997 which contains the Company's Quarterly Report on Form 10-Q for
the period ended December 31, 1996.
Doctors Health's principal executive office is located at 10451 Mill Run
Circle, Tenth Floor, Owings Mills, Maryland 21117, telephone number (410)
654-5800. IPA's principal executive office is located at 10451 Mill Run Circle,
Tenth Floor, Owings Mills, Maryland 21117 telephone number (410) 654-5800.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS SUPPLEMENT DOES NOT CONSTITUTE AN OFFER OF ANY
PERSON TO EXCHANGE OR SELL, OR A SOLICITATION FROM ANY PERSON OF AN OFFER TO
EXCHANGE OR PURCHASE, THE SECURITIES OFFERED BY THIS PROSPECTUS SUPPLEMENT IN
ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT NOR ANY DISTRIBUTION OF THE
SECURITIES TO WHICH THIS PROSPECTUS SUPPLEMENT RELATES SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED THEREIN IS
CORRECT AT ANY TIME SUBSEQUENT TO THE DATE HEREOF.
_______________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
_______________
See "Risk Factors" on page S-2 for certain information that should be
considered in connection with an investment in securities of Doctors Health.
The date of this Prospectus Supplement is March 27, 1997.
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RISK FACTORS
FINANCIAL PERFORMANCE OF DOCTORS HEALTH
Doctors Health has a limited operating history and for the fiscal year
ended June 30, 1996 and the six months ended December 31, 1996, recorded a net
loss of approximately $6.6 million and $6.7 million, respectively. Doctors
Health is likely to record a net loss for the fiscal year ending June 30, 1997.
There can be no assurance that following consummation of this transaction
Doctors Health will earn operating profits.
RISK FACTORS SET FORTH IN THE PROSPECTUS DATED JANUARY 24, 1997
The Risk Factors set forth in the Prospectus are incorporated herein by
reference and should be read carefully by investors.
PROPOSED PARTICIPATION AGREEMENT BETWEEN DOCTORS HEALTH AND MANUEL J. SEVILLA
The following description of the transactions contemplated by the
Participation Agreement does not purport to be complete and is qualified in its
entirety by reference to the Participation Agreement, a copy of which is
attached to this Prospectus Supplement as Annex A and is incorporated herein.
Physician is urged to read the Participation Agreement in its entirety.
GENERAL
Pursuant to the Participation Agreement, (i) Physician agrees to
participate in the managed care agreements that Doctors Health enters into with
payors who have contracted with Doctors Health with respect to HMO managed care
products ("DHS HMO Plans"), (ii) Physician agrees to provide eligible persons
who elect to enroll in DHS HMO Plans (each, a "DHS HMO Member") with those
primary care services customarily provided by primary care physicians, as may be
required by the DHS HMO Plans, (iii) Physician will be paid a signing bonus of
$25,025 upon execution of the Participation Agreement and satisfactory
credentialling of Physician by DHS, and (iv) DHS will issue 715 shares of its
Class B Common Stock as a signing bonus. The shares of Class B Common Stock and
the cash payments will be made following execution of the Participation
Agreement, satisfactory credentialling of Physician and delivery of Physician's
financial statements and Medicare patient list to Doctors Health.
ACCESS TO DOCTORS HEALTH SERVICES; CREDENTIALLING
Pursuant to the Participation Agreement, Doctors Health agrees to provide
to Physician, once Physician has 100 DHS Members in his medical practice and at
no cost to Physician, access to the managed care component of Doctors Health's
information system, which offers patient registration, referral tracking and
management and data management capabilities. Doctors Health will also undertake
to credential Physician, at no cost to Physician. Pursuant to the Participation
Agreement, Physician agrees to cooperate with the Doctors Health credentialling
and review process at no cost to Physician.
EXCLUSIVE PARTICIPATION ARRANGEMENT
Pursuant to the Participation Agreement, Physician agrees to participate in
the managed care agreements that Doctors Health enters into with DHS HMO Plans.
Physician is required pursuant to the Participation Agreement to cooperate with
Doctors Health in accepting DHS HMO Members under the DHS HMO Plans, and agrees
not to participate or contract with any other HMO or other payor offering
managed care or other risk-type plans directly or indirectly; provided,
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however, that if Doctors Health chooses not to pursue a contract with an
identified HMO or is unable to negotiate such a contract within a commercially
reasonable time period, Physician shall be free to pursue a contract with the
identified HMO.
CAPITATION RATES; BONUS POOL
The Participation Agreement provides that DHS will determine the
commercial and Medicare primary care base capitation rates using their good
faith best efforts to reflect the prevailing market rate for the county and
city in which Physician provides covered services (the "Primary Care Base
Capitation Rates"). The Primary Care Base Capitation Rates may be adjusted
for age and sex of the DHS HMO members. The Primary Care Base Capitation
Rate shall be adjusted by an amount up to ten percent each based upon (i) a
formula for Commercial HMO Members taking into account certain factors as
capitation panel size, DHS membership growth, scheduled office hours and
service and medical care coordination considerations; and (ii) a formula for
Medicare HMO Members taking into account the number of HMO Members served by
Physician's medical practice. The Commercial and Medicare formulas are set
forth on Exhibit D-21 of the Participation Agreement. All payments of the
Primary Care Base Capitation Rates will be made by Doctors Health directly to
Physician, by the fifth day of the month for the prior month's enrollment.
Physician agrees pursuant to the Participation Agreement not to seek or
collect or accept any reimbursement from DHS HMO Members or the DHS HMO Plans
for any covered services provided to DHS HMO Members, except for co-payments
and coinsurance.
The Participation Agreement also provides that Physician may participate in
a bonus pool established by Doctors Health's affiliated physicians. The amount
of bonus awards are determined according to Doctors Health's primary care bonus
system, rewarding high clinical quality, appropriate utilization, patient
satisfaction and retention and the extent of cooperation with other
participating physicians and Doctors Health. Based upon these factors,
Physician may receive a bonus based upon the surplus generated in Physician's
panel of DHS HMO Members, after managed care expenses, up to a maximum of 25% of
all Primary Care Base Capitation payments received by Physician that year or the
limits provided by applicable health care regulations. Bonus awards for a
calendar year, if any, will be paid by April of the following year. There can
be no assurance that a bonus will be paid in any given year or, if paid, as to
the amount of any bonus. A copy of IPA's bonus system for primary care
physicians is on file at the offices of Doctors Health and will be made
available at the request of Physician.
The Participation Agreement also provides that Physician may participate in
a bonus pool established by Doctors Health's affiliated physicians. The amount
of bonus awards are determined according to Doctors Health's primary care bonus
system, rewarding high clinical quality, appropriate utilization, patient
satisfaction and retention and the extent of cooperation with other
participating physicians and Doctors Health. Based upon these factors,
Physician may receive a bonus based upon the surplus generated in Physician's
panel of DHS HMO Members, after managed care expenses, up to a maximum of 25% of
all Primary Care Base Capitation payments received by Physician that year or the
limits provided by applicable health care regulations. Bonus awards for a
calendar year, if any, will be paid by April of the following year. There can
be no assurance that a bonus will be paid in any given year or, if paid, as to
the amount of any bonus. The DHS Bonus Point System for Primary Care Physicians
is set forth on Exhibit F-23 of the Participation Agreement attached as Annex A.
A copy of IPA's bonus system for primary care physicians is on file at the
offices of Doctors Health and will be made available at the request of
Physician.
OBLIGATIONS OF PHYSICIAN
Pursuant to the Participation Agreement, Physician agrees to abide by and
comply with the relevant provisions of the agreements between Doctors Health and
the DHS HMO Plans and
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comply with all applicable law. Doctors Health will provide Physician with all
relevant provisions that may apply to such Physician. In such connection, the
Participation Agreement provides that Physician shall work cooperatively and in
good faith with Doctors Health and the other Doctors Health affiliated
physicians providing services to the DHS HMO members. Physicians are required
to (i) prepare and maintain customary medical records for services provided to
DHS HMO Members and provide Doctors Health with access to such records without
charge, (ii) comply with and accept the payment conditions of the Participation
Agreement, (iii) comply with managed care medical standards adopted by Doctors
Health affiliated physicians as part of the arrangements with the DHS HMO Plans,
and (iv) cooperate with Doctors Health's efforts to contact eligible Medicare
and adult medicine patients in Physician's practice, including providing mailing
lists and the use of Physician's name in correspondence, and (v) sign and submit
in a timely manner authorizations, consents, encounter data and other forms
adopted by IPA.
Pursuant to the Participation Agreement, Physician will own and operate all
aspects of his medical practice and will remain responsible for all operations
of the medical practice, including all patient treatment decisions and employee,
office, lease and financial affairs. Doctors Health is not engaged in the
practice of medicine and will not interfere in any patient treatment decisions.
The Participation Agreement provides an agreement by Physician not to
differentiate or discriminate in the treatment of patients as to the quality of
services delivered because of race, sex, age, religion, place of residence,
health status or source of payment. Physician is required to make arrangements
for 24 hour seven day per week coverage to DHS HMO Members through other primary
care physicians who participate in the Doctors Health provider network.
Doctors Health will provide to Physician a list of other physicians and
other health care providers who provide medical services in the Doctors Health
provider network. Other than in cases of a bona fide emergency, the
Participation Agreement requires Physician to utilize the Doctors Health
provider network when arranging for additional medical services required by DHS
HMO Members. Doctors Health may use Physician's name, specialty, telephone
number and business location in marketing, descriptive and other information
relating to the DHS HMO Plans. The Participation Agreement provides that
Physician may be precluded from participating in a DHS HMO product by one of the
DHS HMO Plans. In such event, Doctors Health will notify Physician, in writing,
within 30 days of learning of such an action, and will assist Physician, if
requested, in seeking to overturn such an action.
EXISTING PRIMARY CARE CAPITATION CONTRACTS
The Participation Agreement provides that if Physician is a party, directly
or indirectly, to any primary care capitation contract, Physician must notify
Doctors Health of such contract and must use his commercially reasonable best
efforts to assist Doctors Health in replacing such contract with a DHS HMO Plan,
provided that the payment terms of such DHS HMO Plan are at or above the payment
terms of such existing contract.
QUALITY ASSURANCE/UTILIZATION REVIEW PROGRAMS
Pursuant to the Participation Agreement, Physician will participate in all
utilization review, quality assurance and credentialling programs operated by
Doctors Health to assure or improve the quality and effective utilization of
health care services to the DHS HMO Members. In such connection, Physician
agrees (i) not to hold Doctors Health or any other participants in such quality
assurance/utilization review programs responsible for reasonable recommendations
made or actions taken in good faith with respect to Physician, and (ii) to
participate in all programs developed by Doctors Health that are designed to
resolve DHS HMO Member grievances.
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DHS PROTOCOLS
Pursuant to the Participation Agreement, Physician agrees to follow the
protocols and practice procedures which have been developed by Doctors Health's
affiliated physicians which are applicable to physician participants in the
Doctors Health provider network. In such connection, if Physician should ever
deem any aspect of such protocols to be medically inappropriate or otherwise
inappropriate for utilization, Physician may notify Doctors Health in writing
with sufficient specificity to enable Doctors Health to respond to Physician's
concerns.
TERM; TERMINATION
The Participation Agreement will terminate five years from its effective
date unless earlier terminated pursuant to its terms.
Doctors Health may terminate the Participation Agreement by notice in
writing to Physician (i) if Physician materially breaches the Participation
Agreement and such breach continues for 30 days after written notice is given to
Physician by Doctors Health specifying the nature of such breach, or (ii) for
"good cause." The Participation Agreement defines "good cause " to mean the
occurrence of any one of the following: (a) Physician's membership in any
professional organization is terminated for cause related to professional
conduct, or Physician resigns from any professional organizations under the
threat of disciplinary action for professional conduct, (b) Physician is
indicted for a charge of committing a felony or any misdemeanor involving moral
turpitude, (c) Physician fails to comply with rules, regulations and policies
imposed with regard to Medicare programs or fails to preserve his or her
eligibility to participate in Medicare programs, (d) physician fails to comply
with any material Doctors Health protocols, (e) Physician takes any action which
puts a DHS HMO Member's health at risk, or (f) Physician loses his or her
license or certificate to practice medicine.
Physician may terminate the Participation Agreement upon 90 days written
notice to Doctors Health if Doctors Health fails to perform its obligations to
Physician to pay any amounts required to be paid by Doctors Health to Physician.
MAINTENANCE OF LIABILITY INSURANCE
The Participation Agreement provides that Physician must maintain, at his
expense, general and professional liability insurance coverage of not less than
$1 million per claim and $3 million per year. Physician is required pursuant to
the Participation Agreement to provide Doctors Health with copies of such
policies or other evidence of compliance with such insurance requirements and is
required to notify Doctors Health of any changes or cancellations to any such
policy. In the event of a cancellation of a policy, Physician is required to
purchase an extension of coverage endorsement within 10 days of written notice
of discontinuance and must provide Doctors Health with a copy of such
endorsement. Pursuant to the Participation Agreement, Physician must also
notify Doctors Health promptly when any patient of Physician files a claim or
any notice of intent to commence legal action alleging professional negligence
against Physician, or of the settlement of any such claim, or if a judgment is
entered against Physician in any such claim.
RESALE OF CLASS B COMMON STOCK
The shares of Class B Common Stock offered by this Prospectus Supplement
have been registered under the Securities Act of 1933, as amended. The shares
will be subject to the Stockholders Agreement attached hereto as Annex B and
therefore, will not be freely transferable. In addition, there is no public
market for the Class B Common Stock.
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LEGAL MATTERS
The validity of the Class B Common Stock offered hereby have been passed
upon for the Company by Venable, Baetjer and Howard, LLP, Baltimore, Maryland.
ANNEXES
Annex A - Participation Agreement between Doctors Health System, Inc. and
Manuel J. Sevilla
Annex B - Stockholders Agreement dated January 31, 1997 (delivered to
Physician as Prospectus Supplement No. 2)
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ANNEX A
PRIMARY CARE PARTICIPATION AGREEMENT
1. This PARTICIPATION AGREEMENT is entered into on __________________, 1997
(the "Effective Date") by DOCTORS HEALTH SYSTEM, INC. ("DHS") and the
PHYSICIAN whose name appears below.
2. DHS agrees to arrange for the provision of various management,
administrative and support services in connection with managed care
contracting, including contracting, marketing, care management and
information systems support. (For a description of these services see
EXHIBIT A-2 attached.)
3. Physician or the Physician's group practice entity, if the Physician
participates as a partner or employee of a group practice entity, will be
paid a SIGNING BONUS in part cash and part shares of DHS Class B Common
Stock, as set forth on EXHIBIT B-3 attached hereto and made a part hereof.
This payment will be made upon execution of this Agreement, satisfactory
credentialing of Physician by DHS and provision of Physicians' financial
statements and Medicare patient list and is subject to modification to the
extent the information received by DHS differs from the information
provided on EXHIBIT B-3. This payment is made based upon Physician's
assurance to DHS that he/she is an actively practicing primary care
physician who intends to enter into a cooperative relationship with other
DHS affiliated physicians to manage care to DHS HMO Members.
4. This Agreement will expire five (5) years from the Effective Date of this
Agreement (the "TERM"), unless earlier terminated pursuant to the terms
hereof.
5. DHS agrees to provide Physician, once Physician has at least 100 DHS
Members, at no cost to the Physician, access to the DHS Information System
managed care components, offering Enrollment, Eligibility, Referral
Management and Data Management capabilities.
6. Physician agrees to provide to eligible persons who elect to enroll in an
HMO managed care product offered by any Payor who has contracted with DHS
(the "DHS HMO PLANS") those primary care services customarily provided by
primary care physicians to eligible patients, as may be required by the DHS
HMO Plans. These patients are referred to in this Agreement as the "DHS
HMO MEMBERS".
7. DHS will credential Physician. Physician agrees to cooperate with the DHS
credentialing and review process, all at no cost to Physician.
8. Physician agrees to participate in the managed care agreements that DHS
enters into with DHS HMO Plans. Physician agrees to cooperate with DHS in
accepting DHS HMO Members under the DHS HMO Plans, and agrees not to
participate or contract with any other HMO or other payor offering managed
care or other risk type plans directly or through another similar entity or
other IPA. However, if DHS chooses not to pursue a contract with an
identified HMO or is unable to negotiate such a contract within a
commercially reasonable period, Physician shall be free to pursue a
contract with the identified HMO.
9. If Physician, as of the Effective Date, is a party (directly or indirectly
through another similar entity or IPA) to any primary care capitation
contract (each an "Existing Primary Care Capitation Contract"), Physician
agrees to notify DHS of such Existing Primary Care Capitation Contract.
Physician agrees to use his or her commercially reasonable best efforts to
assist DHS in replacing such Existing Primary Care Capitation Contract with
a DHS HMO Plan, provided the payment terms to the Physician under the DHS
HMO Plan are at or above the payment terms of the Existing Primary Care
Capitation Contract. Until DHS is able to replace the Existing Primary
Care Capitation Contract with a DHS HMO Plan, the Physician shall be free
to renew the Existing Primary Care Capitation Contract for additional one
year terms.
10. Physician agrees to abide by and comply with the relevant provisions of the
agreements between DHS and the DHS HMO Plans. DHS provide all relevant
provisions that may apply to Physician.
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11. Physician agrees to work cooperatively and in good faith with DHS and the
other DHS affiliated physicians providing services to the DHS HMO Members.
To this end, Physician will use all reasonable efforts to:
- Prepare and maintain customary medical records for services provided
to DHS HMO Members and provide the IPA with access to such records
without charge. DHS agrees that all patient records will be treated
as confidential and will comply with laws and regulations related to
confidentiality and all ethical standards for physicians regarding the
confidentiality of patient records.
- Comply with and accept payment conditions of this Agreement.
- Comply with managed care medical standards adopted by DHS affiliated
physicians as part of arrangements with the DHS HMO Plans.
- Cooperate with DHS' efforts to contact eligible Medicare and adult
medicine patients in Physician's practice, including providing mailing
lists and use of Physician's name in correspondence.
- Sign and submit in a timely manner authorizations, consents, encounter
data and other forms adopted by DHS.
- Comply with DHS policies and guidelines which DHS provides to
physician.
12. Physician will participate in all utilization review, quality assurance and
credentialing programs operated by DHS and the IPA to assure or improve the
quality and effective utilization of health care services to the IPA HMO
Members ("QA/UR PROGRAMS"). Physician agrees not to hold DHS and other
participants in the QA/UR Programs responsible for any reasonable
recommendations made or actions taken in good faith with respect to
Physician. Physician will participate in all programs developed by DHS
that are designed to resolve DHS HMO Member grievances.
13. Physician agrees not to differentiate or discriminate in the treatment of
patients as to the quality of services delivered to DHS HMO Members because
of race, sex, age, religion, place of residence, health status or source of
payment, and to observe, protect and promote the rights of DHS HMO Members
as patients.
14. Physician will in good faith make arrangements, with the support of
Physician's assigned DHS representative, for twenty-four hours, seven days
a week coverage to DHS HMO Members through other primary care physicians
who participate in the DHS provider network to the extent the DHS provider
network is adequate to provide such coverage in Physician's service area.
15. Physician agrees to respond within seven (7) days of receipt to any written
inquiry from DHS regarding services provided to DHS HMO Members or any
other matters relating to this Agreement, subject to all laws regarding the
confidentiality of medical records,.
16. DHS will provide to Physician a list of other physicians and other health
care providers who provide medical services in the DHS provider network.
Other than in cases of a bona-fide medical emergency or where DHS and the
Physician have agreed the DHS provider network is insufficient, Physician
agrees to utilize the DHS provider network when arranging for additional
medical services required by DHS HMO Members.
17. DHS' affiliated physicians have developed protocols and practice procedures
applicable to fellow physician participants in the DHS provider network
(the "DHS PROTOCOLS"). Physician agrees to follow the DHS Protocols when
treating DHS HMO Members. If Physician should ever deem any aspect of the
DHS Protocols to be medically inappropriate or otherwise inappropriate for
utilization by Physician, Physician may notify DHS in writing, with
sufficient specificity to enable DHS to respond to Physician's concerns.
18. Physician will own and operate all aspects of his or her medical practice
and will remain responsible for all operations of the medical practice,
including all patient treatment decisions and employee, office, lease and
financial affairs. DHS is not engaged in the practice of medicine and will
not interfere in any patient treatment decisions.
19. DHS may use Physician's name, specialty, telephone number(s), and business
location(s) in marketing, descriptive, and other information relating to
the DHS HMO Plans, and will include Physician as a member of the DHS
provider network during this Agreement. Physician may
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nonetheless be precluded from participating in a DHS HMO Product by one of
the DHS HMO Plans. In such an event, DHS will notify Physician, in
writing, within 30 days of learning of such an action, and will assist
Physician, if requested, in seeking to overturn such an action.
20. During the calendar year 1997, DHS will pay to Physician, and Physician
agrees to accept from DHS as compensation for all covered services provided
by Physician to DHS HMO Members the Primary Care Base Capitation Rates as
shall be set forth on EXHIBIT C-20 to be attached hereto and made a part
hereof. For calendar year 1998 and beyond, DHS shall establish in
cooperation with DHS participating primary care physicians a Primary Care
Base Capitation Rate that shall reflect at least the prevailing market rate
for the county or city in which the Physician provides covered services.
21. The Primary Care Base Capitation Rates may be adjusted for age and sex of
the DHS HMO Members. The Primary Care Base Capitation Rates will be
INCREASED by an amount up to ten percent (10%) (the "Capitation Rate
Modifier"), according to a Medicare and Commercial formula established by
DHS as set forth on EXHIBIT D-21 attached hereto and made a part hereof.
22. Physician will, in addition to the Primary Care Capitation payment, be paid
on a fee for service basis for certain identified services (as set forth on
EXHIBIT E-22 attached) which are not considered covered services according
to the DHS fee schedule that will be approximately equal to cost and less
than alternative specialist expenditures.
23. In order to provide economic incentives for Physicians to provide the best
possible health care to DHS HMO Members while fostering efficiencies in
utilization and quality assurance, DHS' affiliated physicians have
established, and Physician will participate in, a BONUS POOL. The amount
of bonus awards are determined according to DHS' primary care bonus point
system, rewarding high clinical quality, appropriate utilization, patient
satisfaction and retention and the extent of cooperation with other
participating physicians DHS. Based upon this system, DHS will fund a
primary care physician bonus pool which will be credited with 25% of the
managed care surplus remaining after deduction of the actual costs
associated with the provision of managed care services. The Physician will
receive a bonus based upon the net surplus in the bonus pool that is
generated in Physician's panel of DHS HMO Members up to the limits
permitted by applicable health care regulations. The Primary Care
Capitation Rates for any year are guaranteed and never charged or offset
for any losses. Losses are the sole responsibility of DHS. Bonus Awards
for calendar year 1996 will be paid by DHS in April of 1997. Awards for
calendar year 1997 will be made in April of 1998 etc. (The DHS "Bonus
Point System" for Primary Care Physicians is set forth on EXHIBIT F-23
attached hereto and made a part hereof.)
24. All Payments of the Primary Care Capitation Rate will be made by DHS
directly to Physician, by the fifth business day of each month for the
prior month's enrollment. The Capitation Rate Modifier will be calculated
at the beginning of each quarter and used to determine the following
quarters' Primary Care Capitation Rate. (For an illustration of the flow
of the healthcare dollar and an example of the PCP compensation model, see
EXHIBIT G-24 and EXHIBIT H-24 (attached), respectively.)
25. Physician understands that DHS will be paid by the DHS HMO Plans for all
services provided by Physician to DHS HMO Members.
26. Physician agrees not to bill or collect any reimbursement from DHS HMO
Members or the DHS HMO Plans unless the service provided was not a covered
service under the DHS HMO Plan and the DHS HMO Member was given prior
written notice that the services would not be covered. However, Physician
may charge, bill, collect and keep from DHS HMO Members any copayments or
coinsurance. Physician agrees that, whether or not there is any unresolved
dispute for payment, under no circumstances, including but not limited to
nonpayment by DHS or DHS insolvency, will Physician make any claims, other
than for copayments or coinsurance, against any DHS HMO Member for covered
services.
27. Physician will maintain, at his or her expense, general and professional
liability insurance coverage of not less than $1,000,000 per claim and
$3,000,000 per year. Physician will provide DHS with copies of the
policies or other evidence of compliance with the insurance
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requirements. Physician will notify DHS when any patient of Physician
files a claim or any notice of intent to commence legal action alleging
professional negligence against Physician or of the settlement of any such
claim by Physician or if a judgment is rendered against Physician in any
such legal action. Physician will promptly notify DHS in writing of any
changes in or cancellations of any policy of insurance maintained by
Physician. If such policy is written on a claims made basis and such
coverage is discontinued, Physician will purchase an "Extension of Coverage
Endorsement" within ten (10) days of written notice of discontinuance and
shall provide DHS with a copy of this endorsement.
28. This Agreement may be terminated by Physician upon 90 days prior written
notice to DHS if DHS fails to perform its obligations to Physician or to
pay any amounts required to be paid by DHS to Physician.
29. DHS may terminate this Agreement by notice in writing to Physician for good
cause, or if Physician materially breaches this Agreement and such breach
continues for a period of thirty (30) days after written notice is given to
Physician by DHS specifying the nature of the breach. Good cause means:
- Physician's membership in any professional organization is terminated
for cause related to professional conduct, or Physician resigns from
any professional organizations under the threat of disciplinary action
for professional conduct.
- Physician is indicted upon a charge of committing a felony or any
misdemeanor involving moral turpitude.
- Physician fails to comply with rules, regulations and policies imposed
with regard to the Medicare programs or to preserve his or her
eligibility to participate in the Medicare programs.
- Physician fails to comply with any material DHS Protocols.
- Physician takes any action which puts a DHS HMO Members' health at
risk.
- Physician loses his/her license or certificate to practice medicine.
30. To the extent required to enable DHS and the IPA to comply with Section 952
of the Medicare and Medicaid Amendments of 1980, or regulations promulgated
pursuant thereto, Physician shall until the expiration of four (4) years
after the furnishing of services under this Agreement, make available, upon
written request, to the Secretary of Health and Human Services or the
Comptroller General of the United States, or to any of their duly
authorized representatives, this Agreement and such of Physician's books,
documents and records as are necessary to certify the nature and extent of
costs under this Agreement.
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PRINTED NAME OF PHYSICIAN PHYSICIAN
_____________________________ By:_____________________________(SEAL)
Please Attach Business Card Manuel J. Sevilla, M.D.
DOCTORS HEALTH SYSTEM, INC.
By:________________________(SEAL)
Stewart B. Gold, President
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EXHIBIT A-2
SCHEDULE OF SERVICES
I. Care Management includes:
A. CREDENTIALING AND PROVIDER FILE MAINTENANCE. In compliance with NCQA
standards, the credentialing process gathers information on our member
providers, performs primary source verification, provides automatic
recredentialing activities and alerts providers when items need to be
renewed and/or reevaluated.
B. REFERRAL MANAGEMENT. The DHS Referral Management Program provides for
the maintenance of referral directories; authorization of DHS
referrals to network providers; clinical review of referrals for
appropriateness, according to DHS physician approved criteria; and
tracking and reporting of referral patterns to identify outliers and
encourage recommendations for change.
C. UTILIZATION MANAGEMENT. The DHS Utilization Management Program
reviews and tracks the utilization of healthcare services,
particularly inpatient stays, to facilitate appropriate hospital
admissions; provides recommendations for alternate site care and
assists with the coordination of these services; provides clinical
review of procedural necessity; and works with the physician to
identify practice pattern trends.
D. CASE MANAGEMENT. The DHS Case Management Program offers to physicians
the skills of registered nurses and licensed clinical social workers
in order to assist in the coordination of the care and services
required by patients with catastrophic and/or chronic illnesses or
injuries. The case manager works in conjunction with the physician,
patient and family to identify healthcare needs, develop a plan of
care, establish realistic treatment goals, coordinate and monitor
necessary resources, and evaluate treatment progress.
II. DATA MANAGEMENT. The DHS Data Management service coordinates the receipt
and maintenance of payor eligibility and benefit plan information. It also
allows for the coordination and integration of a variety of data components
to yield meaningful reports which will reflect the overall performance of a
provider network, i.e., utilization, costs and quality.
III. PATIENT SERVICES. DHS provides all Participating Physicians, access to
nurse triage and patient advocacy services. Through these services,
specially trained nurses are available by phone to answer questions
regarding access to services, treatment alternatives and self care options.
IV. THIRD PARTY ADMINISTRATION. The DHS Third Party Administration services
provide for the appropriate adjudication of claims, coordination of
benefits, subrogation services and integration with the reinsurance
carrier.
A-6
<PAGE>
EXHIBIT B-3
SIGNING BONUS
Physician's SIGNING BONUS is based upon the following REPRESENTATIONS
made by Physician:
1. Physician's gross primary care collections for the 1996 calendar year were
$ 442,125.00.
2. The number of Physician's active(1) Medicare patients is 287.
Based upon and subject to the accuracy of the information provided herein,
Physician's SIGNING BONUS shall be an amount equal to :
1. Cash in the amount of $ 23,211.00.
2. 640 shares of Class B Common Stock of Doctors Health.
- ------------------
(1) Patients who have made at least one office visit to Physician during the
last two years.
A-7
<PAGE>
EXHIBIT C-20
DOCTORS HEALTH SYSTEM
PCP COMPENSATION
DHS CAPITATION - BASE RATES
1997 PRIMARY CARE BASE CAPITATION RATES
MEDICARE
COUNTY AGED/ DISABLED INSTITUTIONALIZED
Allegany $26.70 $52.06
Anne Arundel $36.00 $60.00
Baltimore $30.36 $59.19
Baltimore City $31.23 $60.00
Calverty $26.15 $50.99
Caroline $24.00 $46.80
Carroll $26.97 $52.58
Cecil $24.86 $48.48
Charles $31.16 $60.00
Dorchester $24.00 $46.80
Frederick $24.00 $46.80
Garrett $24.00 $46.80
Harford $29.45 $57.43
Howard $30.68 $59.82
Kent $24.00 $46.80
Montgomery $32.00 $60.00
Prince Georges $40.62 $60.00
Queen Anne $24.00 $46.80
St. Marys $26.34 $51.37
Somerset $24.00 $46.80
Talbot $24.00 $46.80
Washington $24.00 $46.80
Wicomico $24.00 $46.80
Worcester $24.00 $46.80
Note:
The base rate for IPA PCPs is the same as the DHS partner rate.
For the Medicare IPA only PCPs, the Base Rates are the same,
but the capitation rate modifier (CRM) criteria is different (see CRM
section).
A-8
<PAGE>
EXHIBIT C-20
DOCTORS HEALTH SYSTEM
PCP COMPENSATION
DHS CAPITATION - BASE RATES
1997 PRIMARY CARE BASE CAPITATION RATES
COMMERCIAL
<TABLE>
<CAPTION>
REGION $0 CO-PAY $5 CO-PAY $10 CO-PAY $15 CO-PAY
- ------ --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Baltimore Male Female Male Female Male Female Male Female
0-.5 $46.28 $46.28 $38.32 $38.32 $30.38 $30.38 $22.43 $22.43
.5-2 $30.67 $30.67 $27.65 $27.65 $24.64 $24.64 $21.58 $21.58
3-5 $21.65 $21.65 $19.59 $19.59 $17.42 $17.42 $15.25 $15.25
6-18 $10.45 $10.45 $9.39 $9.39 $8.40 $8.40 $7.37 $7.37
19-39 $12.00 $12.00 $11.00 $11.00 $10.00 $10.00 $9.00 $9.00
40-64 $12.00 $12.00 $11.00 $11.00 $10.00 $10.00 $9.00 $9.00
64+ $12.00 $12.00 $11.00 $11.00 $10.00 $10.00 $9.00 $9.00
D.C. / Suburban Maryland (2) Male Female Male Female Male Female Male Female
0-.5 $48.57 $48.57 $40.21 $40.21 $31.86 $31.86 $23.54 $23.54
.5-2 $32.19 $32.19 $29.01 $29.01 $25.85 $25.85 $22.65 $22.65
3-5 $22.72 $22.72 $20.46 $20.46 $18.27 $18.27 $16.01 $16.01
6-18 $10.97 $10.97 $9.85 $9.85 $8.81 $8.81 $7.74 $7.74
19-39 $13.50 $13.50 $12.50 $12.50 $11.50 $11.50 $10.50 $10.50
40-64 $13.50 $13.50 $12.50 $12.50 $11.50 $11.50 $10.50 $10.50
64+ $13.50 $13.50 $12.50 $12.50 $11.50 $11.50 $10.50 $10.50
Eastern Shore To Be Determined
Southern Maryland (3)
Male Female Male Female Male Female Male Female
0-.5 $48.57 $48.57 $40.21 $40.21 $31.86 $31.86 $23.54 $23.54
.5-2 $32.19 $32.19 $29.01 $29.01 $25.85 $25.85 $22.65 $22.65
3-5 $22.72 $22.72 $20.46 $20.46 $18.27 $18.27 $16.01 $16.01
6-18 $10.97 $10.97 $9.85 $9.85 $8.81 $8.81 $7.74 $7.74
19-39 $13.50 $13.50 $12.50 $12.50 $11.50 $11.50 $10.50 $10.50
40-64 $13.50 $13.50 $12.50 $12.50 $11.50 $11.50 $10.50 $10.50
64+ $13.50 $13.50 $12.50 $12.50 $11.50 $11.50 $10.50 $10.50
Western Maryland (4) Male Female Male Female Male Female Male Female
0-.5 $48.57 $48.57 $40.21 $40.21 $31.86 $31.86 $23.54 $23.54
.5-2 $32.19 $32.19 $29.01 $29.01 $25.85 $25.85 $22.65 $22.65
3-5 $22.72 $22.72 $20.46 $20.46 $18.27 $18.27 $16.01 $16.01
6-18 $10.97 $10.97 $9.85 $9.85 $8.81 $8.81 $7.74 $7.74
19-39 $13.50 $13.50 $12.50 $12.50 $11.50 $11.50 $10.50 $10.50
40-64 $13.50 $13.50 $12.50 $12.50 $11.50 $11.50 $10.50 $10.50
64+ $13.50 $13.50 $12.50 $12.50 $11.50 $11.50 $10.50 $10.50
</TABLE>
(1) Includes Baltimore City and Anne Arundel, Baltimore, Carroll, Cecil,
Harford, and Howard counties.
(2) Includes Montgomery and Prince Georges counties.
(3) Includes Calvert, Charles, and St. Marys counties.
(4) Includes Allegany, Frederick, Garrett and Washington counties.
NOTES:
The base rate for IPA PCPs is the same as the DHS partner rate.
A-9
<PAGE>
EXHIBIT D-21
DHS CAPITATION - CAPITATION RATE MODIFIER ("CRM")
(UP TO 10% OF BASE RATE)
COMMERCIAL FORMULA
CRM
PERCENTAGE
I. CAPITATION PANEL SIZE
- > 100 members/doctor or 200 members/practice 0.5%
- > 300 members/doctor or 750 members/practice 1.5%
- > 500 members/doctor or 1,250 members/practice 2.5%
- > 1,000 members/doctor or 2,500 members/practice 3.5%
DHS MEMBERSHIP GROWTH
- Membership growth > 10% per year (min. = 100 patients) 1.25%
- Membership growth > 20% per year (min. = 250 patients) 2.50%
SCHEDULED OFFICE HOURS
- > 50 office hours per week 0.5%
- > 60 office hours per week 1.5%
- > 70 office hours per week 2.5%
INTERNAL COVERAGE 1.5%
- Coverage of the practice by its own physicians to
deliver better service and care coordination
MAXIMUM CRM AS A % OF THE BASE RATE = 10.0%
MEDICARE FORMULA
CAPITATED PANEL SIZE
> 50 Medicare HMO Members/physician or 150 Medicare HMO Members/practice
group 2.5%
>100 Medicare HMO Members/physician or 350 Medicare HMO Members/practice
group 5.0%
>250 Medicare HMO Members/physician or 700 Medicare HMO Members/practice
group 7.5%
>400 Medicare HMO Members/physician or 1200 Medicare HMO Members/practice
group 10.0%
MAXIMUM CRM AS A % OF THE BASE RATE 10.0%
THE FORMULAS PROVIDED ARE SUBJECT TO CHANGE BASED UPON CHANGES IN THE MARKET AND
RECOMMENDATIONS FROM PRIMARY CARE PHYSICIANS REPRESENTING EACH COUNTY.
A-10
<PAGE>
EXHIBIT E-22
DHS CAPITATION - FEE FOR SERVICE ADDITIONS
SAMPLING OF IDENTIFIED SERVICES
- - Allergy testing (not routine shots)
- - Colposcopy
- - Endometrial biopsies
- - Flex sig
- - Fracture/casting
- - Immunizations (cost of serums only)
- - Joint asperation/injection
- - Minor surgery (includes I&D)
- - Nasolaryngoscopy
- - Pulmonary function test
- - Suturing (in minor surgery?)
A-11
<PAGE>
EXHIBIT F-23
POINT SYSTEM FOR THE BONUS POOL DISTRIBUTION
Available
PCP
POINTS
I. UTILIZATION
- Hospital 5.0
- Specialist 5.0
- Emergency room, other 5.0
II. PATIENT SATISFACTION/RETENTION 2.5
- Based on results of annual surveys
III. CLINICAL QUALITY 2.5
- Chart reviews and outcomes
IV "CITIZENSHIP" 5.0
- Overall DHS cooperation and participation,
including network loyalty
MAXIMUM PCP BONUS POINTS = 25.0
A-12
<PAGE>
EXHIBIT G-24
FLOW OF THE HEALTHCARE DOLLAR
ILLUSTRATION:
Employers Government
Plan
"DHS Full Risk Contract"
DHS Pays
Direct costs associated with
coordination of managed care
Primary Care Specialists Hospitals Other Healthcare
Physician Providers
SAVINGS
Minimum of 25% to Primary Care Physicians in IPAs
Individual Physician Bonus (Bonus Points)
EXPLANATION:
1. DHS receives a capitated payment from the DHS HMO Plans based on a
negotiated percentage of (i) the premium paid by employers to the Plan (for
"Commercial Patient") and (ii) the AAPCC paid by the Health Care Financing
Administration (the "Federal Government") to the Plan (for "Medicare
Patients") (collectively "DHS Full Risk Contracts").
2, DHS pays all medical related claims and expenses including (i) primary care
physicians capitation, (ii) specialists fees and capitation, (iii)
institutional expenses to hospitals, nursing homes, skilled nursing
facilities, etc. DHS retains from the SURPLUS the direct costs associated
with the coordination and support of managed care, i.e. contracting, stop
loss insurance, care managers, etc.
3. Through prudent utilization of hospitals, specialists and other healthcare
services and the support of DHS care management, DHS is left with the
SAVINGS.
A-13
<PAGE>
Collectively the PCPs share at least 25% of the SAVINGS (the "PCP Bonus
Pool").
4. Each Individual Physician is paid a portion of the bonus pool according to
the "Bonus Point System". This amount may be greater than 25% of that
Physician's surplus, up to the maximum permitted by applicable healthcare
regulations then in effect.
A-14
<PAGE>
EXHIBIT H-24
PCP COMPENSATION EXAMPLE
Assumptions:
- - 1,800 Total Patients in an average practice
- - 1,400 Commercial Patients
- - 400 Medicare Patients
- - 20% are converted to DHS Full Risk Contracts in year one
- - PCP Base Capitation Rates established with Physician Representatives from
Northern Virginia
- - Potential Commercial Rate = $15.00, Potential Medicare Rate = $36.00
<TABLE>
<CAPTION>
<S> <C> <C>
Analysis:
280 80
DHS COMMERCIAL PATIENTS DHS MEDICARE PATIENTS
------------------------ ---------------------
- - CRM -> Capitation Panel Size .50 2.5%
DHS Membership Growth 2.50
Office Hours .50
Internal Coverage 1.50
----
5.00%
- - PCP Commercial Capitation Rate PCP Medicare Capitation Rate
$15 x 1.05 = $36 x 1.025 =
$15.75 PMPM $36.90 PMPM
</TABLE>
- - Fee for Service Additions
- - Bonus Pool Participation as determined by the "Bonus Point System"
THIS PCP COMPENSATION EXAMPLE IS FOR ILLUSTRATION PURPOSES ONLY. THE COMMERCIAL
AND MEDICARE CAPITATION RATES ARE REPRESENTATIVE OF THE RATES IN EFFECT FOR
OTHER MARKETS. AS CONTEMPLATED BY THE AGREEMENT, THE RATES FOR YOUR COUNTY WILL
BE ESTABLISHED IN COOPERATION WITH PHYSICIAN REPRESENTATIVES FROM YOUR COUNTY.
A-15
