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PROSPECTUS SUPPLEMENT NO. 3/Amendment Filed pursuant to Rule 424(b)(3)
To the Prospectus dated January 24, 1997, Registration No.: 333-01926
As Supplemented to Date
663 Shares
of
Class B Common Stock of Doctors Health System, Inc.
This Prospectus Supplement No. 3 relates to the issuance by Doctors
Health System, Inc., a Maryland corporation ("Doctors Health") of 663 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 between Dr. Stuart Henochowicz
("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 14, 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, OR THE SOLICITATION OF A PROXY FROM ANY PERSON, 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.
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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 PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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See "Risk Factors" referred to on page S-2 hereof 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 26, 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 after the Closing Date 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 PRIMARY CARE PARTICIPATION AGREEMENT AMONG DOCTORS HEALTH
AND DR. STUART HENOCHOWICZ
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 cash in the amount of $23,211.00
upon execution of the Participation Agreement and satisfactory completion of
credentialling of Physician by DHS, and (iv) DHS will issue to the Physician 663
shares of its Class B Common Stock.
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 IPA 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, 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.
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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 copayments
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 Doctors Health'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. 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 Doctors Health.
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
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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.
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
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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.
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
Stuart Henochowicz
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
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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 Stuart Henochowicz, 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.
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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 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. 663 shares of Class B Common Stock of Doctors Health.
A Prospectus describing Doctors Health and its affiliates is enclosed.
Please direct your attention to pages 8 to 16 of the Prospectus which describes
the risk factors which you should consider in evaluating an investment in the
securities offered under the Prospectus and in this Agreement. We will provide
updated information about this company in the form of a Prospectus Supplement.
- ------------------------
(1) Patients who have made at least one office visit to Physician during the
last two years.
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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).
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EXHIBIT C-20
Doctors Health System
PCP Compensation
DHS CAPITATION--BASE RATES
1997 Primary Care Base Capitation Rates
COMMERCIAL
<TABLE>
<CAPTION>
$0 CO-PAY $5 CO-PAY $10 CO-PAY $15 CO-PAY
-------------------- -------------------- -------------------- --------------------
REGION MALE FEMALE MALE FEMALE MALE FEMALE MALE FEMALE
- ------ --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Baltimore
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)
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)
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)
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".
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<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%
II. DHS Membership Growth
- Membership growth > 10% per year (min. = 100 patients) 1.25%
- Membership growth > 20% per year (min. = 250 patients) 2.50%
III. Scheduled Office Hours
- > 50 office hours per week 0.5%
- > 60 office hours per week 1.5%
- > 70 office hours per week 2.5%
IV. 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
<TABLE>
<S> <C>
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%
</TABLE>
THE FORMULAS PROVIDED ARE SUBJECT TO CHANGE BASED UPON CHANGES IN THE MARKET
AND RECOMMENDATIONS FROM PRIMARY CARE PHYSICIANS REPRESENTING EACH COUNTY.
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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?)
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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
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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.
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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.
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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
Analysis:
<TABLE>
<CAPTION>
280 80
DHS COMMERCIAL PATIENTS DHS MEDICARE PATIENTS
--------------------------- -------------------------
<S> <C> <C>
- - 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
- - Fee for Service Additions
- - Bonus Pool Participation as determined by the "Bonus Point System"
</TABLE>
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.
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A-16
