<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 8, 1997
TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
----------------------------------
(Exact name of registrant as specified in its charter)
Delaware 000-22393 33-0730363
- ----------------------------------------------------------------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
3540 Howard Way, Costa Mesa, CA 92626-1417
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (714) 436-4800
Former name or former address, if changed since last report:
Not applicable.
<PAGE>
ITEM 5. OTHER EVENTS.
TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
REPORTS FIRST QUARTER FINANCIAL RESULTS
Costa Mesa, Calif., May 8, 1997 - Talbert Medical Management Holdings
Corporation (the "Company") (Nasdaq: TMMCV and TMMCR), which was recently spun
off from FHP International Corporation through a rights offering to the former
stockholders of FHP, today reported financial results for the first quarter
ended March 31, 1997. The Company reported a loss before income taxes of $9.7
million on revenue of $104.9 million for the first quarter of 1997 compared to a
first quarter of 1996 loss before income taxes of $2.0 million on revenue of
$117.4 million. If results for the first quarter of 1996 had been restated on a
pro forma basis to reflect the revised capitation rates that took effect during
the first quarter of 1997, the Company would have reported a loss before income
taxes of approximately $6.8 million on revenue of approximately $113.2 million.
The largest pro forma adjustment was for the one month impact of new provider
agreements covering FHP capitated enrollees. The new agreements became
effective on March 1, 1997.
ENROLLMENT/REVENUE
Total capitated enrollment decreased from 315,288 enrollees at March 31, 1996 to
283,127 enrollees at March 31, 1997, a decrease of 10.2 percent. During the
twelve months ended March 31, 1997, the Company lost 37,455 former FHP capitated
enrollees, which was partially offset by an increase of 5,294 new capitated
enrollees from other payors. Enrollment trends were negatively impacted by the
delayed closing of the PacifiCare/FHP merger which was announced on August 5,
1996 and closed on February 14, 1997. The Company has recently established 18
new HMO payor contracts and more than 30 new PPO payor contracts on behalf of
one or more of the Company's affiliated Talbert Medical Groups.
The decrease in revenue of $12.5 million from last year's first quarter is
primarily attributable to the decline in capitated enrollment and the revised
capitation rates that took effect on March 1, 1997.
EXPENSES
Health care costs declined by $6.3 million from the first quarter of 1996,
reflecting both lower enrollment and the benefits of cost reduction efforts, the
effects of which were partially offset by increased services required by the new
provider agreements. Marketing, general and administrative expenses rose by
$2.2 million compared to the prior year first quarter, resulting primarily from
the higher marketing and administrative costs associated with operating as an
independent company.
RIGHTS OFFERING
In connection with the merger of PacifiCare Health Systems, Inc. (Nasdaq: PHSYA
and PHSYB) and FHP, the Company commenced a rights offering on April 21, 1997.
Transferable rights have been delivered to the former common and preferred
2
<PAGE>
stockholders of FHP as a part of the consideration payable in the merger. The
rights entitle holders to subscribe for shares of common stock of the Company
for $21.50 per share during a 30-day subscription period that expires on May 20,
1997 at 5:00 P.M., Eastern Daylight Time.
Talbert Medical Management Holdings Corporation, through its wholly-owned
physician practice management company subsidiary, Talbert Medical Management
Corporation, organizes and manages physician and dental practice groups that
contract with health maintenance organizations and other payors to provide
health care services to their members. Talbert Medical Management Corporation
began operations on January 1, 1996 through a restructuring of FHP's former
staff model operations and has a foundation of more than 35 years of managed
health care experience. Talbert Medical Management Corporation, through its
affiliated medical and dental groups, provides services in 52 medical centers
located in southern California, Utah, Arizona, New Mexico and Nevada.
###
(see attached tables)
3
<PAGE>
TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
NEWS RELEASE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTH
PERIOD ENDED
MARCH 31,
----------------------------
1997 1996
----------------------------
(amounts in thousands, except per
share and membership data)
Revenue $ 104,872 $ 117,395
Expenses:
Affiliated medical services 31,018 35,238
Purchased medical services 26,677 28,990
Dental services 6,754 6,455
Optometry, pharmacy and other health
care services 26,080 26,787
Clinic operations 16,993 16,382
------------ -----------
Total cost of health care 107,522 113,852
Marketing, general and administrative 8,032 5,792
------------ -----------
Operating loss (10,682) (2,249)
Interest income 970 231
------------ -----------
Loss before income taxes (9,712) (2,018)
Income tax benefit (1,723) $ (844)
------------ -----------
Net loss (7,989) $ (1,174)
------------ -----------
------------ -----------
Loss per common and common equivalent share $ (2.67) $ (0.39)
------------ -----------
------------ -----------
Weighted average number of common shares and
common equivalent shares 2,996 2,996
Capitated enrollees:
California 122,446 142,523
Utah 98,713 118,362
Arizona 33,946 23,460
New Mexico 24,401 26,363
Nevada 3,621 4,580
------------ -----------
Total 283,127 315,288
------------ -----------
------------ -----------
(1) One-time tax benefit in the quarter pursuant to a tax sharing agreement
with FHP in effect through February 14, 1997. Management does not
anticipate additional tax benefits during 1997.
4
<PAGE>
TALBERT MEDICAL MANAGEMENT HOLDINGS CORPORATION
NEWS RELEASE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET INFORMATION
(UNAUDITED)
MARCH 31, DECEMBER 31,
1997(1) 1996
-------------------------------
(AMOUNTS IN THOUSANDS)
Cash and cash equivalents $ 93,962 $ 41,212
Current assets 115,818 74,079
Total assets 128,915 86,699
Medical claims payable 18,260 15,538
Current liabilities 74,569 90,189
Total liabilities 78,311 92,236
Stockholders' equity/(deficit) 52,057 (5,537)
(1) Includes effects of the $67 million capital contribution received on
February 14, 1997 in connection with the PacifiCare/FHP merger.
5
<PAGE>
ITEM 7. EXHIBITS.
The Company, or its executive officers and directors on behalf of the
Company, may from time to time make "forward looking statements" within the
meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934
(collectively, the "Acts"). The Company is filing this Current Report on Form
8-K to avail itself of the safe harbor provided in the Acts with respect to any
such (i) forward looking statements that may be contained in the Company's
reports and other documents filed with the Securities and Exchange Commission
under Sections 13 or 15(d) of the Securities Exchange Act of 1934 and (ii) oral
forward looking statements made by the Company's executive officers and
directors on behalf of the Company to the press, potential investors, securities
analysts and others. Such forward looking statements could involve, among other
things, statements regarding the Company's intent, belief or expectation with
respect to (i) the Company's results of operations and financial condition, (ii)
the consummation of acquisition and financing transactions and the effect of
such transactions on the Company's business, and (iii) the Company's plans and
objectives for future operations and expansion. Any such forward looking
statements would be subject to the risks and uncertainties that could cause
actual results of operations, financial condition, acquisitions, financing
transactions, operations, expansion and other events to differ materially from
those expressed or implied in such forward looking statements. Any such forward
looking statements would be subject to a number of assumptions regarding, among
other things, future economic, competitive, regulatory and market conditions
generally. Such assumptions would be based on facts and conditions as they
exist at the time such statements are made as well as predictions as to future
facts and conditions, the accurate prediction of which may be difficult and
involve the assessment of events beyond the Company's control. Further, the
Company's business is subject to a number of other risks that would affect any
such forward looking statements, which risks include, among others, the
following:
SUBSTANTIAL OPERATING LOSSES; CAPITAL REQUIREMENTS
The Company's businesses are comprised of substantial portions of the
former staff model operations of FHP International Corporation ("FHP"), which
were acquired by the Company in February 1997 (the "Acquisition") in connection
with FHP's merger (the "FHP Merger") with PacifiCare Health Systems, Inc.
("PacifiCare"). FHP's staff model operations experienced substantial operating
losses over the last five years arising, in part, from the increased competition
of contracted care model HMOs. For the year ended December 31, 1996, the
Company incurred losses before income tax benefit of $12.1 million, compared to
losses of $48.4 million and $27.7 million for the years ended December 31, 1995
and 1994, respectively. Subsidies from FHP partially offset losses incurred in
these and in prior periods, but FHP has not provided such subsidies since March
1, 1997. The renegotiation of the Company's provider agreements with FHP (the
"New FHP Provider Agreements"), required pursuant to the terms of the FHP
Merger, will result in a material decrease in revenues per enrollee for the year
ending December 31, 1997. Although management believes this decrease will be
offset, in part, by continuing operating improvements, management nevertheless
believes that it is likely that the Company will incur substantial losses during
1997 and 1998, and will not
6
<PAGE>
generate positive cash flow for those periods. Future operating results will
depend on the Company's ability to attract and retain substantial numbers of
additional enrollees and physician practice groups and to control costs. There
can be no assurance that the Company will generate positive cash flows or
profits in the future.
Prior to the Acquisition, Talbert Medical Management Corporation ("TMMC"),
a wholly-owned subsidiary of the Company, received, in connection with the FHP
Merger, a capital contribution of $67 million to increase its net worth to
approximately $60 million (the "Capital Contribution"). The Company intends to
use these funds to fund operating losses and for working capital and other
general corporate purposes. However, there can be no assurance that these funds
will be sufficient for the Company's capital requirements.
DEPENDENCE ON FHP; DECLINES IN CAPITATED ENROLLMENT
The Company and the practice groups managed by the Company (the "Talbert
Medical Groups") derive nearly all of their revenues from provider agreements
with payors, such as HMOs. Prior to 1996, FHP was the only payor to have
contracts with the Talbert Medical Groups. For the years ended December 31,
1994, 1995 and 1996, FHP members accounted for nearly 100% of the Company's
revenue. The Company intends to reduce its dependence on FHP by seeking payors
for the Talbert Medical Groups in addition to those already served, but there
can be no assurance that additional provider agreements can be obtained or if
obtained, would result in significant numbers of additional enrollees.
Moreover, the loss of any FHP contracts, subsequent renegotiation of the terms
of FHP's contracts, or the failure to regain or retain FHP's members could have
a material adverse effect on the Company. In addition, the loss by FHP of a
significant number of the members who are enrolled with the Talbert Medical
Groups, including, without limitation, any loss of members resulting from the
FHP Merger, could have a material adverse effect on the Company.
From December 31, 1995 to December 31, 1996, the Company's capitated
enrollment declined from 321,588 to 293,837. During the three months ended
March 31, 1997, the Company lost an additional 10,710 capitated enrollees.
Nearly 100% of the lost enrollees for both periods were FHP members.
Capitation payments received from HMOs and other payors and copayments and fee
for service payments derived from capitated enrollees constituted substantially
all of the Company's revenues for the years ended December 31, 1994, 1995 and
1996. Substantial reductions in the number of capitated enrollees will result
in substantial declines in the Company's revenue.
CONTRACTED RATE DECREASE
FHP's former provider agreements with the Talbert Medical Groups provided a
subsidy to offset, in part, the Talbert Medical Groups' operating losses. As of
March 1, 1997, these provider agreements were replaced with the New FHP Provider
Agreements that do not provide for this support. Management therefore
anticipates that the Company will incur substantial operating losses in 1997 and
1998. On a pro forma basis, the New FHP Provider Agreements would have
decreased the Company's revenue from $460.5 million to $421.3 million and
increased its operating loss from $13.8 million to $60.3 million for the year
ended December 31, 1996. Although the Capital Contribution in connection with
the FHP Merger was intended, in part, to offset the projected shortfall in cash
flows from the change to the New FHP Provider Agreements, there can be no
assurance that this amount will be sufficient for the Company's capital
requirements.
7
<PAGE>
CAPITATED NATURE OF REVENUE
For the year ended December 31, 1996, approximately 100% of the Company's
revenue related to provider agreements under which the Talbert Medical Groups
received a prepaid monthly capitation fee for each member enrolled with the
Talbert Medical Groups and certain utilization-based incentive payments, in
exchange for assuming the responsibility to provide specified medical services
to enrollees. As a result of capitated nature of such payments, the Talbert
Medical Groups assume the risk that the cost of providing medical services will
exceed the capitation fee. Because the financial results of the Talbert Medical
Groups are consolidated with those of the Company, and because the Company has
in certain cases guaranteed the ability of the Talbert Medical Groups to perform
their contractual obligations, the Company's success depends in large part on
the effective management of health care costs, including controlling utilization
of specialty care physicians and other ancillary providers and purchasing
services from third-party providers at competitive prices. In addition, as
capitation fees are based on a percentage of premiums received by payors such as
HMOs, any decreases in premiums could result in lower capitation fees being paid
to the Talbert Medical Groups. An unusually high number of catastrophic claims
(such as organ transplants and costly premature births) in a given period may
cause substantial additional health care costs. Although management believes
that the Company's cost control measures, which include risk-sharing
arrangements between the Talbert Medical Groups and the payors with which they
contract, as well as administrative and medical review of health care delivery
services, will help mitigate these effects, such costs may periodically affect
the Company's results of operations. Certain risk arrangements, particularly
those that do not involve a licensed intermediary, have recently been under
review. Although the Company is not a party to such arrangements, changes in
government regulation of capitated payment arrangements could require the
Company to restructure its operating relationships, and have an adverse effect
on its operating results. Changes in health care practices, Medicare
reimbursements, revised treatment protocols, new technologies, inflation,
epidemics, disasters and other factors affecting the delivery and cost of health
care that are or may be beyond the Company's control also may adversely affect
the Company's operating results.
IMPORTANCE OF COST REDUCTION INITIATIVES
The Company has undertaken or plans to undertake a number of cost
savings initiatives in order to reduce the cost of health care, as well as
management, general and administrative expenses. The Company intends to
reduce the cost of health care by improving its use of outside specialists
and by renegotiating its specialty provider contracts. The Company has
implemented a new physician compensation program designed to improve the
Company's operating results and align physician incentives with the provision
of quality medical care. The Company also expects to reduce costs by
converting to self-insurance for employees' health insurance as well as
converting the Company's annual contribution under its employee stock
ownership plan (equivalent to two percent of salary) to a performance basis,
where contributions will be made only if the Company meets its financial
goals. If these initiatives do not produce the expected cost savings, or if
they are not implemented in a timely fashion, the Company's operating results
and financial condition may be adversely affected.
LIMITED OPERATING HISTORY; NEW BUSINESS STRATEGY
Although FHP's staff model operations have been in existence since 1961,
the Company did not begin operating as a separate entity until January 1996.
The Company therefore has a very limited operating history as a physician
practice management company. The Company, TMMC, THSC and the Talbert Medical
Groups are seeking to transform themselves from a captive staff model operation
to an independent contracted care business. The success of this new business
strategy will depend on the Company's ability to adapt its practices and culture
to the contracted care environment. Among other challenges, the Company must
attract and retain substantial numbers of capitated enrollees to the Talbert
Medical Groups from additional payors, manage the delivery of health care to
enrollees in a cost-efficient manner under market-based contracts, and respond
to developments in a highly competitive and rapidly changing industry. Although
in the past the Company has relied nearly exclusively on FHP to generate
revenues, the Company anticipates that its future operating results will be
dependent
8
<PAGE>
upon additional sources of revenue. As a result, the Company's historical
financial statements, particularly its historical revenues, may not be
indicative of the Company's future operating performance. There can be no
assurance that the Company will be able to address these challenges
successfully.
POSSIBLE CONTROLLING INTEREST OF FHP
FHP may acquire a controlling interest in the Company if the Company is
unable to raise sufficient funds through the Offering to repay a significant
portion of its indebtedness under the Talbert Note. If FHP retains a
substantial equity interest in the Company following consummation of the
Offering, other payors may be discouraged from contracting with the Company and
the interests of FHP and its parent, PacifiCare Holdings, may be different from
those of other stockholders. If FHP holds in excess of 20% of the Company's
outstanding Common Stock, certain restrictions otherwise applicable to FHP's
activities as a stockholder of the Company will cease. If FHP holds in excess
of 50% of the Company's outstanding Common Stock, certain agreements between the
Company and FHP will be null and void. Under the New FHP Provider Agreements,
the consent of FHP and PacifiCare is required for a proposed change in control
of TMMC or a Talbert Medical Group for a period of two years from the Effective
Time, which consent cannot be unreasonably withheld.
DEPENDENCE ON PRIMARY CARE PHYSICIANS
Primary care physicians are an integral part of the Talbert Medical Groups,
as they provide and manage medical services offered to enrollees. The Company's
growth depends, in part, on its ability to retain existing primary care
physicians and attract additional ones. Beginning in January 1997, the Company
implemented a revised physician compensation program that includes a greater
emphasis on performance-based incentives. As a result of the revised
compensation system, the New FHP Provider Agreements, or other developments,
there can be no assurance that physicians presently in the Talbert Medical
Groups will not leave, that the Company will be able to attract additional
primary care physicians into the Talbert Medical Groups or that the Company will
not have to increase or guarantee the payments receivable by affiliated
physicians. To the extent that primary care physicians leave, or additional
primary care physicians do not join, the Talbert Medical Groups or payments to
physicians are increased, the Company's results of operations may be materially
adversely affected. Although physicians in the Talbert Medical Groups enter
into employment agreements that include non-competition provisions, there can be
no assurance that physicians who leave a Talbert Medical Group will not attempt
to compete with that group.
MANAGEMENT OF GROWTH
The Company's strategy involves growth through the development of practice
groups in existing and new markets, as well as selected acquisitions and
affiliations in such markets. There can be no assurance that the Company will
be able to grow in existing or new markets or successfully identify, complete
and integrate future acquisitions. Further, there can be no assurance that the
Company will be able to maintain and develop an adequate infrastructure to
support future growth.
9
<PAGE>
COMPETITION
The managed care industry is highly competitive. The industry also is
subject to continuing changes in the ways services are provided and providers
are selected and paid. As prepaid medical care continues to grow, the Company
may encounter increased competition, including competition for enrollees,
primary care physicians, community health care resources and management
personnel. This competition also may have the effect of reducing capitated
payments received by providers from payors. FHP, the Company's principal source
of capitated enrollees, has experienced significant competition with respect to
its staff model commercial enrollment programs in California in recent periods,
which has been responsible, in part, for declines in the Company's capitated
enrollment.
Certain companies are expanding their presence in the physician practice
management industry and in certain geographic markets in which the Company
operates. A number of companies provide broad management services to primary,
multi-specialty and specialty physician groups, while other companies provide
claims processing, utilization review and other more focused management
services. Certain of the Company's competitors are significantly larger, have
access to greater resources, have greater experience in providing administrative
services and have longer established relationships with buyers of these
services. No assurance can be given that the Company's strategy will allow it
to compete favorably in obtaining payor contracts for the Talbert Medical Groups
or expanding or maintaining its position in existing or new markets.
GOVERNMENT REGULATION
The health care industry is subject to extensive federal and state
regulation. Changes in the regulations or reinterpretations of existing
regulations may significantly affect the Company.
CORPORATE PRACTICE OF MEDICINE. The laws of certain states in which the
Company operates or may operate in the future do not permit general business
corporations to practice medicine, exercise control over physicians who practice
medicine or engage in certain business practices such as fee-splitting with
physicians. The Talbert Medical Groups currently operate in certain states
through professional corporations. The control arrangements maintained by the
Company, through TMMC, over the Talbert Medical Groups are structured to give
TMMC control over the Talbert Medical Groups excluding the delivery of medical
care. If any activities of the Company violate restrictions on the corporate
practice of medicine, such activities would be subject to challenge by
interested parties, who may seek injunctive or other relief to prevent the
Company from engaging in such practices. If successful, such challenges could
require the Company to restructure its operations in a material manner.
INSURANCE. Laws of all states regulate the business of insurance, and
certain of the risk arrangements entered into by the Talbert Medical Groups
could, in the future, possibly be characterized by some states as the business
of insurance. State insurance regulatory authorities, including the National
Association of Insurance Commissioners
10
<PAGE>
(the "NAIC"), have made, and are expected to continue to make, recommendations
regarding certain forms of risk sharing arrangements involving provider
networks. Such recommendations could result in legislation that requires
modification to such arrangements. The NAIC recently approved the Managed Care
Network Adequacy Model Act (the "Model Act"), which is intended to establish
standards for the creation and maintenance of provider networks by health
carriers and establish requirements for written agreements between health
carriers offering managed care plans, participating providers (like the Talbert
Medical Groups), and intermediaries, under which health care services are
provided The Model Act does not carry the force of law unless enacted by state
legislatures. The Company cannot predict which states, if any, may adopt the
Model Act or a variation of it, and is unable to predict what effect the
adoption of such legislation may have on the business of the Company.
THE CALIFORNIA KNOX-KEENE ACT. The California Department of Corporations
has recently issued licenses pursuant to the Knox-Keene Health Care Service Plan
Act ("Knox-Keene Act") to networks of providers that seek to contract with HMOs,
on a capitated basis, for the global provision of health care services,
including hospital services. At present the activities of the Company and the
Talbert Medical Groups are limited to contracting for physician services and
certain ancillary services for which physicians and physician groups may
contract without such licensure under the Knox-Keene Act. In the event that the
Company elects to change its strategy, and assume risk for the provision of
hospital services, it may be necessary to comply with the Knox-Keene Act. If
the activities of the Company were determined by the California Department of
Corporations to violate the Knox-Keene Act, the Department of Corporations has
the authority to issue an order requiring that the Company cease and desist from
the activities constituting the violation, to compel the Company to apply for
relevant licensure, and to seek civil and/or criminal penalties against the
Company.
LIMITATIONS ON REFERRALS. The Company is subject to federal legislation
regulating certain activities to induce Medicare or Medicaid business and
restricting referrals of business to entities in which physicians have a
financial interest. Non-compliance with such legislation can result in
exclusion from Medicare and Medicaid programs and civil and criminal penalties.
California law similarly restricts self-referrals by physicians, irrespective of
the source of payment for the services. Violation of this law can result in
fines penalties and loss of licensure for a physician. The Company believes
that its business arrangements do not involve the referral of patients to
entities with whom referring physicians have a financial interest, because
referrals are made directly to other providers rather than to entities in which
referring physicians have a financial interest. The Company established THSC in
order to facilitate compliance with federal and state regulations regarding
physician referrals and kickbacks. The physicians in the Talbert Medical Groups
do not hold a prohibited interest in THSC. Physicians in a position to make
referrals to THSC, or persons who are immediate family members of such
physicians, are prohibited from exercising Rights or otherwise acquiring the
Company's Common Stock. The Company believes it is in compliance with the laws
governing Medicare, Medicaid and physician referrals, but if it were determined
to be in violation of any such law, the Company could be subject to significant
fines or other penalties and could be required to restructure its operations in
a material manner.
11
<PAGE>
The Company believes that it is in compliance with applicable regulatory
requirements including restrictions on the corporate practice of medicine in
relevant states, limitations on referrals, regulation of the insurance business
and the Knox-Keene Act. No assurance can be given, however, that regulatory
authorities, courts or parties with which the Company does business will not
assert that the Company is engaged in conduct prohibited under such laws or
regulations, and seek relief prohibiting the Company or its affiliates from
carrying on their respective businesses or voiding existing contractual
relationships. If such assertions are made, the Company may be required to
sever or restructure payor contracts or its management services agreements with
the Talbert Medical Groups. Any such severing or restructuring could have a
material adverse effect on the Company.
HEALTH CARE REFORM
Diverse legislative and regulatory initiatives have been proposed at both the
federal and state levels to address both the continuing increases in health care
costs and the lack of health care insurance for many people. Among other
legislation, Congress has considered major reductions in the rate of increase of
Medicare and Medicaid spending as part of efforts to balance the federal budget.
State legislatures also have discussed restructuring Medicaid programs and
adopting "any willing provider" legislation. Certain of the proposals, if
adopted, could have a material adverse effect on the Company.
POTENTIAL CLAIMS AFFECTING THE COMPANY'S INDUSTRY; INSURANCE
In recent years physicians, hospitals and other participants in the health
care industry have become subject to an increasing number of lawsuits alleging
medical malpractice, bad faith denial of services and other claims for recovery
in connection with alleged injuries or misconduct. Many of these lawsuits
involve large claims and substantial defense costs. The Company maintains
professional malpractice and general liability insurance on behalf of itself and
the Talbert Medical Groups in amounts deemed appropriate by management based on
the nature and risks of the Company's business. Although the Company currently
is not a party to any material litigation relating to the practice of medicine,
there can be no assurance that the Company will not become involved in such
litigation in the future, that claims arising from such litigation will not
exceed the Company's insurance coverage or that such coverage will continue to
be available.
12
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TALBERT MEDICAL MANAGEMENT
HOLDINGS CORPORATION
By: /s/ WALTER R. STONE
----------------------------------
Walter R. Stone
Vice President, Finance, Secretary
and Treasurer
DATED: May 8, 1997
13
