<PAGE>
Filed pursuant to Rule 424(b)(3)
Registration No. 333-22999
PROSPECTUS
PHYSICIANS CARE FOR CONNECTICUT, INC.
[LOGO]
3,000 SHARES OF CLASS A COMMON STOCK
AND
3,000 SHARES OF CLASS B COMMON STOCK
--------------------------
For definitions of capitalized terms not otherwise defined herein, see
"Glossary" beginning on page 56 of this Prospectus.
Physicians Care for Connecticut, Inc., a Connecticut corporation (the
"Company" or "Physicians Care"), is offering (the "Offering") two classes of
stock, Class A Common Stock, no par value ("Class A Common Stock"), and Class B
Common Stock, no par value ("Class B Common Stock" and together with Class A
Common Stock, "Common Stock"), to Eligible Purchasers (as defined herein, see
"Terms of Offering--Eligibility Requirements to Purchase Stock"), for a period
(the "Offering Period") of one hundred and eighty days from the date of this
Prospectus, with one sixty day extension at the discretion of the Board of
Directors of the Company (the "Board of Directors"). All Common Stock will be
sold to Eligible Purchasers at a price of $4,000 per share, subject to a "prompt
subscription" price of $3,000 per share for Eligible Purchasers who execute and
deliver to the Subscription Agent the completed Subscription Documents in form
sufficient to establish eligibility to purchase Common Stock within ninety days
of the date of this Prospectus. The Offering is subject to receipt of the
payment and completed Subscription Documents prior to the expiration of the
Offering Period committing to purchases of not less than $8 million of Common
Stock. In the event this threshold is not satisfied, the purchase price of each
share of Common Stock, plus interest thereon, shall be refunded, minus $450 per
share, which shall be retained by the Company to offset the costs associated
with the Offering. See "Risk Factors--Retention of Proceeds." Each prospective
subscriber is credited with interest commencing the date the Company determines
that the prospective purchaser has satisfied the requirements for acceptance of
subscriptions (See "Appendix B--How to Subscribe in this Offering") and
(assuming the $8 million threshold is not satisfied) receives a pro rata share
of the interest accrued on all the funds held in the Escrow which funds do not
include the $450 per share of Common Stock to be retained by the Company to
offset the costs associated with the Offering. Up to 3,000 shares of Class A
Common Stock and 3,000 shares of Class B Common Stock may be sold in this
Offering. Directors and officers of the Company who are Eligible Purchasers of
Class A Common Stock or Class B Common Stock may purchase Common Stock in the
Offering on the same terms and conditions available to all Eligible Purchasers
and such purchases will be counted in determining whether the $8 million
threshold has been satisfied. Directors and officers of the Company who are not
physicians and MedServ are not Eligible Purchasers of Class A Common Stock and,
within the discretion of the Board, may be holders of Class B Common Stock. The
Board of Directors has determined that it will not issue shares of Class B
Common Stock to directors and officers of the Company who are not physicians,
hospitals or MedServ in connection with the Offering.
The Common Stock will be marketed on a best efforts basis by Legg Mason Wood
Walker, Incorporated and Newbury, Piret & Co., Inc., licensed broker-dealers
(collectively referred to as the "Underwriter"), which will receive a sales
commission on all Common Stock sold plus reimbursement for expenses incurred in
connection with the Offering. Additionally, Newbury, Piret & Co., Inc. or its
designee will serve as Subscription Agent. Under certain circumstances, Common
Stock may be marketed by the Company's officers, directors and the members of
the Company's Physician Advocate Council, none of whom will receive compensation
in connection with any offers or sales of Common Stock.
The offering price has been determined by the Board of Directors, based upon
estimates of the capital necessary to begin operations of a Health Maintenance
Organization ("HMO"). The offering price does not necessarily bear any
relationship to the Company's asset value, net worth, or other established
criteria of value and is greater than what its Involuntary Redemption Price is
anticipated to be for at least the first five years after the Offering. The
securities registered hereby are not intended to be a liquid or a quickly
appreciating investment, but do provide an opportunity to develop the Company's
healthcare delivery system and to provide healthcare services to Enrollees
insured by the Company. See "Risk Factors--Restrictions on Transferability of
Common Stock and Absence of a Public or Other Trading Market for Common Stock."
Purchasers who meet the eligibility requirements set forth in this Prospectus
may purchase the Common Stock regardless of where they reside, subject to the
Company's compliance with federal and state securities laws and regulations. See
"Terms of Offering--Eligibility Requirements to Purchase Stock."
--------------------------
THESE ARE SPECULATIVE SECURITIES WHICH INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Transfer of the Common Stock by investors is subject to restrictions and
limitations pursuant to the Company's Certificate of Incorporation and Bylaws.
Consequently, no market for the Common Stock currently exists or is expected to
exist, and Common Stock offered hereby should be purchased only by Eligible
Purchasers who have read and understand this Prospectus and the benefits and
risks of the investment. The terms and conditions under which the Company is
required or permitted to redeem Common Stock are set forth in this Prospectus.
See "Description of Securities--Transfer Restrictions and Redemption
Provisions."
<TABLE>
<CAPTION>
MAXIMUM PRICE TO UNDERWRITING DISCOUNT MAXIMUM PROCEEDS TO
PUBLIC(1)(2)(3) AND COMMISSIONS(4) COMPANY(5)(6)
<S> <C> <C> <C>
Per Class A Common Share.............................. $4,000(1) $340 $3,660
Per Class B Common Share.............................. $4,000(2) $340 $3,660
Total minimum......................................... $8,000,000(3) $680,000 $7,320,000
Total maximum......................................... $24,000,000(5) $1,930,000 $22,070,000
</TABLE>
(1) Class A Common Stock will be sold at a cost of $4,000 per share, subject to
a "prompt subscription" price of $3,000 per share to Eligible Purchasers who
execute and deliver to the Subscription Agent completed Subscription
Documents to purchase shares within ninety days of the date of this
Prospectus.
(2) Class B Common Stock will be sold at a cost of $4,000 per share, subject to
a "prompt subscription" price of $3,000 per share to Eligible Purchasers who
execute and deliver to the Subscription Agent completed Subscription
Documents to purchase shares within ninety days of the date of this
Prospectus.
(3) In the event the Company does not receive subscriptions for an aggregate of
$8,000,000 of Common Stock, the Company shall terminate the Offering, and
will retain from the proceeds $450 per share of Common Stock subscribed to
be used to offset expenses associated with the Offering. See "Risk
Factors--Retention of Proceeds."
(4) The Underwriting Discount and Commissions are equal to seven percent (7%) of
the price to the public ("Underwriter's Discount"). In addition, the
Underwriter is entitled to a non-accountable expense allowance of one and
one-half percent (1.5%) of the price to the public up to $15 million and
one-half percent (0.5%) of the price to the public for sales in excess of
$15 million, but not greater than $20 million, plus direct compensation for
certain specified expenses associated with the Offering ("Underwriter's
Accountable Expenses"). See "Underwriting."
(5) In the event all Common Stock offered hereby is sold within ninety days of
the date of this Prospectus, the Maximum Price to Public, Underwriting
Discount and Commission, and Maximum Proceeds to Company will be
$18,000,000, $1,500,000 and $16,500,000, respectively.
(6) Before deducting Offering expenses payable by the Company estimated to be
$1,610,000.
LEGG MASON WOOD WALKER NEWBURY, PIRET & CO., INC.
INCORPORATED
THE DATE OF THIS PROSPECTUS IS NOVEMBER 20, 1997.
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AVAILABLE INFORMATION
The Company has filed with the U.S. Securities and Exchange Commission (the
"Commission") Washington, D.C., 20549, a Registration Statement on Form SB-2
under the 1933 Securities Act with respect to the securities offered hereby.
This Prospectus, which is part of the Registration Statement, does not contain
all of the information included in the Registration Statement and the exhibits
and schedules thereto. For further information with respect to the Company and
the securities offered hereby, reference is made to the Registration Statement
and the exhibits and the schedules thereto which may be inspected, without
charge, at the Commission, or copies of which may be obtained from the
Commission in Washington, D.C. upon payment of the requisite fees. Statements
contained in this Prospectus as to the content of any contract or other document
referred to are not necessarily complete, and where such contract or other
document is an exhibit to the Registration Statement, each such statement is
deemed to be qualified in all respects by the provisions of the exhibit.
After this Offering, the Company will be subject to the informational and
reporting requirements of the Securities Exchange Act of 1934, as amended and,
in connection therewith, will file periodic reports, proxy statements, and other
information with the Commission. The Registration Statement, as well as any
periodic reports, proxy statements, and other information filed by the Company
with the Commission can be inspected without charge and copied, upon payment of
prescribed rates, at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the Commission located at 7 World Trade Center, 13th
Floor, New York, New York 10048 and the Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material and
any part thereof will also be available by mail from the Public Reference
Section of the Commission, at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Such material may also be accessed electronically by means of
the Commission's home page on the Internet at http:// www.sec.gov.
------------------------
TABLE OF CONTENTS
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SECTION PAGE
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Available Information............................ 2
Prospectus Summary............................... 3
Risk Factors..................................... 8
Use of Proceeds.................................. 19
Dividends........................................ 20
Capitalization................................... 21
Dilution......................................... 21
Plan of Operation................................ 22
The Company...................................... 26
Business......................................... 27
Management....................................... 41
Conflicts of Interest............................ 45
Related Party Transactions....................... 45
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SECTION PAGE
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Terms of Offering................................ 46
Escrow Arrangements.............................. 48
Subscription Agent............................... 48
Description of Securities........................ 49
Underwriting..................................... 54
Experts.......................................... 54
Glossary......................................... 56
Index to Financial Statements.................... F-1
Appendix A: Questions & Answers.................. A-1
Appendix B: How to Subscribe in this Offering.... B-1
Appendix C: Sample Physician Fee Schedule........ C-1
</TABLE>
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PROSPECTUS SUMMARY
The following is a summary of certain information contained in this
Prospectus and is qualified in its entirety by the more detailed information
appearing elsewhere. This Prospectus contains, in addition to historical
information, forward-looking statements of the Company's intentions that involve
risk and uncertainties. The Company's actual results could differ materially
from the results contemplated by such forward-looking statements.
PHYSICIANS CARE FOR CONNECTICUT, INC.
Physicians Care for Connecticut, Inc. was incorporated in 1996 as a
Connecticut corporation to develop a statewide physician-owned and -directed
insurance company licensed as an HMO which intends to offer a comprehensive
array of health plans. Presently, the Company is a wholly-owned subsidiary of
MedServ of Connecticut, Inc. ("MedServ"). However, upon completion of the
Offering, the Company will be substantially owned by the Eligible Purchasers of
Common Stock. The principal goal behind the formation of the Company is the
creation of a managed healthcare plan that will become the managed health plan
of choice, preferred by employers and individuals to provide for their health
insurance needs in the State of Connecticut. The Company believes that it can
achieve this goal by developing health insurance products with value that are
clearly identified as the premier products in the State of Connecticut.
The Company believes that physicians will play a critical role in the
overall success of the Company and that the Company will be predominantly owned
by physician shareholders practicing in Connecticut, who are expected to
participate actively in the Company's affairs. The Company currently intends to
support physicians' medical decision-making through timely access to information
and availability of medical management support. By doing so, the Company expects
to foster the commitment of physicians to participate actively in the Company's
marketing efforts and programs, and to manage medical risk while maintaining
patient satisfaction. The Company believes the principal difference between the
Company and its competitors is that the Company is founded on the belief that
physicians will play an important role in both defining and managing the
delivery of its health plan products, and that the Company intends to support
those efforts of physicians accordingly.
Initially, the Company intends to use a modified open access model, pursuant
to which each Enrollee will select a Care Manager who will coordinate medical
care to the extent consulted by the Enrollees or informed by a Participating
Physician or the Company. Although Enrollees may access any Participating
Physician at any time without a Care Manager's referral, the Company believes it
has structured its benefit design to encourage Enrollees to utilize their Care
Managers to coordinate referrals, for example, through a reduced or waived
copayment if a referral is coordinated through a Care Manager.
The Company intends to prepare and file during the fourth quarter of 1997 an
application for a Certificate of Authority ("COA") with the Connecticut
Department of Insurance (the "DOI") to operate as an HMO throughout the State of
Connecticut. The Company will seek such other regulatory approvals as necessary
to offer its health plans, should the COA be approved. The Company intends to
provide coverage for comprehensive healthcare services to Enrollees under its
health plans for a fixed, prepaid enrollment fee paid by or on behalf of the
Enrollees.
As a condition to purchasing Class A Common Stock in the Offering, each
Eligible Purchaser must agree to provide medical services to Enrollees pursuant
to the terms of a Participating Physician Agreement between the investing
physician and MedServ IPA, Inc. ("IPA"), a statewide independent practice
association of physicians that is controlled by physicians. To be an Eligible
Purchaser of Class B Common Stock, the purchaser must be a physician who owns
one share of Class A Common Stock, or a hospital or other investor (including
retired physicians) approved by the Company at its discretion. See "Terms of
Offering."
3
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For a more comprehensive description of the Company's contemplated business
operations, see "Business."
THE COMPANY'S MANAGEMENT
The Company intends to enter into a long-term Management Agreement (the
"Management Agreement") with MedServ, pursuant to which MedServ will conduct the
day-to-day operations of the Company, develop the physician and provider network
and oversee clinical service delivery. The Company expects that IPA will have
responsibility for the development of the Company's physician network and for
the clinical aspects of its operations under the terms of a service agreement
with MedServ. By virtue of its relationship with MedServ and IPA, it is the
Company's intention to maintain the distinctive physician-led character of the
Company in the managed care marketplace.
MEDSERV OF CONNECTICUT, INC.
MedServ was organized in 1995 as a joint venture of the Hartford County
Medical Association and the New Haven County Medical Association. Each of the
Associations holds 50% of the equity interests in MedServ. MedServ is a
for-profit corporation performing administrative functions for both county
medical associations and intends to operate a Central Verification Organization
("CVO") to provide credentialing services which are intended to meet National
Commission for Quality Assurance ("NCQA") credentialing standards.
Through its CVO, MedServ will develop credentialing standards to provide
assurances to Enrollees that each provider of medical services meets the minimum
standards for education, licensing, training and expertise deemed necessary by
the Company to provide the medical services requested. MedServ will collect
information to document compliance with the credentialing standards, verify the
accuracy of such information, and monitor continuing compliance with such
credentialing standards.
Pursuant to the Management Agreement and subject to the oversight of the
Board of Directors, MedServ will be responsible for the day-to-day management of
the Company, including but not limited to the following activities:
- performing all management, administrative and other services necessary to
operate the Company;
- obtaining all licenses, permits or other regulatory approvals necessary to
operate the Company as an HMO in the State of Connecticut;
- conducting or managing the sale of the Company's products, including
negotiating subscriber agreements with employer groups or individuals;
- conducting benefit design of the Company's health plans;
- conducting claims analysis and statistical reporting;
- conducting negotiation of provider contracts and credentialing of
providers;
- developing quality and utilization management standards;
- providing or arranging for the provision of a management information
system;
- ensuring that the Company's operations are consistent with applicable laws
and regulations.
Key members of the MedServ management team will provide management services
to the Company. The Management Agreement will have a minimum term of ten years
and will be automatically renewable for additional three-year terms, unless
terminated on one year's prior notice by either party. MedServ is the sole
holder of the Company's Class C Common Stock. Subject to the consent of the
Board of Directors of the Company ("Board of Directors"), which consent will not
be unreasonably withheld, MedServ will be permitted to contract with other third
party independent contractors to provide some or all of the services
4
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required to be delivered under the terms of the Management Agreement. As a
start-up, MedServ may engage an HMO management consulting company to provide
management or management support and consulting services to MedServ, in whole or
in part during the Company's development and initial operations stages.
During the Development Stage and the Initial Operations Stage of the
Company, the Company will pay MedServ a Management Fee equal to MedServ's actual
cost of providing the services set forth in the Management Agreement not to
exceed the amounts set forth in the Administrative Services Budget (the
"Budget") approved by the Board of Directors by a two-thirds vote and an
allowance for profit and general administrative expenses equal to five percent
of such actual costs. In the event that actual administrative and capital
expenses in aggregate are expected to exceed the Budget by more than five
percent or if actual expenses related to any line item of the Budget are
expected to exceed the Budget for such line item by more than twenty percent
(whether or not aggregate expenses are expected to exceed Budget), MedServ must
notify the Board of Directors of such expenses and may make no expenditure for
such expenses without the approval of the Board of Directors. After completion
of the Development Stage and Initial Operations Stage, MedServ shall be paid a
negotiated percentage of actual gross premium revenue per Enrollee per month as
mutually agreed to by MedServ and the Company.
MedServ currently employs twenty-one full-time employees and has offices
located at 1520 Highland Avenue, Cheshire, Connecticut 06410. MedServ currently
provides management services to the following entities: New Haven County Medical
Association, Hartford County Medical Association, MedServ IPA and Medical
Delivery Services, Inc.
MEDSERV IPA, INC.
It is anticipated that IPA will enter into a long-term agreement with
MedServ (the "IPA Agreement"), pursuant to which IPA will be the exclusive
provider of a network of Participating Physicians to provide services to
Enrollees, which exclusive status is to remain in effect unless the Board of
Directors determines in its reasonable judgment that the network furnished by
IPA is not adequate to service the needs of Enrollees, and will cause
Participating Physicians to provide such services. The IPA Agreement provides
that IPA shall, among other things: (a) ensure that Participating Physicians are
properly licensed and credentialed and have privileges at specified hospitals
and other health care facilities; (b) notify MedServ of any professional
disciplinary action or similar action against any Participating Physicians; (c)
with MedServ's assistance, develop peer group monitoring systems for
Participating Physicians; and (d) develop, with MedServ, mutually agreeable
Utilization Management and Quality Management Programs and adopt and implement
such programs. IPA's compensation for its services under the IPA Agreement has
not yet been determined. To the extent that IPA is not able to deliver a network
of physicians in any portion of the State of Connecticut, the Company is free to
establish its own network in that portion of the State of Connecticut and/or to
terminate the IPA Agreement with IPA. In addition, because IPA may contract with
competitors of the Company, the Company may terminate the IPA Agreement if IPA
executes a Competitor Contract (as defined in the IPA Agreement) and the Company
determines in its reasonable judgment that the execution of such contract is
contrary to the Company's interests.
IPA is a Connecticut non-profit corporation, organized in October 1985 and
formed specifically for the purpose of developing a network of physicians to
provide services to health plan enrollees. From 1985 to 1996, IPA was known as
ProCare IPA, Inc. IPA is also managed by MedServ.
IPA has previously arranged for the provision of physician services to Cigna
Health Plan of Connecticut and Multiplan.
PHYSICIAN ADVOCATE COUNCIL
The Board of Directors has authorized the establishment of the Physician
Advocate Council as an ad hoc committee appointed by the Board of Directors
which will advise the Board of Directors on matters of
5
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Company policy or operations as they affect physician participation in health
plans offered by the Company, including product design, physician compensation,
physician credentialing criteria, the physicians' role in member services
support, the effectiveness of the Company's medical management model and the
conduct of the Company's capital campaign. The Board of Directors appoints
physician members to the Physician Advocate Council in its discretion.
Participation of physicians in the Physician Advocate Council is voluntary and
no compensation will be paid by the Company to such physicians.
STOCK TRANSFER RESTRICTIONS AND REDEMPTION
The Common Stock is subject to significant restrictions on transfer and on
the redemption thereof by the Company. See "Description of Securities."
THE OFFERING
Common Stock offered by the Company:
<TABLE>
<S> <C>
Class A..................................................... 3,000 shares
Class B..................................................... 3,000 shares
Total....................................................... 6,000 shares
</TABLE>
COMMON STOCK TO BE OUTSTANDING AFTER THE OFFERING:
<TABLE>
<S> <C>
3,000 shares
Class A..................................................... (1)
3,000 shares
Class B..................................................... (1)
Class C..................................................... 3 shares
Total....................................................... 6,003 shares
</TABLE>
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(1) Assumes full subscription of all Common Stock offered hereby.
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USE OF PROCEEDS
Proceeds of the Offering will be used for repayment of bank loans, repayment
of Development Stage costs advanced by MedServ and IPA, payment of accounts
payable and accrued expenses related to Development Stage costs, sales and
marketing activities, and for working capital and other general corporate
purposes. See "Use of Proceeds."
RISK FACTORS
An investment in the Common Stock involves a high degree of risk, including,
among others, risks related to lack of operating history, anticipated losses for
several years, retention of proceeds, government approvals and regulation,
restrictions on transfer of stock and absence of a public or other market for
Common Stock, need for agreements with a sufficient number of participating
healthcare providers, and reliance on MedServ and IPA. See "Risk Factors."
SUMMARY FINANCIAL DATA
The following table sets forth certain historical financial data for the
Company as of August 31, 1997, which has been derived from the audited financial
statements of the Company included elsewhere herein, together with unaudited pro
forma data reflecting the application of proceeds of the Offering.
<TABLE>
<CAPTION>
AS ADJUSTED UPON AS ADJUSTED UPON
COMPLETION OF COMPLETION OF
AUGUST 31, THE THE
BALANCE SHEET DATA: 1997 OFFERING(1) OFFERING(2)
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Working Capital (Deficit)..................................... $ (1,258,691) $ 5,560,000 $ 20,310,000
Borrowings under Line of Credit............................... 625,000 -0- -0-
Total Liabilities............................................. 1,292,785 -0- -0-
Total Stockholders' Equity (Deficit).......................... $ (1,258,691) $ 5,560,000 $ 20,310,000
</TABLE>
(1) Assumes the receipt of the minimum net proceeds of the Offering to the
Company $7,170,000 ($8,000,000 less underwriting commissions, discounts and
expense allowances) and the payment of additional offering expenses of
$351,309.
(2) Assumes the receipt of the maximum net proceeds of the Offering to the
Company $21,920,000 ($24,000,000 less underwriting commissions, discounts
and expense allowances) and the payment of additional offering expenses of
$351,309.
7
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, PROSPECTIVE
INVESTORS SHOULD CONSIDER THE FOLLOWING RISK FACTORS IN EVALUATING THE COMPANY
AND ITS BUSINESS BEFORE PURCHASING ANY OF THE COMMON STOCK OFFERED HEREBY. THIS
PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION, FORWARD-LOOKING
STATEMENTS OF THE COMPANY'S INTENTIONS THAT INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS CONTEMPLATED
BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO
SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW AS WELL
AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
DEVELOPMENT STAGE COMPANY; NO OPERATING HISTORY
The Company was incorporated on November 12, 1996. The Company is in its
development stage, has no operating history, and has generated no operating
revenues. As such, the Company is subject to all of the risks inherent in a new
enterprise, including, but not limited to the items discussed below. The Company
has not completed the design of its benefit plans or its financial, operational,
and administrative plans. Similarly, it has not completed the drafting of
contract documents, utilization management/quality assurance standards and
systems, or the structuring of all payment levels and methodologies. The
application for a COA which will enable the Company to operate as an HMO in the
State of Connecticut will be filed after commencement of the Offering, but will
be subject to completion of the minimum Offering.
Investors should be aware of the difficulties typically encountered by a new
enterprise. There can be no assurance that the Company's development will be
successful, that its services or products will be successfully marketed, or that
a sufficient number of physicians or other healthcare providers (i.e. hospitals,
ancillary providers, etc.) will be willing to provide services to the Enrollees
of the Company to enable it to operate an HMO.
RETENTION OF PROCEEDS
The Company will retain $450 per share from the proceeds of the
subscriptions to purchase Common Stock to offset costs associated with the
Offering, including Underwriter's accountable expenses which the Company is
contractually obligated to pay, even if the Offering is not consummated due to
insufficient subscriptions to satisfy the $8,000,000 minimum threshold required
for consummation. Expenses associated with the Offering, exclusive of
underwriting commissions, Underwriter's non-accountable expenses, and
Underwriter's accountable expenses, are estimated to be approximately
$1,610,000. There can be no assurance that the Company will receive sufficient
subscriptions to consummate the Offering, and, accordingly, subscribers may lose
a part of their investment without receiving any shares of Common Stock.
RELIANCE ON DEVELOPMENT STUDY
The Company's initiative to develop the HMO is based on a Development Study
conducted by Medical Alliances, Inc. ("Medical Alliances"), which was funded by
MedServ. On the basis of the research conducted by Medical Alliances in support
of the Development Study, a physician-owned statewide HMO was determined to be
feasible. Based on certain assumptions in the Development Study, Medical
Alliances developed certain financial projections and estimated that capital in
the amount of approximately $15,000,000 was required to develop the HMO and to
fund the operations for approximately 30 months, the point at which Medical
Alliances estimated that the Company would attain profitable operations.
The Development Study makes assumptions regarding Company operations,
including acquisition of an information system, number and type of commercial
and Medicare product offerings, scope of marketing effort, method and cost of
conducting the sales effort, and employment of key personnel.
8
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The Company has undertaken additional review of the Development Study with
the assistance of its consultants and has updated the Development Study based
principally on actual development costs and expenses incurred through August 31,
1997. No assurances can be given as to the accuracy or completeness of the
Development Study or its assumptions, conclusions, recommendations, or financial
projections as of November 26, 1996, or any other date other than actual
expenses incurred through August 31, 1997; or that the Company will be able to
implement, or implement successfully, such recommendations or meet such
financial projections.
MINIMUM OFFERING LESS THAN PROJECTED CAPITAL NEEDS
The minimum gross proceeds of the Offering, less estimated costs of the
Offering, provide less capital than required to operate the Company based on the
assumptions, conclusions, recommendations and financial projections set forth in
the Development Study. See "Use of Proceeds--Minimum and Maximum Offering." In
the event the Company raises not more than the minimum gross proceeds of the
Offering, the Company must either raise more capital or modify its plan of
operations, or both.
In the event the net proceeds of this Offering to the Company are less than
$15,000,000, the Company, in the discretion of the Board of Directors, may
explore the benefits of strategic alliances with companies that provide
expertise and capital. Such companies may include HMOs or insurance companies,
management companies which provide services to HMOs or health care providers or
vendors of information technology services. The Company will also consider sale
of additional shares to health care providers. There is no assurance that such
additional capital will be available, or if available, will be available on
terms acceptable to the Company.
The Company will also consider modification of its plan of operations as
contemplated in the Development Study which may include, among other things, the
lease, instead of purchase, of capital equipment, or out-sourcing of claims
processing and information services to a third party administrator. The Company
will also consider raising additional funds through the issuance of debt or the
sale of additional equity, in which event the Company may nonetheless implement
all or some of the modifications of its plan of operations described above.
There can be no assurance that any additional funds will be available to the
Company, or, if available, will be available to the Company on acceptable terms.
There is no assurance that the Company will be able to raise additional
capital or to modify its plan of operations in a timely manner, or that, through
the raising of additional capital, the modification of the Company's plan of
operations, or any combination thereof, will be able to achieve the results
anticipated in the Development Study.
ACCUMULATED AND ANTICIPATED LOSSES FOR FIRST SEVERAL YEARS
As of August 31, 1997, the Company has cumulative losses of $1,270,691 and a
net stockholder's deficit of $1,258,691. Based on the Development Study and
assuming net proceeds from the Offering received by the Company of $15,000,000,
it is anticipated that the Company will incur additional losses and will have a
substantial operating deficit for approximately thirty months following the
effective date of enrollment of Enrollees, and will have cumulative losses for
approximately five years. A substantial portion of the proceeds of the Offering
is expected to fund negative cash flow. There can be no assurance, however, that
the Company will begin operating with a positive cash flow within the estimated
time described above, or that its actual losses or number of Enrollees will be
as estimated. It may take a significantly longer time than anticipated to
achieve a positive cash flow, if ever, and the Company's losses may be
significantly greater than estimated. The size of the deficit will depend upon,
among other factors, the health status of Enrollees, the ability of management,
the accuracy of actuarial projections, the Company's ability to reinsure against
catastrophic losses, the per capita amount of premiums collected, the ability to
market the Company's products successfully, the effectiveness of its utilization
management programs in controlling unnecessary utilization of health services,
the avoidance of epidemic or unexpected medical catastrophes, the length of time
necessary to obtain regulatory approvals and any conditions attached to such
approvals, and other factors not subject to precise estimation. If the Company
fails to
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achieve positive cash flow within approximately three years of the date on which
it first enrolls Enrollees, or if the proceeds of the Offering are otherwise
inadequate to fund the Company's operations until such time as the Company
ceases to incur deficits, then additional financing may be required to cover
losses incurred, which financing may not be available, or, if available, may not
be available on terms acceptable to the Company, in which event a statutory
liquidation proceeding under the supervision of the DOI might be instituted
against the Company. The rules and regulations of the State of Connecticut will
determine how the assets of the Company would be distributed to creditors and
shareholders under such circumstances. See "--Potential Ineligibility of HMOs
for Federal Bankruptcy Protection."
GOVERNMENT APPROVALS AS A PREREQUISITE TO OPERATIONS
The Company will file an application for a COA as an HMO with the DOI. Such
COA is essential to the operation of an HMO as proposed by the Company, and, as
a result, failure to receive approval from the DOI would have a significant
adverse effect on the Company. Further, the Company intends to file an
application with the HCFA to become a Competitive Medical Plan ("CMP") or
Provider Sponsored Organization ("PSO") to serve Medicare beneficiaries when the
Company meets eligibility requirements for a CMP or PSO, respectively. Under
current regulations, the Company must have at least 5,000 commercial Enrollees
to meet eligibility requirements as a CMP. The eligibility requirements for a
PSO are still being defined by regulations. The Company will continue to assess
whether it will meet the requirements for eligibility as a PSO. If the Company
qualifies as a PSO, the Company may be permitted to apply directly to Health
Care Financing Administration for participation in the Medicare program if the
State of Connecticut fails to act on the Company's licensure application within
90 days. Currently, PSOs also have lower enrollee enrollment requirements than
CMPs (1,500 compared to 5,000 in urban areas and 500 compared to 1,500 in
non-urban areas). There can be no assurance that the Company will be able to
meet such eligibility requirements. The Company intends, under its contract with
MedServ, to expend substantial sums from the proceeds of the Offering to obtain
HCFA's approval and status as a CMP or PSO. If HCFA denies the Company status as
a CMP and PSO, the Company would be unable to offer insurance to the state's
elderly population on a competitive basis, which would have a material adverse
impact on the Company.
GOVERNMENT REGULATION
HMOs are subject to extensive state and federal governmental regulation
which may undergo substantial changes over the next several years. The areas
regulated include, among others, the scope of benefits required to be made
available to Enrollees, minimum net worth and capital reserves requirements, the
manner in which premium rates are structured, procedures for review of quality
assurance programs, enrollment disclosures and requirements, the relationship
between the Company and its healthcare providers and the financial condition of
the Company. Failure of the Company to comply with such regulations could result
in the loss of its COA to operate an HMO in Connecticut, if such authority has
been approved, or federal authority to operate a CMP or PSO, if such federal
authority is obtained. In the future, the Company will assess the advantages and
disadvantages of obtaining federal HMO qualification. In lieu of specified plans
required by state regulation to be offered, federally qualified HMOs are
permitted to offer plans approved in accordance with laws governing a federally
qualified HMO. Until and unless federal HMO qualification is obtained, the
Company will be required to offer the plans required by Connecticut law.
However, there can be no assurance that the Company will seek approval to be a
federally qualified HMO or that if such approval is sought, it will be obtained.
Although the State of Connecticut has begun to deregulate some aspects of
hospital rates, such rates are still regulated. As a result, the Company may be
limited in its ability to negotiate favorable rates from hospitals.
In addition, it is impossible to predict whether regulation and/or reforms
which may be considered by the federal government and/or the State of
Connecticut will be adopted, or to forecast the effect that state
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and/or federal legislation, if enacted, may have on the healthcare delivery
system and the Company's business. See "Business--Regulation."
CONTROL BY CURRENT SHAREHOLDER
MedServ, as the sole shareholder of the Company's Class C Common Stock, has
the right to appoint a majority of the Board of Directors. Two-thirds in
interest of the outstanding Class C Common Stock must approve certain
extraordinary actions of the Company, such as: (i) a sale or liquidation of the
Company; (ii) a merger or consolidation involving the Company; (iii) an
amendment to the Company's Certificate of Incorporation; and (iv) any matter
required by law to be submitted to the shareholders for a vote. In addition, the
Company's Bylaws provide that a two-thirds majority of the directors appointed
by MedServ is required in order to appoint management of the Company, to amend
the Company's Bylaws or to authorize the incurring of debt of $1,000,000 or
more. Accordingly, MedServ will be able to determine the outcome of all actions
of the Company requiring approval by the Board of Directors or shareholders and
will substantially control the business affairs of the Company. See "Description
of Securities."
LIMITATIONS ON PHYSICIAN OWNERSHIP OF CERTAIN HEALTHCARE ENTERPRISES
Federal law, under certain defined circumstances, prohibits referrals by a
physician to a healthcare entity in which the physician or his immediate family
has a financial interest, including ownership of an equity interest. There can
be no assurance that the limitations of federal law will not be extended to
physician ownership of an HMO.
Based upon the Company's business plan, and subject to receipt of all
necessary governmental approvals, the Company believes that neither the Company
nor its physician shareholders will be in violation of either federal or
Connecticut law as a result of the operation of, or participation in, the
Company as an HMO. To the extent that physicians refer Enrollees to other
physicians, they will receive no remuneration for such referral. Moreover, the
Company will not require nor encourage physicians to refer Enrollees to entities
in which they have a financial interest. See "Plan of Operation" and "Business--
Regulation--Federal Anti-kickback and Anti-referral Laws."
If the Company becomes a CMP or PSO, federal law requires compliance with
certain requirements and restrictions relating to risk-sharing arrangements with
physicians. These requirements and restrictions may adversely affect the
Company's ability to motivate physicians to manage medical risk effectively.
TERMINATION OF AGREEMENTS WITH PROVIDERS
If revenues are not sufficient to cover payments to providers and other
operating expenses, the Company will operate at a loss which could have a
material adverse impact on the Company's working capital. If the Company is
unable to make payments to Participating Physicians and other healthcare
providers, such providers could terminate their Participation Agreements to
provide services to the Company's Enrollees. The termination of a significant
number of such Participation Agreements could result in any of a series of
occurrences including, but not limited to, inability to service Enrollees,
reduced Enrollee growth, insufficient working capital and the possible loss of a
COA to operate an HMO. See "-- Anticipated Losses for First Several Years" and
"Use of Proceeds."
RESTRICTIONS ON TRANSFERABILITY OF COMMON STOCK AND ABSENCE OF A PUBLIC OR OTHER
TRADING MARKET
FOR COMMON STOCK
Common Stock cannot be transferred by a shareholder to any person or entity
other than to an Eligible Purchaser. As a result, there will be no public market
for the Common Stock of the Company. The Company must redeem Common Stock under
certain circumstances, and may redeem Common Stock otherwise. See "Description
of Securities--Transfer Restrictions and Redemption Provisions." In the event
that the redemption of Common Stock would, in the judgment of the Board of
Directors, render the
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Company insolvent or violate any capital reserve requirement or contract to
which the Company is a party, such redemption shall not be made at that time,
and the parties requesting redemption shall receive no other compensation for
the Common Stock sought to be redeemed. In addition, the Company may adopt
limitations on the amount of funds available each year for the redemption of
Common Stock. The Board of Directors may, in its sole discretion, determine the
amount of funds available each year for the redemption of Common Stock, as well
as the priority of payments to shareholders. As a result of the foregoing
restrictions, a shareholder of the Company should be prepared to hold his or her
Common Stock indefinitely.
NEED FOR PARTICIPATION AGREEMENTS WITH A SUFFICIENT NUMBER OF HEALTHCARE
PROVIDERS
The Company intends to contract with MedServ to arrange for the availability
of a physician network. In turn, the Company understands that MedServ intends to
subcontract its obligations to do so to IPA, which the Company believes will
arrange for the provision of a sufficient number of physicians throughout the
State of Connecticut to provide physician services to Enrollees.
The Company, in conjunction with MedServ, has begun to negotiate provider
agreements with hospitals and other healthcare providers, including, without
limitation, hospitals, pharmacies, laboratories and nursing homes, although it
has not reached a binding agreement with any such provider. There can be no
assurance that IPA will have a sufficient number of physicians or that the
Company through MedServ will contract with enough other healthcare providers to
provide adequate access to medical services for Enrollees. In such case, the
Company may not be able to sell its products or services statewide. The
inability of IPA to maintain a sufficient number of physicians in its network or
the inability of the Company through MedServ to contract with a sufficient
number of other healthcare providers might reduce the Company's ability to
compete with other HMOs in Connecticut and may have an adverse effect upon the
financial condition of the Company. If IPA's Participation Agreements are
terminated by Participating Physicians, or other healthcare providers terminate
their contracts with the Company, the Company's ability to continue to market
its products or services would be materially adversely affected.
NO ASSURANCE OF SUFFICIENT NUMBER OF PARTICIPATING PHYSICIANS
No physician can provide medical services to the Company's Enrollees unless
the physician purchases one share of Class A Common Stock. This requirement may
have the effect of encouraging physicians to provide services to enrollees of an
HMO, other than the Company, which does not condition participation therein upon
the purchase of an ownership interest. There can be no assurance that a
sufficient number of physicians will purchase one share of Class A Common Stock
such that the Company has an adequate number of Participating Physicians to
provide medical care to Enrollees. The failure of the Company through IPA to
attract a sufficient number of Participating Physicians to support an adequate
network may have a material adverse effect on the Company.
OVERABUNDANCE OF PARTICIPATING PHYSICIANS
The Company may have greater than an appropriate number of Participating
Physicians in certain specialties within certain geographic areas. To the extent
that there might be too many Participating Physicians in certain specialties
within a geographic area, the revenue realized by any individual or Group of
Participating Physicians in that specialty for services rendered to the
Company's Enrollees may not be as great as anticipated. In addition, if a large
number of physicians become Participating Physicians, each Participating
Physician may have fewer patients and as a result may derive less income from
the Company than might otherwise be anticipated. There is no assurance that each
shareholder will provide services to Enrollees and receive compensation
therefor. See "--Method of Reimbursement for Physician Services."
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LIMITATION ON CAPITAL; ELIGIBILITY OF PURCHASERS
There are certain eligibility criteria required to be an Eligible Purchaser.
To be an Eligible Purchaser of Common Stock, an individual must: (i) be a
physician licensed in the state in which the physician practices; (ii) be a
member of his or her County and State Medical Societies, if available; (iii)
have in effect a Participation Agreement with IPA and (iv) have in effect a
Physicians Care Primary Care Attachment or a Physicians Care Specialist
Physician Attachment. The Class A Common Stock may also be held by a Group. To
be an Eligible Purchaser of Class B Common Stock, the Eligible Purchaser must be
a physician who owns one share of Class A Common Stock, or a hospital or other
investor (including retired physicians) approved by the Company, in its
discretion. Accordingly, the number of potential Eligible Purchasers is limited
which, in turn, may restrict the potential capital that the Company raises in
this Offering, or thereafter, if the Company needs additional capital.
POTENTIAL FOR UNNECESSARY UTILIZATION OF HEALTHCARE SERVICES
Initially, the Company intends to offer a modified open access product,
pursuant to which each Enrollee will select a Care Manager who will coordinate
the Enrollee's medical care to the extent consulted by the Enrollee or informed
by a Participating Physician or Plan. Although Enrollees may access any
Participating Physician at any time without a Care Manager's referral, the
Company believes it has structured its benefits design to encourage Enrollees to
utilize their Care Managers to coordinate referrals, for example, through the
use of a reduced or waived copayment if a referral is coordinated through a Care
Manager. Female Enrollees, however, may select an Obstetrician/Gynecologist to
provide certain gynecological services or care related to pregnancy without the
prior authorization of the Care Manager, and the Company intends that such
Enrollees will not have to pay higher copayments for such services. Although
this system seeks to limit unnecessary utilization of medical services without
compromising the Company's vision of providing high quality medical care and
providing Enrollees flexibility in their choice of physicians, there is still a
risk that there will be unnecessary utilization of medical services. The
inability of the Company to minimize unnecessary utilization might have a
material adverse effect on the operations of the Company. Furthermore, Enrollees
may find the incentive to obtain a Care Manager's authorization for referral to
be unsatisfactory, which may lead to Enrollee attrition.
The Company intends to employ a Fee-For-Service ("FFS") payment arrangement
with a 20% withhold, which may encourage unnecessary utilization of healthcare
services, causing the Company to incur higher than anticipated costs.
Notwithstanding the use of a Care Manager system, and the use of other efforts
to control unnecessary utilization, the Company may suffer material adverse
financial consequences as a result of unnecessary utilization of healthcare
services. See "Business--Quality Management Program" and "--Utilization
Management Program."
SUBSTANTIAL COMPETITION
The Company will compete with other prepaid health plans and with
traditional indemnity insurers in its geographic area, as well as with
self-insured programs and other managed care companies offering a range of
health insurance products. Moreover, a number of indemnity insurers have begun
to aggressively market HMO or managed care products of their own. Other programs
or entities, including Physicians Health Services, Inc., Blue Cross & Blue
Shield of Connecticut, Inc., ConnectiCare, Inc., M.D. Health Plan, Inc., Oxford
Health Plans, Inc., Medspan, Inc., Cigna Corporation, and U.S. Healthcare/Aetna
Health Plans of Southern New England, Inc., among others, have greater operating
experience and are substantially better capitalized than the Company. Under
proposed changes to federal laws, groups of healthcare providers may contract
directly with employers or other purchasers of health insurance products,
thereby eliminating or reducing the need for HMOs. Furthermore, employer
purchasing coalitions may seek to bypass the Company and its competitors when
purchasing healthcare services for employees and dependents by contracting
directly with healthcare providers. The Company expects substantial competition
for its services. See "Business--Competition."
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NET WORTH AND RESERVES REQUIREMENTS
To operate as an HMO, the Company must satisfy statutory minimum net worth
requirements as required by the DOI and must maintain reserves at least equal to
all of its estimated pending claims. To comply with the those requirements, the
Company must initially have a regulatory minimum net worth of $1,500,000 and
thereafter must maintain capital committed to satisfy ongoing net worth
requirements equal to the greater of (i) $1,000,000, or (ii) two percent of its
annual premium revenues of the first $150,000,000 of premiums plus one percent
of annual premium revenues in excess of $150,000,000. The DOI retains
discretionary authority to increase such amounts to protect the interests of
Enrollees. There is no assurance that the Company will generate sufficient
earnings to meet the DOI reserve and net income requirements after the Company
commences operation as an HMO. Failure to meet those requirements could result
in suspension of operation of the Company and the revocation of the Company's
COA to operate an HMO. Further, there is no assurance that required regulatory
reserves will not be increased in the future, which increases may adversely
affect the Company. See "Business--Regulation."
METHOD OF REIMBURSEMENT FOR PHYSICIAN SERVICES
The Company cannot initially predict the behavior of its Participating
Physicians with respect to their adherence to established practice guidelines
affecting utilization of resources. As a result, the profitability of the
Company in the initial years of operations cannot be assured. If, however,
profits do accrue, the Company intends to use its operating profits to increase
its capital, reduce premiums, re-invest in the Company's operations, support
information systems development by Participating Physicians, and increase
reimbursement to Participating Providers. It is currently intended that
Participating Physicians will be reimbursed the lesser of (a) their usual and
customary fees, (b) the fees set forth on a fee schedule adopted by the Company,
an extract of which is attached as Appendix C hereto, "Sample Physician Fee
Schedule", or (c) a negotiated rate (in each case, less any applicable
copayments, coinsurance, or deductibles) ("Physician Reimbursement"). For most
services, the maximum fee schedule will be based on the Resource Based Relative
Value Scale ("RBRVS") with a conversion factor determined by the Company. The
maximum fee for services which are not included in the RBRVS will be established
by the Company upon the advice of its consultants based on a similar
methodology. The Company currently intends to withhold twenty percent of
Physician Reimbursement to defray medical costs in excess of budgeted amounts.
The sums withheld from Physician Reimbursement may be returned to Participating
Physicians at the discretion of the Board of Directors. As such, Participating
Physicians may be dissatisfied with their level of reimbursement and may
terminate their Participation Agreements and may request a redemption of their
Common Stock. In addition, the Company may not be able to effectively negotiate
payment rates with other providers, leading to increased costs for the Company.
See "--Need For Participation Agreements with a Sufficient Number of Healthcare
Providers" and "Description of Securities--Restrictions on Transfer; Share
Certificate."
There can be no assurance that Physician Reimbursement will be sufficient to
cover the costs of providing such services or to cause the physician to maintain
a Participation Agreement with IPA. Benefits from participation as a
Participating Physician, if any, may not compensate for a potential loss of the
investment made in this Offering.
POTENTIAL LIMITATION ON OUT-OF-STATE SERVICES
The Company, in conjunction with IPA, intends to develop its physician
network and, in conjunction with MedServ, its customer base within the State of
Connecticut. Since many individuals residing in Connecticut commute to employers
located in New York, Massachusetts and Rhode Island, the Company may need to
establish arrangements with out-of-state providers and may, in the future, need
to become licensed as an HMO or insurance company in some or all of those states
to attract regional employer accounts. If the Company seeks to be licensed as an
HMO in other states, there can be no assurance that
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the Company will obtain such licenses. Failure to be licensed to sell products
or services in neighboring states could adversely affect the Company's ability
to market its services to multistate employers and Connecticut employers having
a significant number of employees located or residing outside the State of
Connecticut. Enrollees who commute over state lines may encounter difficulties
in obtaining convenient access to the Company's provider network. Additionally,
to the extent Enrollees require medical services outside of the area covered by
the Company's network, the Company's ability to manage effectively the costs of
those services may be greatly reduced.
CONFLICTS OF INTEREST
The Company intends to market its HMO to large employers, small businesses,
and individuals throughout Connecticut, including physicians and hospitals who
or which may be shareholders and directors of the Company. Accordingly, some of
the Enrollees may be shareholders or employees or relatives of shareholders.
Further, the Company's shareholders may have ownership interests in and/or
participate in competing organizations, such as other HMOs, hospitals, and other
providers. The Company's shareholders may also have interests in free-standing
facilities or other providers with which the Company has contracted. In
addition, there may be a conflict between a shareholder's interest in the
profitability of the Company and the desire to maximize compensation received
for providing medical services to Enrollees. MedServ stands in a similar
position, as it will attempt to maximize the profitability of the Company and
also seek to profit from providing management services. This conflict may be
complicated by MedServ's ownership of all of the Company's Class C Common Stock,
which grants MedServ effective veto power over certain of the Company's actions
and decisions, including approval of the Management Agreement and of amounts
paid to MedServ by the Company pursuant thereto. In addition, those companies,
such as IPA, with which MedServ may subcontract may experience conflicts of
interest. See "Conflicts of Interest" and "Related Party Transactions."
REINSURANCE, INSOLVENCY, AND PROFESSIONAL LIABILITY COVERAGE
To insure against catastrophic losses, the Company, through the Management
Agreement, intends to obtain reinsurance with a qualified reinsurer with a
retention limit of $100,000 per Enrollee per year and to increase this limit
during subsequent years if the Company's financial resources allow and the
number of Enrollees increases. Reinsurance does not legally discharge the
Company from its primary liability to the insured for the full amount of the
policy, but it does make the reinsurer liable to the Company to the extent of
the reinsured portion of any loss that may be incurred.
To the extent required by Connecticut law, the Company will obtain
insolvency coverage to provide for certain payments to Participating Physicians
and other healthcare providers for healthcare services provided to its Enrollees
in the event of an inability by the Company to make such payments. The Company
may become subject to claims for which it may not be fully insured, including
claims for failure to provide medical coverage, for wrongful termination of
coverage, and for malpractice in the provision of services. Although the Company
does not directly provide medical care to Enrollees, care will be rendered to
the Enrollees in accordance with guidelines and protocols established by the
Company, the Board of Directors, its committees and/or its agents and
independent contractors including MedServ and IPA. Therefore, it is possible
that the Company may be held liable for medical malpractice claims against one
or more of its Participating Physicians. The Company intends to obtain insurance
from an A.M. Best A+ (Superior) rated carrier to protect itself from such claims
and losses, with policy limits of $1,000,000 per incident and an aggregate limit
of $10,000,000 in any policy year. Additionally, the Company currently intends
to obtain an umbrella policy with limits consistent with industry practice for a
similar sized operator of an HMO to protect itself from those and other
liability claims against the Company.
Although the Company believes it will be adequately insured against such
claims and losses, a claim or series of claims against the Company could exceed
policy limits and materially adversely affect the
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Company's financial condition. In addition, there can be no assurance that in
the future such coverages will be available to the Company at commercially
reasonable rates.
EXPERIENCE OF BOARD OF DIRECTORS AND MANAGEMENT; RELIANCE ON MEDSERV AND IPA;
UNCERTAINTY AS TO IDENTITY OF MANAGEMENT
As of the date hereof, no member of the Board of Directors has substantial
experience in the creation or management of an HMO.
The Company intends to enter into a Management Agreement with MedServ to
assist the Company in developing and managing its business and operations and in
obtaining a COA to operate an HMO on a statewide basis. In addition, the Company
understands that MedServ intends to subcontract to IPA responsibility to
establish a network of physicians and to oversee the delivery of clinical
services. As a result, the Company has been and will continue to be
substantially dependent upon MedServ and IPA, under the direction of the Board
of Directors, to manage the Company's activities. Although MedServ is staffed
with employees and engages consultants who have substantial experience in the
healthcare and insurance industries, MedServ has not previously been involved in
HMO development or management projects. As a start-up, MedServ may engage an HMO
management consulting company to provide management, or management support and
consulting services to MedServ, in whole or in part, during its Development
Stage and Initial Operations Stage. MedServ's decision relating to
subcontracting some or all of its management responsibilities to the Company
will depend, in part, on the success of the Offering and the options available,
including the ability of the Company or MedServ to secure such services on terms
acceptable to the Company, of which no assurance can be given. Because decisions
relating to the management of the Company during the Development Stage and the
Initial Operations Stage have not been made, the experience and ability of
management cannot be evaluated. The loss of the services of MedServ or the
failure of MedServ and IPA to perform their obligations under the Management
Agreement and the IPA Agreement, respectively, would have a material adverse
effect on the Company.
ANTITRUST CONSIDERATIONS
Federal and state laws may limit the scope of the Company's activities.
Participating Physicians or other healthcare providers will not be required to
provide services exclusively to the Company, and it will not preclude
Participating Physicians from providing services to Enrollees of other HMOs. The
Company may seek preferred or exclusive vendor relations with some providers of
healthcare services whereby the Company will purchase services only from
designated vendors. The Company will address antitrust issues on a case-by-case
basis. Generally, whenever physicians or other healthcare providers join
together to form ventures for the delivery of healthcare services, antitrust
issues may be present. Issues to be considered primarily concern possible
conspiracies, combinations and agreements in restraint of competition, price
fixing, boycotts, exclusive dealing arrangements, and concerted refusals to
deal. The Company has attempted to minimize its antitrust risk. Nevertheless,
the law in this area is unsettled and very fact specific. There can be no
assurance that there will not be a challenge to the Company's operations on the
basis of an antitrust violation in the future. If an antitrust investigation
were to be initiated or a legal action were to be filed against the Company, the
Company would be forced to incur legal expenses which could be substantial.
Moreover, if any antitrust challenge were to be successful, the Company could
suffer additional material adverse consequences, including cease and desist
orders with respect to certain business practices and monetary damages.
POTENTIAL NEGLIGENCE CLAIMS AGAINST HMOS
There is a possibility that the Company could be held liable for medical
malpractice committed by a Participating Physician. There is also a possibility
that the Company could be found liable for damages due to a determination that
certain healthcare services are not medically necessary, the failure to refer a
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patient outside of the provider network, the failure to cover certain medical
procedures, or other policies that may affect the level and/or quality of
medical services provided to Enrollees. The law in this area is undergoing
continued development at this time and it is difficult to determine the extent
of the Company's liability, if any, for any such future claims.
Although the Company intends to purchase professional liability coverage,
such policy may not cover the above described potential claims or be sufficient
in amount to satisfy specific claims, which could materially adversely affect
the financial condition of the Company. See "--Reinsurance, Insolvency and
Professional Liability Coverage."
DETERMINATION OF THE OFFERING PRICE
The offering price per share for the Common Stock has been arbitrarily
determined by the Board of Directors, based upon estimates of the capital
necessary to begin operations of an HMO. Accordingly, the offering price does
not bear any relationship to the assets, earnings, book value or net worth or
other established criteria of value of the Company prior to the Offering or to
expected earnings of the Company.
BROAD DISCRETION FOR USE OF PROCEEDS
The proposed use of proceeds is based upon the Company's best estimate given
its knowledge of facts and circumstances existing as of the date of this
Prospectus. The Company will have broad discretion as to the application of such
proceeds. See "Use of Proceeds."
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation and Bylaws contain provisions
that (a) diminish the likelihood that a potential acquiror would make an offer
for the Common Stock, (b) might impede a transaction favorable in the interests
of the shareholders and (c) increase the difficulty of removing members of the
Board of Directors or management. MedServ, as the sole shareholder of the Class
C Common Stock, has the right to appoint a majority of the Board of Directors.
Furthermore, elections for members of the Board of Directors will be held on a
staggered basis limiting the shareholders' ability to change the composition of
the Board of Directors. In addition, greater than two-thirds in interest of the
Class C Common Stock must approve any of the following actions: (i) a sale or
liquidation of the Company; (ii) a merger or consolidation involving the
Company; (iii) an amendment to the Company's Certificate of Incorporation; and
(iv) any matter required by law to be submitted to the shareholders for a vote.
In addition, the Company's Bylaws provide that two-thirds of the directors
appointed by MedServ are required to appoint management of the Company, to amend
the Company's Bylaws and to authorize the incurring by the Company of $1,000,000
or more of debt. See "--Control by Current Shareholder."
DILUTION
Prospective investors should be aware that the net tangible book value of
the Common Stock immediately following completion of this Offering will be less
than the offering price. This is because various expenses in connection with the
Offering will be paid from such funds, and the Company has already incurred
significant expenses during its development stage and in connection with the
preparation of its COA application. See "Dilution."
POTENTIAL INELIGIBILITY OF HMOS FOR FEDERAL BANKRUPTCY PROTECTION
A domestic insurer is ineligible to pursue a reorganization or liquidation
under the United States Bankruptcy Code as presently enacted. The law is unclear
as to whether an HMO organized and operating in the State of Connecticut would
be classified as a domestic insurer and found ineligible to pursue a liquidation
or reorganization under Federal bankruptcy laws. In light of this uncertainty, a
prospective investor in the Common Stock should assume that a reorganization or
liquidation of the Company would
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be conducted under the State of Connecticut's insurance insolvency laws. Under
either the Federal bankruptcy laws or the Connecticut insurance insolvency laws,
shareholders of the Company will be afforded the lowest priority upon
liquidation, and will receive a return on their investments only if all of the
Company's providers and trade creditors have been paid in full. Furthermore, the
Class B Common Stock has a $1,500 per share liquidation preference which must be
paid before Class A Common and Class C Common shareholders receive a return of
their investment in connection with a liquidation or other insolvency
proceeding.
LIMITATION ON LIABILITY OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation provides that, except as
prohibited by law, officers and directors of the Company will not be personally
liable to the Company or its shareholders for monetary damages resulting from
breaches of any duty owed to the Company or its shareholders. The Company has
obtained Directors and Officers liability insurance which, under certain
conditions and circumstances, covers the types of liabilities described in this
paragraph.
CERTAIN TAX CONSIDERATIONS
For federal income tax purposes, an HMO may be treated as a tax-exempt
entity under Section 501(c)(3) of the Internal Revenue Code (the "Code"), a
taxable insurance company under Subchapter L of the Code, or a taxable
corporation under Subchapter C of the Code, among other options, depending on
the facts and method of operation. Whether an HMO will be taxed as an insurance
company under Subchapter L of Code remains uncertain at this time because of
certain positions and actions taken by the Internal Revenue Service (the "IRS").
To meet the U.S. Department of the Treasury regulatory definition of an
"insurance company," an HMO's predominant business must consist of the issuance
of insurance contracts. For an HMO contract to be considered an insurance
contract, it must involve genuine shifting and distributing of risk to the HMO.
To be considered an insurance company, the HMO must retain the insurance risk
rather than transferring it to a provider or its contracting subscribers. In a
recent nonbinding ruling, the IRS held that a particular IPA model HMO, which
contracts with outside physicians on a Fee-For-Service basis, is an insurance
company because it acts as an indemnifier and retains the ultimate insurance
risk. The Company through its agreement with MedServ intends to contract
initially with physicians on a Fee-For-Service basis, which may permit the
Company to qualify as an insurance company for income tax purposes. The Company,
however, may enter into risk sharing arrangements with Participating Providers
in the future, which arrangements may shift all or a substantial portion of the
risk of the cost of medical services to such providers. Such arrangements may
disqualify the Company from obtaining insurance company status under IRS
regulations.
The Company is currently consulting with its accounting and tax advisors to
assess the viability of various reporting positions and benefits to be derived
therefrom. There can be no assurance that the IRS will not challenge the
reporting position selected by the Company. To the extent the Company is treated
as an insurance company, it will be eligible to take reporting positions which
provide certain advantages to, and impose certain restrictions on, the Company.
Specifically, estimated reserves for future claim payments will be deductible
(on a discounted basis) in the current taxable year. Conversely, qualification
as an insurance company may limit the Company's flexibility to structure
innovative risk sharing compensation arrangements with Participating Providers,
which arrangements create incentives to manage medical risks more effectively.
At this early stage of the Company's development, it is not feasible to make a
decision regarding tax status.
In addition, prospective investors may be subject to risks regarding the tax
effect of this investment. Such risks are not, nor are they intended to be,
addressed in this Prospectus and prospective investors should consult their own
tax advisors prior to making an investment.
18
<PAGE>
USE OF PROCEEDS
In the event the Company receives the minimum $8 million in subscriptions
necessary to complete the Offering, the net proceeds of the Offering to the
Company after underwriting discounts, commissions and expense allowances will be
$7,170,000. In the event the Company raises the maximum proceeds available in
this Offering, the net proceeds to the Company after underwriting discounts,
commissions and expense allowances will be $21,920,000. A portion of the net
proceeds of this Offering will be used to retire the outstanding balance under a
Credit Facility, dated as of December 3, 1996, with Fleet National Bank, which
outstanding balance of principal and interest was approximately $625,000 as of
August 31, 1997. Unless extended by Fleet National Bank, borrowings under this
Credit Facility must be repaid no later than November 22, 1997, with accrued
interest payable monthly at the lower of (i) Fleet National Bank's prime rate,
or (ii) the London Interbank Offered Rate ("LIBOR") plus 100 basis points. The
interest rates on borrowings under this Credit Facility ranged from 6.72% to
6.81% on August 31, 1997. The remainder of the net proceeds of this Offering
will be used to reimburse MedServ and IPA for advances used to pay development
stage costs equal to $121,791, to repay accounts payable and accrued expenses
and for working capital purposes. See "Use of Proceeds Schedule" below. The
Company's outstanding obligations to MedServ and IPA do not have a fixed
maturity date, nor do they accrue interest. Pending use, the Company intends to
invest the net proceeds of this Offering in short- and medium-term,
interest-bearing investment grade securities. In the event that the Offering
fails to raise a minimum of $8,000,000, the purchase price of both Class A
Common Stock and Class B Common Stock, plus interest thereon, will be refunded,
minus $450 per share, which shall be retained to offset the costs of the
Offering. The proceeds of the Offering will be placed in an Escrow Account until
the Company has determined whether the Offering has raised a minimum of
$8,000,000 from the sale of Common Stock to Eligible Purchasers.
The Company intends to contract with an investment manager to invest its
funds. The Company intends to invest only in commercial paper, repurchase
agreements, treasury bonds or bills, U.S. Government and agency securities,
certificates of deposit, and money market funds of investment grade quality. All
assets and related collateral must have the highest credit ratings as assigned
by recognized rating agencies. See "Plan of Operation."
The Company believes that its existing resources, together with proceeds of
this Offering, will be adequate to satisfy its capital needs at least through
the end of the year ending December 31, 1998. However, if the Company's
operational expenses pursuant to its agreement with MedServ exceed expectations,
and the Company does not raise sufficient funds in this Offering to fund them,
it may require additional financing in order to carry out its business plans.
There can be no assurance that such funds will be available to the Company, or,
if available, will be available to the Company on acceptable terms.
The Use of Proceeds Schedule assumes use of proceeds based on the
assumptions, conclusions, recommendations and financial projections of the
Development Study. In the event that the Company is unable to raise more than
the minimum gross proceeds of $8,000,000, the Company must either raise
additional capital or modify its plan of operations or both. The table below
assumes that if the Company receives only the minimum proceeds of the Offering,
it will raise additional capital through the issuance of debt or sale of equity
to finance its operations through the Development Stage and Initial Operations
Stage. Although the Company may modify its plan of operations to require lower
expenditures through these stages, the Company has not identified those costs
which the Company will target for reduction; accordingly, no estimates of such
can be provided below.
19
<PAGE>
THE FOLLOWING IS A SOURCE AND USE OF PROCEEDS SCHEDULE
<TABLE>
<CAPTION>
USE OF PROCEEDS SCHEDULE
- ---------------------------------------------------------------------------
<S> <C> <C>
MINIMUM MAXIMUM
---------- ----------
Gross Proceeds................................... $8,000,000 $24,000,000
Commission and non-accountable expense
allowance....................................... 680,000 1,930,000
---------- ----------
Net Proceeds before Accountable Expenses......... 7,320,000 22,070,000
Accountable Expenses............................. 150,000 150,000
---------- ----------
Net Proceeds..................................... $7,170,000 $21,920,000
<CAPTION>
DEVELOPMENT STAGE
- ---------------------------------------------------
<S> <C> <C>
Development Costs (through August 31, 1997)...... $1,271,000 $1,271,000
Additional Legal, Consulting, Accounting and
Actuarial Costs from September 1, 1997 through
September 30, 1998.............................. 489,000 489,000
Capital Expenditures............................. 660,000 660,000
Personnel Costs.................................. 890,000 890,000
Other Operating Costs............................ 380,000 380,000
---------- ----------
Costs through Development Stage.................. $3,690,000 $3,690,000
---------- ----------
<CAPTION>
INITIAL OPERATIONS STAGE
- ---------------------------------------------------
<S> <C> <C>
Capital Expenditures............................. 290,000 290,000
Personnel Costs.................................. 650,000 650,000
Other Operating Costs............................ 340,000 340,000
---------- ----------
Costs of first three months of operations........ 1,280,000 1,280,000
---------- ----------
COA--Mininum Net Worth........................... 1,500,000 1,500,000
---------- ----------
Total Costs through Initial Operations Stage..... $6,470,000 $6,470,000
---------- ----------
<CAPTION>
ADDITIONAL CAPITAL REQUIRED TO BREAK-EVEN (27
MONTHS)
- ---------------------------------------------------
<S> <C> <C>
Capital Expenditures............................. 700,000 700,000
Working Capital (including funding of losses).... 5,991,000 5,991,000
Surplus/(Shortfall) in Working Capital........... $(5,991,000) $8,759,000
</TABLE>
The Company will continually review the benefits of undertaking strategic
alliances with companies which may contribute expertise and capital to the
Company's operations.
In the event of a shortfall of capital the Company will explore the sale of
additional equity in connection with such strategic alliances, or the sale of
shares to other parties including healthcare providers.
The Company may also explore a modification of the plan of operations as
assumed in the Development Study which could include, among other things, the
lease, instead of purchase, of capital equipment or outsourcing of claims
processing and other information services to a third party administrator. Each
of these modifications would reduce the Company's cash requirements. Because the
Company has not explored the availability of capital through strategic
alliances, it cannot state with certainty the number or type of modifications it
would make to the Company's plan of operations in the event it raised only the
minimum gross proceeds. See "Plan of Operations--Liquidity and Capital
Resources."
DIVIDENDS
The Company has never paid any dividends and does not intend to pay
dividends for the foreseeable future. Earnings, if any, will be retained for use
in the operation and expansion of the Company's business.
20
<PAGE>
CAPITALIZATION
The following chart shows the Company's actual capitalization as of August
31, 1997 and the capitalization as adjusted to give effect to the minimum and
maximum sale of the Common Stock offered by the Company hereby, after estimated
expenses related to the Offering, the repayment of borrowings under the line of
credit and the satisfaction of obligations to MedServ and IPA. This table should
be read in conjunction with the financial statements and notes thereto, included
towards the end of this Prospectus.
<TABLE>
<CAPTION>
AS OF AUGUST 31, 1997
------------------------------------------
<S> <C> <C> <C>
ACTUAL MINIMUM(2) MAXIMUM(3)
------------- ------------ -------------
<CAPTION>
AS ADJUSTED
<S> <C> <C> <C>
Borrowings under line of credit....................................... $ 625,000 $ -- $ --
Shareholders' equity (deficit):
Class A Common Stock, no par value, 10,000 shares authorized........ -- 3,409,345 10,784,345
Class B Common Stock, no par value, 10,000 shares authorized........ -- 3,409,346 10,784,346
Class C Common Stock, no par value, 10,000 shares authorized(1)..... 12,000 12,000 12,000
Accumulated deficit................................................. (1,270,691) (1,270,691) (1,270,691)
------------- ------------ -------------
Total shareholders' equity (deficit)............................ (1,258,691) 5,560,000 20,310,000
------------- ------------ -------------
Total Capitalization............................................ $ (633,691) $ 5,560,000 $ 20,310,000
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
- ------------------------
(1) Reflects 3 shares issued and outstanding.
(2) Reflects the sale of $8,000,000 in Common Stock (2,667 shares) less
underwriting discounts and commissions and estimated expenses of the Company
of $1,181,309.
(3) Reflects the sale of $24,000,000 in Common Stock (6,000 shares) less
underwriting discounts and commissions and estimated expenses of the Company
of $2,431,309.
DILUTION
Prospective investors should be aware that the net tangible book value of
the Company's stock immediately following completion of this Offering will be
less than the offering price. This is because various expenses in connection
with the Offering will be paid from funds raised in the Offering, and the
Company has already incurred significant expenses in connection with the
preparation of its COA application and the development of its business and
operations. As of August 31, 1997, the Company had a negative net worth of
$1,258,691.
The following table illustrates dilution to prospective investors upon the
completion of the minimum and maximum offering:
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
----------- -----------
<S> <C> <C>
Offering price per share............................................... $ 3,000 $ 4,000
Pro forma net tangible book value per share after the offering......... 2,082 3,383
----------- -----------
Dilution to prospective investors...................................... $ 918 $ 617
----------- -----------
----------- -----------
</TABLE>
21
<PAGE>
PLAN OF OPERATION
The Company is making the Offering for the purpose of raising capital
necessary to fund its operations. The Company will offer shares of Common Stock
at a price of $4,000 per share, with Primary Care Physicians required to
purchase one share of Class A Common Stock and Specialist Physicians required to
purchase a minimum of two shares of Common Stock (consisting of one share of
Class A Common Stock and not less than one share of Class B Common Stock). Only
physicians may purchase Class A Common Stock, and no physician may purchase more
than one share of Class A Common Stock. There is no limitation on the number of
shares of Class B Common Stock offered hereby which may be purchased by a
physician or other Eligible Purchaser, except to the extent of the total shares
being offered. During the first ninety days from the date of this Prospectus,
Eligible Purchasers will be offered a "prompt subscription" price of $3,000 per
share of Common Stock.
Since its formation in November 1996, the Company, in conjunction with
MedServ and its shareholders, the Hartford County Medical Association and the
New Haven County Medical Association, has embarked upon a program of developing
a physician-owned and directed HMO. The Company is in the development stage and
has not yet commenced its business activities. During this development stage,
which began prior to its formation and is expected to extend until the
completion of the Offering, the Company has been developing its product
offering, preparing its application to the DOI for a COA, establishing its
provider network in conjunction with MedServ and IPA and undertaking
miscellaneous other activities which will permit Physicians Care to commence its
operations as an HMO. Through this Offering, the Company is attempting to raise
the necessary capital to fund the development, start-up and initial operations
of the Company.
DEVELOPMENT STAGE ACTIVITIES
Beginning March 1996, MedServ retained a healthcare consultant, Medical
Alliances, to begin planning the development of an HMO, and to prepare an
application for a COA with the DOI for such HMO. Medical Alliances prepared a
Development Study dated November 26, 1996 (the "Development Study") which
concluded that a physician owned statewide HMO was feasible. Based on certain
assumptions set forth in the Development Study, Medical Alliances estimated that
approximately $13.5 million of capital would be required to design and develop a
statewide HMO and to fund the operations of the Company for 27 months after
commencement of enrollment, the time at which Medical Alliances estimated that
the HMO would attain profitable operations. The assumptions include acquiring
information systems equipment, offering both commercial and Medicare health
plans, hiring of personnel to operate the HMO including offering of full product
lines and conducting an extensive marketing campaign through the use of
insurance brokers to achieve commercial enrollment. The Company has undertaken
additional review of the Development Study with the assistance of its other
consultants and has updated the Development Study based principally on actual
development cost expenses incurred through August 31, 1997. The Company now
anticipates that approximately $15,000,000 of capital is required. The
application is being prepared and will be submitted by the Company. See "Risk
Factors--Reliance on Development Study." The Company will not be permitted to
solicit business or accept Enrollees until the DOI has approved the Company's
application and issued a COA to the Company to operate an HMO in the State of
Connecticut.
Over the next year, the Company, in conjunction with MedServ and IPA, will
devote substantial efforts to developing and credentialing its healthcare
delivery network. The success of the Company will be dependent upon, among other
things, the ability of the Company to contract with physicians and other
healthcare providers at competitively favorable rates and terms. The Company
intends to contract exclusively with MedServ to arrange for the availability of
a network of physicians throughout the State of Connecticut. The Company
believes MedServ intends to subcontract its obligation to establish the
physician network to IPA under the terms of an IPA Agreement between MedServ and
IPA. IPA currently
22
<PAGE>
has a network of approximately 1,850 physicians. IPA's Participation Agreements
with Participating Physicians are for an initial term of one year and are
automatically renewable for successive one year terms. In the event of
termination of a Participation Agreement by IPA or by the Participating
Physician, a Participating Physician is required to continue to furnish
healthcare services to Enrollees until an orderly transfer of such Enrollees to
other Participating Physicians can be undertaken or until completion of
treatment, whichever occurs first. Initially, the Company intends to reimburse
Participating Physicians pursuant to a pre-established fee schedule, an extract
of which is attached as Appendix C hereto, "Sample Physician Fee Schedule." The
Company currently intends to withhold twenty percent of the Physician
Reimbursement from the payment to Participating Physicians to defray medical
costs in excess of budgeted amounts. The sums withheld from Physician
Reimbursements may be returned to Participating Physicians at the discretion of
the Board of Directors.
Additionally, MedServ and the Company are currently devoting and will
continue to devote substantial efforts to contract with hospitals,
pharmaceutical providers, ancillary service providers and other providers for
the provision of healthcare services. The Company intends to contract with acute
care institutions to provide services at a negotiated rate or at a
Fee-For-Service discount. The Company anticipates that agreements with those
providers shall prohibit them from billing Enrollees for any services covered by
the HMO, except for any applicable copayments, coinsurance, or deductibles.
The Company has undertaken preliminary health plan design and drafted a
model subscriber agreement. The Company, in conjunction with MedServ and IPA, is
currently developing comprehensive utilization management protocols and quality
assurance standards which will be used to monitor the care provided to
Enrollees. Through a combination of effective utilization management and quality
assurance standards, the Company expects to be able to sufficiently contain
medical expenses and achieve targeted medical claims cost levels that will
eventually provide a margin of operating profitability. Initially, the Company
intends to offer a modified open access product, pursuant to which each Enrollee
will select a Care Manager who will coordinate the Enrollee's medical care to
the extent consulted by the Enrollee or informed by a Participating Physician or
Plan. Although Enrollees may access any Participating Physician at any time
without a Care Manager's referral, the Company believes it has structured its
benefits design to encourage Enrollees to utilize their Care Manager to
coordinate referrals, for example, through the use of a reduced or waived
copayment if a referral is coordinated through a Care Manager. Female Enrollees,
however, may select an Obstetrician/Gynecologist to provide certain
gynecological services or care related to pregnancy without the prior
authorization of their Care Manager, and the Company intends that such Enrollees
will not have to pay higher copayments for such services. Also, the Company
plans to insure itself against catastrophic medical losses and expects to obtain
reinsurance through a qualified reinsurer with initial anticipated limits of
$100,000 per Enrollee per year.
In support of Development Stage efforts, from inception through the period
ended August 31, 1997, the Company has incurred organization and planning
expenses related to such development in the amount of $1,272,586. The Company
has financed these Development Stage activities through multiple sources,
including advances from related companies and a revolving credit facility with
Fleet National Bank in the amount of $650,000, of which the Company has borrowed
$625,000 through August 31, 1997. Unless extended by Fleet Bank, the Company's
borrowings under this line of credit are due and payable in full together with
any accrued interest on or before November 22, 1997. The Company has paid for
the balance of its organization and planning costs through advances from MedServ
and IPA, collectively totaling $121,791, and by vendor financing. It is expected
that upon the completion of the Offering, the Company will repay its debt to
Fleet National Bank and satisfy its obligations to MedServ, IPA and vendors from
the net proceeds received by the Company from the Offering. See "Use of
Proceeds."
In addition to the repayment of debt, the proceeds from the Offering and any
interest earned thereon will be utilized for general working capital, repayment
of outstanding indebtedness of the Company, repayment of moneys advanced by
MedServ and IPA for development expenses, payment of outstanding accounts
payables, establishment of the minimum net worth and reserve requirements of the
DOI, and to
23
<PAGE>
fund projected operating deficits. The Company expects to spend a cumulative
total of approximately $3,690,000, excluding costs of the Offering, to complete
its development stage, which includes the development of its business, the
completion of the application for a COA, the design, acquisition and
installation of management information systems and the continuation of
development of its provider network, through the date ending three months prior
to the anticipated date of enrollment of the first Enrollee (the "Development
Stage"). The Company believes that its resources on hand, combined with the
minimum net proceeds after expenses from the Offering, will be sufficient to
cover Development Stage expenses, costs related to the Management Agreement
during the Development Stage, and the minimum net worth and reserve requirements
of the DOI necessary to obtain a COA to commence marketing of the Company's
health plans.
INITIAL OPERATIONS STAGE
The Company's Initial Operations Stage will begin approximately three months
prior to the date of enrollment of the first Enrollee and conclude approximately
twenty-seven (27) months after the date of enrollment of its first Enrollee (the
"Initial Operations Stage"). During the first three (3) months of the Initial
Operations Stage, the Company expects, based on the Development Study, to expend
an aggregate of up to approximately $1,280,000 before it begins receiving
revenues from monthly premiums for Enrollee health plan coverage, i.e., during
the first three months of the initial operations stage. Its initial operations
activities will involve employing the capital raised in the Offering to build
the necessary business infrastructure and operating systems to operate an HMO
according to its business plan, to conduct marketing of its products, to
complete its provider network and to commence enrollment. See "Risk
Factors--Reliance on Development Study."
The Development Study delineates the Company's operations through various
phases of its development as an HMO. Following the completion of the Offering,
the Company through its Management Agreement with MedServ, will expend
substantial funds to establish its business operations, acquire or lease a
state-of-the-art management information system, and hire and train necessary
professional support personnel. According to the Development Study, the above
described Initial Operations Stage is anticipated to require a minimum net cash
requirements (before investments to support the COA) of approximately $7,971,000
through the first twenty-seven (27) months of operations after enrollment of the
first Enrollee. These expenses will be funded through proceeds from the
Offering. See "Use of Proceeds."
Pursuant to the terms of the Management Agreement, the Company will be
responsible for the payment to MedServ on a reimbursement basis of all costs
incurred by MedServ, consistent with a Budget approved by the Board of Directors
by a two-thirds vote, in establishing the Company's business prior to the
issuance of the COA and until the time when the Company has enrolled its first
Enrollee. Such costs involving the start-up of operations are estimated to
include, but not be limited to, the following items: compensation and benefits,
professional fees, training, insurance and taxes, advertising, utilization
management guideline development, recruiting and hiring of trained personnel,
design, acquisition and installation of management information systems, initial
marketing of its insurance products and miscellaneous other activities. The
majority of such expenditures will be included in the Management Agreement. As a
start-up company, the Company, through MedServ, may engage an HMO management
consulting company to provide management, management support or consulting
services to MedServ, in whole or in part, during the Development Stage and the
Initial Operations Stage.
In addition, the Company is required by the DOI to have a minimum statutory
net worth at the time of issuance of a COA of not less than $1,500,000, although
the DOI has discretion to increase the amount the Company will be required to
maintain, depending upon the type, design, cost and anticipated premiums for
products offered by the Company. In addition, adequate reserves must be
maintained to satisfy estimated pending insurance claims. On an on-going basis,
the DOI requires that the Company maintain net worth reserves equal to the
greater of (i) $1,000,000, or (ii) two percent of its annual premium revenues on
the first $150,000,000 of premiums plus one percent of annual premium revenues
in excess of
24
<PAGE>
$150,000,000. Currently, the Company does not have sufficient capital to satisfy
these requirements, and the proceeds from the Offering will be used, among other
things, to meet these requirements. See "Use of Proceeds."
Following the completion of the Offering, and the approval and issuance of
the COA by the DOI, the Company intends to begin aggressively marketing its HMO
products to employers and individuals throughout the State of Connecticut with
the objective of insuring Enrollees. Additionally, the Company intends to apply
for approval to operate and market a Medicare CMP or PSO if it believes that it
will meet the required eligibility standards. See "Risk Factors--Government
Regulation" and "--Government Approvals as a Prerequisite to Operations."
Based on a review by management of regulatory filings submitted by a number
of other similar start-up HMOs to the DOI and other regulatory bodies, the
Company believes it is typical for a start-up HMO to experience substantial
operating losses for its first several years of operations. It is anticipated
that the Company will incur such losses and incur a substantial cumulative
operating deficit during its development and initial operations stages. Based
upon the assumptions in the Development Study, such cumulative losses are
expected to occur for approximately twenty-seven months after the effective date
of enrollment of the first Enrollee and are expected to total $10,260,000 prior
to consideration of tax benefits, if any, at which time the Company expects to
achieve a level of positive cash flow from operations. The Company's ability to
reach that level of recurring monthly net premium income and positive net income
from operations will be dependent upon numerous factors, including but not
limited to, the competitiveness of its product offerings, its ability to secure
contracts, the health status of its Enrollees, the management of the Company,
the accuracy of its actuarial projections, the effectiveness of its utilization
management programs in controlling unnecessary services and the resultant costs,
and its ability to avoid catastrophic healthcare coverage losses.
If the Company is unable to raise more than the minimum gross proceeds of
$8,000,000, the Company believes it would have sufficient funds to proceed with
the enrollment of the first Enrollee but would not be able to conduct its
operations for the Initial Operations Stage in accordance with the assumptions,
conclusions, recommendations and financial projections set forth in the
Development Study. The Company would be required to seek other financing means
or undertake a restructuring of operations. See
"--Liquidity and Capital Resources."
LIQUIDITY AND CAPITAL RESOURCES
From the minimum proceeds of the Offering, less the related costs, the
Company expects to have adequate resources to repay its organization costs
advanced by MedServ and the IPA, repay its bank indebtedness, pay its accounts
payable, fund its DOI reserve requirement and meet its obligations under its
Management Agreement with MedServ for the first six months of the Initial
Operations Stage. See "Use of Proceeds."
However, to conduct its Initial Operations Stage pursuant to its Development
Study, the Company will need to raise approximately $15,000,000, before
deduction for the related costs of securing such capital. The $15,000,000 amount
would provide the Company with adequate capital to fund its development and
operations through a projected period of approximately three years until such
time as it reaches a level of monthly positive cash flow from operations in
accordance with operating assumptions set forth in the Development Study.
Additionally, such an amount would allow the Company to fund its cumulative
operating deficits for approximately five years at which time it would be
expected that the Company would begin to generate positive retained earnings.
To the extent that the Company is unable to raise more than the minimum
gross proceeds of $8,000,000 from the Offering, it will be necessary to raise
additional capital from such other sources as may be available to the Company or
alternatively to reduce its planned expenditures for development, operations,
and marketing of its products as contemplated within the Company's Development
Study. With
25
<PAGE>
respect to raising additional capital, the Company will continually review the
benefits of undertaking joint ventures or strategic alliances with companies
which may contribute expertise and capital to the Company's operations. The
Company would also explore the sale of additional shares.
The Company would also explore a restructuring of the Company's operations
as described in the Development Study. Such a restructuring could include the
lease, instead of purchase, of capital equipment, and outsourcing of information
services and claims processing to a third party administrator. Subject to
receipt of necessary governmental approvals, the Company believes that it could
operate a Medicare CMP product or PSO as contemplated in the Development Study
if the Company raised only the minimum gross proceeds. The Company believes that
such modifications in its plan of operations, if the Company is able to make
them in a timely manner, could extend significantly the time frame within which
the Company expects to achieve monthly positive cash flow from operations and
net profitability. Additionally, if the Company needs to raise additional
capital, there can be no assurance that such additional capital will be
available or, if available, that such capital will be available on terms
acceptable to the Company.
The Company currently intends to invest cash on hand from the proceeds of
the Offering only in investment grade securities with short and medium-term
maturities. The Company intends to select an investment advisor to manage
investments and, through the advisor, intends only to invest in commercial
paper, repurchase agreements, Treasury notes and bills, U.S. Government and
agency securities, certificates of deposit, and money market funds. All
investments and collateral must have the highest credit ratings as assigned by
recognized rating agencies.
For federal income tax purposes, an HMO can be treated as a tax-exempt
entity, an insurance company or as a taxable non-insurance company, depending on
the certain specific facts and the method of operation of the entity. The tax
status of the Company cannot be ascertained at this time because the Company has
not made a final decision on all matters which could affect its tax status. See
"Risk Factors-- Certain Tax Considerations."
THE COMPANY
Physicians Care was incorporated on November 12, 1996, as a Connecticut
corporation under the sponsorship of MedServ and private practicing physicians
to develop a statewide, physician-owned and directed insurance company licensed
as an HMO and to offer, over time, a comprehensive array of health plans. The
Company will be predominantly owned by physician shareholders practicing in the
State of Connecticut who are expected to participate actively in the Company's
affairs. Each physician purchasing Class A Common Stock, as a condition to such
purchase, must agree to provide medical services to Enrollees pursuant to the
terms of a Participation Agreement. The Company, through MedServ, will prepare
and file an application for a COA with the DOI to operate as an HMO throughout
the State of Connecticut and will seek such other regulatory approvals as
necessary to offer its products. The Company will not be permitted to solicit
business until the DOI has issued a COA to the Company. The Company intends to
provide coverage for comprehensive healthcare services to Enrollees under its
insured products for a fixed, prepaid enrollment fee paid by or on behalf of the
Enrollees.
The Company's principal place of business is 1520 Highland Avenue, Cheshire,
Connecticut and its telephone number is (203) 699-2400.
26
<PAGE>
BUSINESS
THE MANAGED HEALTHCARE INDUSTRY
Medical services traditionally have been provided on a fee-for-service basis
with insurance companies assuming responsibility for paying all or a portion of
such fees. The Company believes the increase in medical costs under traditional
indemnity healthcare plans has been caused by the apparent failure of insurers
to create satisfactory and effective incentives to control costs.
In response to higher premium costs, employers and consumers have sought an
alternative healthcare delivery system, including managed care products. The HMO
originally emerged as a proposed solution to provide a more efficient and
cost-effective array of healthcare services. An HMO is a healthcare delivery
system that provides a broad range of health services to an enrolled population
in return for a premium paid in advance. HMOs actually provide or arrange for
the provision of medical, hospital, emergency and appropriate preventive care.
In particular, HMOs stress preventive healthcare and management of delivery of
medical services when required so that enrollees may minimize hospitalization
and medical procedures.
Managed care requires many different types of healthcare providers to
coordinate activities and to share information so as to operate more
efficiently. Providers generally have not been organized collectively in local
markets and have operated largely as a cottage industry, and, as a result, the
Company believes providers have had limited effect in managing care. Further,
insurers have avoided promoting formation of more efficient provider
organizations because such organizations can also more effectively negotiate
payments with insurers, potentially reducing insurers' profits. In response to
this environment, insurers have developed centralized medical management
programs requiring extensive prior authorization, or pre-certification of
services, referral authorizations, or other limitations on access to care. The
industry has promoted managed access, rather than managed care.
As a result of these limitations, the Company believes that there exists low
enrollee satisfaction and that enrollees of managed care plans now perceive HMOs
as primarily profit-driven versus quality of care driven, with excessive
interference by the HMO in the physician-patient relationship and with cost
control achieved by limiting enrollee access to services. Accordingly, the
Company believes legislative initiatives designed to ensure enrollee access or
to promote member rights reflect enrollee frustration.
The Company was incorporated for the purpose of developing and operating a
statewide HMO and offering other health plans in the State of Connecticut. The
Company will be a physician-directed HMO, providing comprehensive health plans
to its Enrollees. The goals of the Company are to offer high quality medical
care through a broad network of physicians and to ensure access to appropriate
care for Enrollees.
THE COMPANY'S STRATEGY
The Company intends to address concerns raised by patients and their
physicians that managed care plans unreasonably interfere with the
physician-patient relationship and control medical decisions through centrally
administered programs. The Company intends to position itself in the market as a
physician-directed company that believes that the physician-patient relationship
within the context of providing cost-effective and accessible healthcare is
critical. The Company has been founded on the ideal that physicians play an
essential role in defining the Company's health plans because of their direct
impact on costs, quality, and patient satisfaction, and the Company is directly
dependent upon their efforts for its success.
- VISION STATEMENT. The Company accepts the challenge to pass on to future
generations of physicians the legacy that the delivery of healthcare is a
moral enterprise and that the physician-patient relationship is a sacred
trust that shall remain inviolable. In its pursuit of these mandates the
Company will strive to define high standards for medical care in the State
of Connecticut and provide that care to its Enrollees throughout the
state. From these precepts, the Company believes that its Participating
Physicians will demonstrate a strong commitment to practice high quality,
yet cost effective, medicine.
27
<PAGE>
- PHYSICIAN EXPERTISE. The Company has been organized in response to
concerns that insurers centralize management of care and make medical
decisions without appropriate consultation with physicians. The Company
will link physicians to the core administrative activities of the HMO.
Participating Physicians, therefore, will be encouraged to participate
directly in healthcare management, delivery decisions, and the development
of medical protocols.
- PHYSICIAN-ORIENTED SERVICE DELIVERY. By structuring the Company as a
physician-owned and controlled organization, and by engaging the active
participation of physicians in the medical management and health plan
design/development functions, the Company believes that physicians will be
committed to its success, resulting in enhanced physician productivity.
- DATA COLLECTION AND QUALITY IMPROVEMENT. The Company is committed to the
creation and effective utilization of appropriate technology to compile
and disseminate timely, meaningful information to providers that may be
utilized to promote the delivery of high quality, cost effective care. The
Company also intends to utilize collected data to promote the development
of "best practice" protocols, to identify and eliminate waste, and to
promote a high standard of care. Data will also be used to demonstrate the
value of the Company's health plans to encourage employers to contract
with the Company, resulting in greater benefits to the Participating
Physicians.
- ORGANIZATIONAL FLEXIBILITY. The Company is dedicated to easing the
administrative burdens placed on physicians and their staffs which are
associated with managed care plans. The Company is also committed to
organizational flexibility that will eventually permit Participating
Physicians and healthcare providers to assume risk for the delivery of
healthcare services.
- PHYSICIAN NETWORK. The Company's near-term goal is to have 2,000 to 3,000
Participating Physicians to provide services to Enrollees. IPA currently
has contracts with approximately 1,850 physicians. IPA believes that those
physicians will meet the Company's criteria to become Participating
Physicians. The Company's long-term goal is to have substantially all
qualified physicians in the State of Connecticut available to provide
services to Enrollees.
- ATTRACTIVENESS TO PARTICIPATING PHYSICIANS. The Company will allow
Participating Physicians to contract with it through IPA on a
non-exclusive basis. The Company believes that this approach will enable
it to attract the broadest possible range of Participating Physicians,
thereby enabling it to compete aggressively throughout the State of
Connecticut.
- ATTRACTIVENESS TO ENROLLEES. The Company believes that its network of
Participating Physicians will be attractive to Enrollees and that
Enrollees will find the Company's health plan designs and its dedication
to administrative ease will facilitate their access to quality healthcare
services from the physician of their choice. The Company also intends to
offer educational programs to assist Enrollees in accessing appropriate
medical care. The Company further believes that the involvement of
physicians as owners, directors and Participating Physicians in marketing
and medical management and quality assurance programs likely will instill
and reinforce Enrollees' confidence in the Company.
- ATTRACTIVENESS TO EMPLOYERS. By offering a competitively priced product,
together with a statewide network of Participating Physicians, the Company
believes it will be attractive to employers with operations and workers in
more than one location.
The Company's medical management model, incorporating as its goals
competitive pricing, high quality care and Enrollee and purchaser satisfaction,
can be successfully implemented only if the Company
28
<PAGE>
and its Participating Physicians work closely as partners. To achieve its goals,
the Company has identified objectives and plans to implement the following joint
physician/Company initiatives:
<TABLE>
<CAPTION>
OBJECTIVES JOINT PHYSICIAN/COMPANY INITIATIVES
- ------------------------------------------ ---------------------------------------------------------------------
<S> <C>
- - Coordinated medical management in local - Cooperate with physician-directed organizations (e.g., integrated
markets medical groups, PHOs, MSOs) which manage medical care delivery
- - Timely physician access to information - Facilitate development of information system infrastructure to
improve access to, and dissemination of, information
- - Physician-directed medical decisions - Minimize pre-certifications, referral authorizations, or other
centralized medical management techniques of questionable value
- - Accountability and quality improvement - Conduct extensive Company reporting, peer analysis, continuous
quality improvement and education
</TABLE>
The Company recognizes that its Participating Physicians are valuable
partners who will play an essential role in its ultimate success. The Company
intends to achieve its goals through innovative reimbursement arrangements with
its Participating Physicians. The Company is prepared to take an active role to
facilitate the establishment of provider organizations in local markets, to
invest in the development of physician information systems, and to engage in
extensive reporting, peer analysis, and education to achieve those goals.
Initially, the Company intends to use a modified open access model, pursuant
to which each Enrollee will select a Care Manager who will coordinate the
Enrollee's medical care to the extent consulted by the Enrollee or informed by a
Participating Physician or the Company. Although Enrollees may access any
Participating Physician at any time without a Care Manager's referral, the
Company believes it has structured its benefits design to encourage Enrollees to
utilize the Care Manager to coordinate referrals, for example through the use of
a reduced or waived copayment if a referral is coordinated through a Care
Manager. Female Enrollees, however, may select an Obstetrician/Gynecologist to
provide certain gynecological services or care related to pregnancy without the
prior authorization of the Care Manager, and the Company intends that such
Enrollees will not have to pay higher copayments for such services or other
services where the Company determines that prior authorization by the Care
Manager will not improve the quality or lower the cost of care.
The Company intends to enter into the Management Agreement with MedServ.
MedServ was organized in 1995 as a joint venture of the Hartford County Medical
Association and the New Haven County Medical Association. Each of the
Associations holds 50% of the equity interests in MedServ. MedServ is a
for-profit corporation performing administrative functions for both county
medical associations and intends to operate a CVO to provide credentialing
services which are intended to meet NCQA credentialing standards.
MedServ will develop credentialing standards to provide assurances to
Enrollees that each provider of medical services meets the minimum standards for
education, licensing, training and expertise deemed necessary by the Company to
provide the medical services requested. Under the credentialing service, MedServ
will collect information to document compliance with the credentialing
standards, will verify the accuracy of such information, and will monitor
continuing compliance with such credentialing standards.
Key members of the MedServ management team will provide management services
to the Company. The Management Agreement will have a minimum term of ten years
and will be automatically renewable for additional three year terms, unless
terminated on one year's prior notice by either party. MedServ is the sole
holder of the Company's Class C Common Stock. Subject to the consent of the
Board of Directors, which consent will not be unreasonably withheld, MedServ
will be permitted to contract with other third party independent contractors to
provide some or all of the services required to be delivered under the
29
<PAGE>
terms of the Management Agreement. As a start-up, MedServ may hire an HMO
management consulting company to provide management or management support and
consulting services to MedServ, in whole or in part during the Company's
development and initial operations stages. "See--Experience of Board of
Directors and Management."
Pursuant to the Management Agreement and subject to the oversight of the
Board of Directors, MedServ is responsible for the day-to-day management of the
Company, including but not limited to, the following activities:
- performing all management, administrative and other services necessary to
operate the Company;
- obtaining all licenses, permits or other regulatory approvals necessary to
operate the Company as an HMO in the State of Connecticut;
- providing facilities for the operation of the Company;
- conducting or managing the sale of the Company's products, including
negotiating subscriber agreements with employer groups or individuals;
- providing or securing underwriting on appropriate insurance services;
- conducting benefit design for the Company's health plans;
- preparing materials necessary to inform and educate Enrollees about the
Company's administrative requirements and the terms and conditions of the
Enrollee's benefit plan;
- developing and implementing a grievance and complaint system for
Enrollees;
- developing and implementing marketing initiatives;
- establishing and administering accounting procedures and controls;
- conducting claims analysis and statistical reporting;
- conducting negotiation of provider contracts and credentialing of
providers;
- developing quality and utilization management standards;
- providing or arranging for the provision of a management information
system;
- preparing on-going business plans for the Company;
- maintaining the Company's books and records;
- ensuring that the Company's operations are consistent with applicable laws
and regulations.
During the Development Stage and the Initial Operations Stage, Physicians
Care will pay MedServ a Management Fee equal to MedServ's actual cost of
providing the services set forth in the Management Agreement not to exceed the
amounts set forth in the Budget approved by the Company's Board of Directors by
a two-thirds vote and an allowance for profit and general administrative
expenses equal to five percent of such actual costs. In the event that actual
administrative and capital expenses in the aggregate are expected to exceed the
Budget by more than five percent, or if actual expenses related to any line item
of such Budget are expected to exceed the Budget for such line item by more than
twenty percent (whether or not aggregate expenses are expected to exceed
Budget), MedServ must notify the Board of Directors of such expenses and may
make no expenditure for such expenses without the approval of the Board of
Directors. After completion of Development Stage and Initial Operations Stage,
the Manager shall be paid a negotiated percentage of actual gross premium
revenue per Enrollee per month as mutually agreed to by MedServ and the Company.
IPA intends to enter into the IPA Agreement with MedServ, pursuant to which
IPA will (a) be the exclusive provider of a network of Participating Physicians
to provide or arrange to provide services to
30
<PAGE>
Enrollees which exclusive status shall remain in effect until the Board of
Directors determines, in its reasonable judgment, that the network furnished by
IPA is not adequate to service the needs of Enrollees and (b) cause
Participating Physicians to provide such services within each Participating
Physician's expertise and as credentialed. The IPA Agreement will provide that
IPA shall: (a) ensure that Participating Physicians are properly licensed and
credentialed and have privileges at specified hospitals and other health care
facilities; (b) notify MedServ of any professional disciplinary action or
similar action against any Participating Physicians; (c) with MedServ's
assistance, develop peer group monitoring systems for Participating Physicians;
and (d) develop, with MedServ, mutually agreeable Utilization Management and
Quality Management Programs and adopt and implement such Programs. IPA's
compensation for its services has not yet been determined.
MedServ IPA, Inc. is a Connecticut non-profit corporation, which was
organized in October 1985 and formed specifically for the purpose of developing
a network of physicians to provide services to health plan enrollees. From 1985
to 1996, IPA was known as ProCare IPA, Inc. IPA is also managed by MedServ.
IPA may execute contracts with HMOs licensed in Connecticut to make
available its network of physicians to provide healthcare services ("Competition
Contracts"). The IPA Agreement will provide, however, that MedServ may terminate
the IPA Agreement in the event the IPA enters into a Competition Contract, which
contract the Company believes is contrary to the best interests of the Company.
At the present time IPA has a Competitor Contract to provide a network in
Connecticut to Multiplan, a Preferred Provider Organization. The Company
believes that IPA's contract with Multiplan is not contrary to the best
interests of the Company.
Premium rate increases must be submitted to the DOI for acceptance, and
there can be no assurance that premium rate increases, if any, will be accepted
without objection. Renewal dates may vary among groups. The Company will utilize
an actuary-developed system of ratings adjusted by classes (with respect to
groups of fifty or more Enrollees) by age, gender and industry classification,
in the determination of its rates for various employers in the proposed service
area, all in accordance with Connecticut law. Accordingly, premium rates for a
single health plan benefit design may vary among employer groups.
BENEFITS PROVIDED TO ENROLLEES
The Company is committed to offering high quality healthcare benefit plans
at competitive prices in the State of Connecticut. The Company believes that the
range of the fixed, prepaid enrollment fee per commercial Enrollee per month is
estimated to be from $125.00 to $160.00, depending upon the type of product and
the associated benefit design of each Enrollee's chosen plan. The Company
accepts as fundamental the critical relationship between the physician and the
patient in the delivery of healthcare services. The Company expects to reduce
administrative and transactional costs by allowing Participating Physicians,
subject to certain limitations, to exercise their professional judgment in
concert with patients, resulting in higher patient satisfaction and better
management of medical costs.
The Company intends to develop benefit plans for large employers, small
businesses and individuals that meet the requirements of Connecticut law. Based
upon a review of other HMO plans offered in the State of Connecticut, the
Company believes that its benefit plans will be competitive with those other
plans in the marketplace and that they will be customized to the needs of
purchasers, to the extent permitted by law.
The following are examples of the benefits the Company proposes to offer
under its HMO plans:
- physician office visits
- specialist physician visits
- hospital room and board, prescription drugs, and inpatient ancillary
services
- psychiatric inpatient and outpatient services
31
<PAGE>
- diagnostic and therapeutic ambulatory services
- drug and alcohol addiction treatment services
- emergency care
- home healthcare
- skilled nursing services
- therapy services
Coverage of healthcare services listed above will be conditioned on medical
necessity and on the conditions of coverage applicable to the Enrollee's health
plan.
MARKETING
Although competition in the managed care industry is intense, the Company
believes an opportunity exists for a new HMO that is able to manage risk
effectively, while eliminating barriers or impediments to Enrollees' access to
medically necessary care. The Company intends to build a large physician network
that will attract Enrollees and purchasers of the Company's health plans through
the localized efforts of physicians. Subject to the Company's approval by HCFA,
it intends to aggressively pursue the Medicare market. See "Risk
Factors--Government Approvals as a Prerequisite to Operations."
The Company's current marketing strategy is three-tiered. The first tier
involves direct sales of the Company's health plans to large employers and small
businesses. The second tier employs brokerage firms which receive a commission
that is expected to range from three percent to five percent of premiums
collected. The third tier of the Company's marketing campaign will consist of
general advertising through various media that targets all prospective
purchasers. In its marketing efforts, the Company plans to seek the assistance
of its Participating Physicians to effectively market its plans and products.
PHYSICIAN AND OTHER PROVIDER ARRANGEMENTS
PHYSICIANS
The Company is founded on the principle of physician autonomy in the making
of clinical decisions. To facilitate the decision-making process, the Company
intends to provide physicians with physician-defined quality and cost of service
data and performance feedback.
The selection and credentialing of Participating Physicians is the
foundation on which the Company's Quality Management Program ("QMP") will be
built. The Company will delegate authority for credentialing and recredentialing
to the IPA's Credentialing Committee while retaining oversight. All
Participating Physicians will be subject to a review of their qualifications,
including education and training, licensure status, board certification,
hospital privileges, and malpractice history, in accordance with credentialing
requirements which are consistent with NCQA standards. Recredentialing will be
performed on a biannual basis and will include review of data from: (i) Enrollee
complaints, (ii) quality review results, (iii) utilization reviews, and (iv)
Enrollee satisfaction surveys.
Physicians Care plans to develop performance standards with physician input.
The Company intends to require Participating Physicians to use those standards
and to report clinical decisions, utilization management and outcomes to ensure
that the Company acquires high quality data on a timely basis. The Company
anticipates that it will develop state-of-the-art information systems to permit
it to share data with Participating Physicians to improve clinical decisions and
outcomes. The Company intends to focus its efforts on continuous educational
interaction with Participating Physicians to encourage best medical practices.
32
<PAGE>
PHYSICIAN PARTICIPATION AGREEMENT
The IPA's Physician Participation Agreement will impose various requirements
and standards (many of which are also mandated by applicable federal and state
law) on Participating Physicians, which may include:
1. Providing, or arranging for the provision of, healthcare services to
Enrollees in accordance with the physician's licensure and training, and
consistent with accepted standards of practice. In particular:
a. Maintaining regular office hours and ensuring after-hours and
emergency coverage for Enrollees on a seven days per week, twenty-four hours
per day basis.
b. Avoiding discrimination in the treatment of patients or in the
quality of services delivered to Enrollees.
c. Maintaining an unrestricted medical license and, if applicable,
maintaining unrestricted, active privileges in good standing at a minimum of
one acute care hospital that has contracted with the Company as a
Participating Provider.
d. Following state and federal laws and the policies and procedures
established and adopted by the Company.
e. Operating office sites in compliance with quality assurance
requirements of the Company.
f. Agreeing that all duties performed shall be consistent with the
proper practice of medicine, and in accordance with the customary rules of
ethics and conduct.
2. Maintaining a medical record for each Enrollee and furnishing access to
such records as may be required by state and federal law, rules, regulations or
by the Company's Utilization Management Program and/or Quality Management
Program. In addition:
a. Agreeing that medical records of Enrollees shall be maintained on a
confidential basis.
b. Providing the Company, or its designees, with reasonable access to
the physician's practice site to examine medical records of Enrollees.
3. Participating in and complying with the Utilization Management and
Quality Management Programs, policies and procedures established by the Company.
4. Limiting referrals to physicians, hospitals and ancillary healthcare
providers who participate in the Company's healthcare delivery network, except
where the Enrollees have freedom of choice of Participating Provider under the
Company's open access health benefit plans in effect at the time services are
rendered.
OTHER HEALTHCARE PROVIDERS
The Company intends to establish relationships with acute care hospitals
both in the State of Connecticut and in nearby states. It has received
approximately fifteen letters of intent from acute care hospitals located in the
State of Connecticut to participate as providers of services to Enrollees.
Moreover, the Company intends to provide appropriate preventive, diagnostic, and
therapeutic treatment, and rehabilitation healthcare services, to its Enrollees,
in part, by contracting with qualified non-physician providers, and networks of
such providers, who meet the participation criteria established by the Company.
It is expected that those contracts will provide that the participating
hospitals and other providers will accept Enrollees as patients and provide all
medically necessary services that are ordered or supervised by a Participating
Physician in accordance with the Company's requirements. The services provided
by hospitals and other providers will be reviewed by the Quality Management
Committees that may be established by the Company or its designee to ensure that
the services provided meet quality standards and are medically necessary.
33
<PAGE>
QUALITY MANAGEMENT PROGRAM
The Company intends to provide quality healthcare services while avoiding
inappropriate utilization of services. The Company currently is in the process
of developing a Quality Management Program, in conjunction with IPA, for the
continual improvement of the quality of healthcare services delivered.
The Company intends that its Quality Management Program will contain various
components, including, but not limited to, the following:
- adverse event review
- sentinel diagnosis review
- ambulatory medical record review
- quality measurement studies
- complaints and grievance review
- credentialing/recredentialing
- risk management
- enrollee satisfaction surveys
- provider satisfaction surveys
The Company intends to conduct annual evaluations of the Quality Management
Program to assess its overall effectiveness and to generate an annual work plan
designed to outline program goals and objectives and planned projects and
activities for the forthcoming year.
UTILIZATION MANAGEMENT PROGRAM
The Company's profitability will be influenced by its ability to manage
healthcare costs through utilization management and the negotiation of favorable
provider contracts. A Utilization Management Program ("UMP") will be designed to
educate, monitor, and evaluate the provision and cost of medical care and
services accessed through the Company and/or its affiliates. See "Risk
Factors--Potential for Unnecessary Utilization of Healthcare Services."
The Company's objective will be to efficiently utilize available healthcare
resources to ensure and provide for medically appropriate care and to monitor
the quality of medical services accessed through the health plan and/or its
affiliates. The UMP is currently being developed by the Company in conjunction
with IPA. Its essential components are expected to include:
- patient education programs (concurrent and retrospective basis)
- physician education programs (performance standards)
- inpatient review (concurrent and retrospective basis)
- outpatient review (concurrent and retrospective basis)
- case management
- outcomes analysis
MANAGEMENT INFORMATION SYSTEMS ("MIS")
The Company is developing criteria for comprehensive management information
system, and is soliciting information from various vendors. A Request for
Proposal was distributed to selected vendors, and the Company anticipates that
final selection of a system will be made during the last quarter of 1997,
34
<PAGE>
with a decision to proceed with acquisition, whether by purchase or lease, made
after the results of the Offering are known. In lieu of acquisition of a system,
the Company may use subcontractors to provide claims processing and Enrollee
eligibility information system support. The Company's management information
system and data system will be essential to the Company's operations.
INSURANCE/RISK MANAGEMENT
Physicians Care intends to implement a risk management program designed to
enhance the quality of care provided to its Enrollees. The Company's risk
management objectives are two-fold: (i) to reduce the incidence and expense of
medical malpractice claims and tort litigation against Participating Providers;
and (ii) to address and prevent conditions that could result in adverse
publicity or legal claims against the Company. A risk manager will be
responsible for the evaluation and coordination of risk management activities.
Any data generated will be presented to the Quality Management Committees for
their review and recommendations. The Quality Management Committees will also
review the data for trends and opportunities for improvement.
MARKET
MANAGED CARE GROWTH IN THE STATE OF CONNECTICUT
The Company's research indicates that the healthcare market in the State of
Connecticut is moving toward increased HMO enrollment. From 1988 to 1994, HMOs
experienced an almost 36% increase in enrollment.
TABLE 1
HMO MEMBERS IN CONNECTICUT
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
# of Members.............................................. 660,331 689,099 726,523 680,610 685,907 805,928
% change.................................................. -- 4.4% 5.4% -6.3% 0.8% 17.5%
<CAPTION>
1994
---------
<S> <C>
# of Members.............................................. 897,013
% change.................................................. 11.3%
</TABLE>
- ------------------------
Source: "GHAA's National Directory of HMOs" database, U.S. Bureau of the Census
The Company believes that the Connecticut managed care market is dominated
by the IPA model HMO. The Company believes that no single plan controls the
managed care market in Connecticut and that physician-driven products continue
to remain popular with Enrollees, as evidenced by the growth of MD Health Plan
and Physicians Health Services, both of which began as physician controlled
HMOs. During 1996, MD Health Plan was sold to Health Systems International, an
HMO management company headquartered in California.
Table 2 illustrates the types of insurance that purchasers of healthcare are
selecting within Metropolitan Statistical Areas (MSA) throughout Connecticut.
TABLE 2
TYPES OF INSURANCE IN CONNECTICUT
<TABLE>
<CAPTION>
% OF
COMMERCIALLY
<S> <C> <C> <C> <C> <C> <C>
% OF RESIDENTS INSURED*
--------------- ---------------
<CAPTION>
HMO PPO FFS HMO PPO FFS
---- --- ---- ---- --- ----
<S> <C> <C> <C> <C> <C> <C>
Bridgeport-Stamford-Norwalk........................................... 25.9 2.5 60.4 30.2 3.3 66.5
Hartford-New Britain.................................................. 42.8 6.0 42.7 50.1 8.2 41.7
New Haven............................................................. 32.1 5.2 50.3 39.9 7.1 53.0
Middlesex-Somerset.................................................... 27.1 5.5 59.1 32.6 7.0 60.4
</TABLE>
- ------------------------
Source: "Patterns in HMO enrollment." GHAA June 1995. National Research
Corporation Survey of 132,014 Households, 1994.
* Excludes Medicare Supplemental Insurance
35
<PAGE>
COMPETITION
The managed care industry is highly competitive. The Company will compete
against other companies having substantial financial resources and experience.
The Company has numerous competitors, including for-profit and tax-exempt HMOs,
self-funded plans, preferred provider organizations (PPOs), Blue Cross/ Blue
Shield plans, traditional indemnity insurance carriers and provider networks
engaging in direct contracting with employers (PSOs), all of which have existing
enrollments and greater financial resources than the Company.
As of December 31, 1996, the Connecticut commercial HMO market consisted of
sixteen organizations. The Company's major competitors are Physicians Health
Services, Inc., Blue Cross & Blue Shield of Connecticut, Inc., ConnectiCare,
Inc., M.D. Health Plan, Inc., Oxford Health Plans, Inc., Medspan, Inc., Cigna
Corporation, and Aetna/U.S. Healthcare. Those and other entities with which the
Company may compete are or may be substantially better capitalized than the
Company. Additional competitors with financial resources greater than the
Company may enter the Company's markets in the future. Furthermore, existing
major competitors may merge or consolidate, dramatically increasing the
Connecticut market share and capital resources of the surviving organization.
The healthcare industry has been subject to vigorous and intense competition on
price and other bases, which competition may become more severe. Further, the
adoption of any state and/or federal healthcare reform may significantly change
the competitive healthcare environment in the State of Connecticut. See "Risk
Factors--Substantial Competition."
Tables 3 and 4 respectively represent HMO market share by enrollment and by
revenue:
TABLE 3
HMO MARKET SHARE IN CONNECTICUT--1994, 1995 & 1996
LAST QUARTER ENROLLMENT DATA COMPARED
<TABLE>
<CAPTION>
% OF MARKET
PLAN ENROLLMENT 1995 ENROLLMENT 1996 SHARE--1996
- ----------------------------------------------------------------- ----------------- --------------- ---------------
<S> <C> <C> <C>
Blue Cross and Blue Shield of Ct.*............................... 154,920 201,108 18.99%
Physicians Health Services....................................... 155,519 200,339 18.92
ConnectiCare..................................................... 123,176 159,853 15.10
M.D. Health Plan................................................. 124,771 152,310 14.39
Aetna Health Plans............................................... 104,549 118,834 11.22
Kaiser Foundation................................................ 47,380 60,401 5.70
U.S. HealthCare.................................................. 46,863 58,318 5.51
Oxford Health Plan (Ct.)......................................... 17,500 53,900 5.09
CIGNA Health Care................................................ 15,829 17,910 1.69
Yale Preferred Health............................................ 0 14,870 1.40
Suburban......................................................... 3,586 10,057 0.95
MedSpan Health Options........................................... 0 6,788 0.64
Prudential....................................................... 5,035 2,665 0.25
WellCare of Connecticut.......................................... 137 901 0.09
NYLCare Health Plans of Ct....................................... 0 460 0.04
HealthSource of Connecticut...................................... 0 30 0.00
Total Enrollment (grew 32%--1995 to 1996)........................ 799,265 1,058,744 100.0%
</TABLE>
- ------------------------
Source: Department of Insurance, State of Connecticut..
(Due to rounding, the percentages indicated may not add up to equal 100%.)
* Blue Cross Blue Shield of Connecticut data for 1995 includes 41,613 enrollees
of Community Health Care Plan.
36
<PAGE>
TABLE 4
HMO MARKET SHARE BY REVENUE--1996
<TABLE>
<CAPTION>
PLAN REVENUE % OF MARKET SHARE
- ------------------------------------------------------------------------------- ------------- ---------------------
<S> <C> <C>
Blue Cross and Blue Shield of Ct............................................... $ 546,366,693 27.26%
Physicians Health Services..................................................... 362,258,826 18.08
MD Health Plan................................................................. 274,503,731 13.70
ConnectiCare................................................................... 250,559,500 12.50
Aetna Health Plans............................................................. 190,636,312 9.51
U.S. HealthCare................................................................ 110,557,210 5.52
Kaiser Foundation.............................................................. 94,285,591 4.70
Oxford Health Plan (Ct.)....................................................... 74,281,673 3.71
CIGNA Health Care.............................................................. 55,565,182 2.77
Yale Preferred Health.......................................................... 20,708,024 1.03
Suburban....................................................................... 13,715,500 0.68
Prudential..................................................................... 5,972,010 0.30
MedSpan Health Options......................................................... 2,972,412 0.15
WellCare of Connecticut........................................................ 1,284,375 0.06
Healthsource of Connecticut.................................................... 283,507 0.01
NYLCare Health Plans of Ct..................................................... 155,941 0.01
Total Revenue.................................................................. $2,004,106,487 100.0%
</TABLE>
- ------------------------
Source: Department of Insurance, State of Connecticut.
(Due to rounding, the percentages indicated may not sum to equal 100%.)
THE MEDICARE MARKET
The Company's research indicates a growing trend toward an increase in
Medicare enrollment in HMOs/CMPs. Throughout the country, HCFA has licensed
HMOs/CMPs on a county by county basis to accept direct, fixed payment of 95% of
the county's Average Adjusted Per Capita Costs ("AAPCC") for the number of
Medicare lives enrolled in the approved health plan's products. However, the
Balanced Budget Act of 1997 made significant changes to the methodology for
reimbursing HMOs/CMPs (and PSOs) for services provided to Medicare
beneficiaries. HMOs/CMPs/PSOs will receive payments equalling the greatest of:
(i) a blended payment amount comprised of an area-specific and a national rate,
(ii) a minimum monthly payment of $367 with specified updates, or (iii) 102% of
the previous year's average payment in the particular county.
The Company believes that success in a Medicare HMO product line depends, in
part, on a combination of a relatively high AAPCC for a county and region, broad
physician panels, and cost effective operations. The Company has been advised
that the estimated 1998 payment based on the Balanced Budget Act of 1997 for
Connecticut is approximately $430.00.
As the federal government implements options to control spending with the
Medicare population, the Company believes that an HMO which can save money and
enhance benefits is becoming generally acceptable to the elderly. The Company
intends to focus on the Medicare population for enrollment into the HMO once it
qualifies for HCFA's consideration. Table 5 illustrates the early stage of
development of the Medicare market in the State of Connecticut. As of May 1996,
no county in the State of Connecticut had more than 8% of its eligible elderly
population enrolled in a Medicare HMO plan.
37
<PAGE>
TABLE 5
MEDICARE HMO ENROLLEES IN CONNECTICUT 1996
<TABLE>
<CAPTION>
NUMBER OF MEDICARE NUMBER OF ENROLLEES IN
COUNTY ELIGIBLES MEDICARE HMOS %
- --------------------------------------------------------------- ------------------- ----------------------- ---
<S> <C> <C> <C>
Fairfield...................................................... 125,243 9,529 7.61%
Hartford....................................................... 140,821 4,269 3.03%
Litchfield..................................................... 28,064 354 1.26%
Middlesex...................................................... 21,911 198 0.90%
New Haven...................................................... 133,435 2,475 1.85%
New London..................................................... 37,585 1,049 2.79%
Tolland........................................................ 13,736 391 2.85%
Windham........................................................ 15,819 428 2.71%
Total:....................................................... 516,614 18,693 3.62%
</TABLE>
- ------------------------
Source: HCFA Division of Medicare, Region 1, May, 1996
Based upon this data, the Company believes:
- The Medicare HMO market in the State of Connecticut is in its early stages
of development. If the Company is approved as a CMP or PSO by HCFA, it
expects to have a significant opportunity to expand its business
operations. See "Risk Factors--Government Approvals as a Prerequisite to
Operations."
- Participating Physicians will offer a competitive advantage to the Company
in the marketing of its products to Medicare recipients arising from the
strong ties and loyalties seniors have to their physicians.
REGULATION
DOI REGULATION
The Company will apply for a COA to operate as an HMO in the State of
Connecticut. Among the areas regulated by the Connecticut DOI are the scope of
benefits required to be made available to Enrollees, continuation of benefits in
the event of insolvency or termination of arrangements with providers, reserves
required to be maintained, the manner in which Enrollees' copayments are
structured, procedures for review of quality assurance, enrollment requirements,
the relationships among the HMO, its physicians and other healthcare providers,
and the financial condition of the HMO.
Under Connecticut law, an HMO must maintain a minimum net worth of
$1,500,000 and must initially achieve a reserve at least equal to all of its
estimated pending claims. It is anticipated that the Company will have a need
and thereafter must maintain of capital committed to satisfy ongoing net worth
and reserve requirements equal to the greater of (i) $1,000,000 or (ii) two
percent of its annual premiums revenues of the first $150,000,000 of premiums
plus one percent of annual premium reserves in excess of $150,000,000. If the
Company becomes unable to meet the foregoing net worth and reserve requirements,
the Company's COA may be revoked or its operations restricted. Other
restrictions and requirements may be imposed that affect HMOs generally, the
products offered by the Company, underwriting requirements, and other aspects of
the Company's operations. Rates and proposed covered benefits must be submitted
to the DOI prior to their effectiveness, and there can be no assurance that the
Company's proposed rates will be accepted without objection.
38
<PAGE>
ANTITRUST
Antitrust concerns have become central issues in the managed care segment of
the healthcare industry. Whenever physicians or other healthcare providers join
together to form ventures for the delivery of healthcare services, antitrust
issues may be present. The Company has attempted to take reasonable steps to
minimize antitrust risk. Nevertheless, the law in this area is unsettled and
fact specific. Therefore, there can be no assurance that there will not be a
challenge to the Company's operations on the basis of antitrust violations at
some time in the future. If antitrust lawsuits or other challenges were to be
filed against the Company, it would be forced to incur substantial legal
expenses. Moreover, if any antitrust challenge were to be successful, the
Company could suffer additional material adverse consequences. In addition, it
is impossible to predict whether further federal and/or state antitrust
legislation will be adopted or the impact that the adoption of such legislation
may have on the healthcare delivery system and the Company. See "Risk
Factors--Antitrust Considerations."
FEDERAL ANTI-KICKBACK AND ANTI-REFERRAL LAWS
Federal laws prohibit physicians from paying or receiving any remuneration,
directly or indirectly, for the referral of a patient. In addition, federal law,
under certain defined circumstances, prohibits referral by a physician to a
healthcare entity in which the physician or his or her immediate family member
has a financial interest. The Company believes that neither the Company nor its
physician shareholders will be in violation of federal or Connecticut law as a
result of the operation of or participation in the Company's HMO. To the extent
that physicians refer patients to other physicians, they will receive no
remuneration for such referral. Moreover, the Company will neither require nor
encourage physicians to refer patients to entities in which they have a
financial relationship. See "Risk Factors--Limitations on Physician Ownership of
Certain Healthcare Enterprises."
Under the Medicare and Medicaid Fraud and Abuse Law, also known as the
Anti-kickback Statute, a physician is prohibited from: (i) soliciting or
receiving any remuneration in return for referring a patient to another
healthcare provider, and (ii) offering or paying any remuneration to induce the
referral of patients to the physician.
In addition, two related federal laws, Omnibus Budget Reconciliation Act of
1990, Pub. L. No. 101-508, Title IV, Section 4207(e)(1)-(3), (k)(2) and Omnibus
Budget Reconciliation Act of 1993, Pub. L. No. 103-66, Title XIII,
SectionSection13562 and 13624, known respectively as Stark I and Stark II,
prohibit a physician from referring patients to an entity in which the
physician, or an immediate family member, has a financial relationship, for the
provision of certain designated health services. Stark I only applies to
clinical laboratory services. Stark II prohibits self-referrals to certain
additional "designated health services"; physical therapy; occupational therapy;
radiology; radiation therapy; durable medical equipment; parenteral and enteral
nutrients, equipment and supplies; prosthetics, orthotics and prosthetic
devices; home health services; inpatient prescription drugs; and inpatient and
outpatient hospital services. Stark I and II laws apply only to the referral of
patients who are covered under Medicare, Medicaid and/or other federal programs
and grants.
The Company may, in the future, contract with federal programs, including
Medicare, to provide services to eligible patients. However, as indicated above,
the Company will neither require nor encourage physicians to refer patients to
an entity in which the physician (or his or her immediate family) holds a
financial interest. Furthermore, Stark I and II laws contain a specific
statutory exception for HMOs which meet federal requirements. Finally, with
respect to the anti-kickback statute, the federal government has promulgated
so-called "safe harbor" regulations, which insulate from liability individuals
or entities which comply with the regulatory requirements. Included in these
regulations is a safe harbor for HMOs under contract with federal or state
agencies which operate in accordance with applicable laws and regulations.
Should the Company enter into such contracts, thereby bringing it within the
purview of federal law, the Company will be required to comply with this safe
harbor and the statutory exception to Stark I and II
39
<PAGE>
laws. Notwithstanding, the Company's belief is that neither the Company nor its
physicians will be in violation of either federal or Connecticut law as a result
of the operation of or participation in the Company's HMO.
LEGAL MATTERS
There is no pending or threatened legal or administrative proceeding or
arbitration to which the Company is currently a party, other than those
described in this Prospectus relating to the licensing of the Company to do
business as an HMO.
EMPLOYEES
The Company has no paid employees. The day-to-day operation of the Company
will be conducted by MedServ pursuant to the Management Agreement.
FACILITIES
Since the Company intends to be an IPA Model HMO, it is contemplated that
care will be delivered solely by Participating Providers in facilities not owned
by the Company. The Company's management will be conducted at MedServ's facility
located in Cheshire, Connecticut.
40
<PAGE>
MANAGEMENT
Company policies and strategies will be developed by a Board of Directors
with the assistance of MedServ management. Day-to-day management of the Company
will be conducted by MedServ pursuant to the Management Agreement and subject to
the oversight of the Board of Directors. As a start-up in a competitive market,
MedServ may engage an HMO management consulting company to provide management or
management support and consulting services to MedServ, in whole or in part
during development and initial operations stages. In addition to possibly
engaging an HMO management consulting company to support general management
functions, MedServ may also engage such an HMO management consulting company to
recruit and train a permanent Chief Executive Officer, Chief Financial Officer,
Chief Operating Officer, Vice President of Medical Affairs, Vice President of
Management Information Systems, and Vice President of Marketing and Sales with
significant HMO experience to manage the Company's operations. Subject to input
from the Board of Directors, MedServ would pay compensation to such a HMO
management consulting company within the budget and terms of MedServ's
Management Agreement.
The following describes the directors and those individuals employed or
engaged by MedServ who will initially provide management services to the
Company, under the terms of the Management Agreement.
The Company will have a Board of Directors of not less than seventeen nor
more than twenty-one directors. Eleven directors are appointed by the Class C
Common shareholder, MedServ. Within six months after completion of the Offering:
(i) six directors will be elected by the Class A Common shareholders and must be
physicians who are not members of the Hartford County Medical Association or the
New Haven County Medical Association and of whom no more than two may be members
of any one county medical society at any given time and not less than three
shall be primary care physicians and (ii) up to four directors (such number to
be determined in the discretion of the Board of Directors) shall be
representatives of area employers, hospitals, investors in the Company or
individuals representing the interests of the Company's subscribers and shall be
elected by a majority of the Class A shareholders from a list of nominees
provided by the Board of Directors.
At present, the Company has eleven directors appointed by MedServ. The Board
of Directors will be expanded to not less than seventeen directors within six
months after completion of the Offering.
<TABLE>
<CAPTION>
NAME OF DIRECTOR OR OFFICER AGE TITLE
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
Craig W. Czarsty, M.D.................. 43 Chairman of the Board of Directors and President
Joseph R. Coffey....................... 53 Chief Executive Officer, Executive Vice President and Director
F.J. Montegut, M.D..................... 58 Secretary and Director
John B. Franklin, M.D.................. 59 Chief Financial Officer, Treasurer and Director
Richard Fiorentino..................... 49 Associate Executive Vice President and Associate Chief Executive
Officer
Margaret Camarco....................... 40 Vice President, Health Services
Edward J. Berns, Esq................... 47 Vice President and General Counsel
John Aversa, M.D....................... 54 Director
Joseph Balsamo, M.D.................... 38 Director
John R. Galvin, Jr., M.D............... 59 Director
Ellen R. Fischbein, M.D................ 51 Director
N. Chandra Narayanan, M.D.............. 55 Director
John W. Rodgers, M.D................... 48 Vice Chairman of the Board of Directors
Earle J. Sittambalam, M.D.............. 53 Director
</TABLE>
41
<PAGE>
KEY MANAGEMENT STAFF
MedServ will provide day-to-day management of the Company pursuant to the
terms of the Management Agreement, subject to the supervision of the Board of
Directors. MedServ management includes the following individuals, who will hold
the specified positions at the Company:
CRAIG W. CZARSTY, M.D., CHAIRMAN, PRESIDENT
Dr. Czarsty incorporated the Connecticut Managed Service Organization in
1992 and has been a member since 1978 of the Connecticut Academy of Family
Physicians for which he has held a number of offices, including President and
Director. He also serves on the Board of Directors and was formerly President of
Health One Connecticut, P.C. Dr. Czarsty has earned diplomate status from the
American Board of Family Practice and the National Board of Examiners. In
addition, in 1986 Dr. Czarsty was appointed Fellow by the American Academy of
Family Physicians. A licensed physician in the State of Connecticut and the
Commonwealth of Virginia, Dr. Czarsty serves on the staff of numerous hospitals
and healthcare providers.
JOSEPH R. COFFEY, CHIEF EXECUTIVE OFFICER, EXECUTIVE VICE PRESIDENT AND DIRECTOR
Mr. Coffey is the Executive Vice President/CEO of the Hartford County
Medical Association and the New Haven County Medical Association and MedServ. He
has been active in association and health agency management since 1968. In 1984,
he joined the Hartford County Medical Association as Executive Vice
President/CEO. In 1985, he was instrumental in establishing Medical Delivery
Systems, Inc. and ProCare IPA, Inc. (now, MedServ IPA, Inc.) to help physicians
interface with commercial managed care entities. In 1994, Mr. Coffey received
the Association Executive of the Year Award from the Connecticut Society of
Association Executives.
RICHARD FIORENTINO, ASSOCIATE EXECUTIVE VICE PRESIDENT AND ASSOCIATE CHIEF
EXECUTIVE OFFICER
Mr. Fiorentino is the Associate Executive Vice President of the Hartford
County Medical Association and the Chief Operating Officer of Medical Delivery
Systems, Inc. and MedServ IPA, Inc. (formerly ProCare IPA, Inc.). He has been
active in association and health agency management since 1974 having served the
Fairfield County Medical Association and the Connecticut State Medical Society
before his employment by Hartford County Medical Association in 1985. Since that
time, Mr. Fiorentino has been at the forefront in the establishment of a
physician network for ProCare IPA, Inc. (now, MedServ IPA, Inc.)
Mr. Fiorentino has more than ten years of experience in the managed care
field representing the interests of physicians in their interactions with
commercial managed care entities. As Chief Operating Officer of MedServ IPA,
Inc., he has been responsible for management oversight in such areas as
physician recruitment and credentialing, Quality Management/Utilization Review
programs, and management information systems.
JOHN B. FRANKLIN, M.D., CHIEF FINANCIAL OFFICER, TREASURER, AND DIRECTOR
Dr. Franklin has practiced medicine for the past 29 years specializing in
Ophthalmology. In addition to his duties as a Director and Treasurer, Dr.
Franklin is the Company's Chief Financial Officer and will hold such office
until the Company, when appropriate and necessary, hires a permanent Chief
Financial Officer. Dr. Franklin received his M.D. from New Jersey College of
Medicine in 1961.
MARGARET A. CAMARCO, L.P.N., VICE PRESIDENT, HEALTH SERVICES
Mrs. Camarco received her L.P.N. degree from the A. I. Prince Technical
School Licensed Practical Nurse Program affiliated with Hartford Hospital in
1982 and served as staff nurse on the Trauma Unit at Hartford Hospital from 1982
to 1985, and as an Occupational Health Nurse for Immediate Medical Care
42
<PAGE>
Centers, Inc. from 1985 to 1987. Mrs. Camarco entered the managed care arena in
1987 serving as Coordinator of Quality Assurance and Utilization Review for an
IPA by providing assistance in the development and administration of its
Quality/Utilization Management Program. In 1989, Mrs. Camarco earned National
Certification and Diplomate status in Quality Assurance and Utilization Review
through the American Board of Directors of Quality Assurance and Utilization
Review Physicians (ABQAURP). In 1995, Mrs. Camarco obtained her certification in
Outcomes Management from the New England HealthCare Assembly (NEHA).
Mrs. Camarco serves in the capacity of Assistant Executive Vice President of
the QM/UM Programs of MedServ and has been instrumental in the establishment,
implementation, and ongoing administration of the Quality Management/Utilization
Management Programs of MedServ IPA, Inc. and Medical Delivery Systems, Inc.,
under their service arrangements with MedServ of Connecticut, Inc. and the
Hartford County Medical Association and the New Haven County Medical
Association. Mrs. Camarco is a member of the American Association of Medical
Executives, the American Board of Quality Assurance and Utilization Review
Physicians, the National Association for HealthCare Quality, the New England
HealthCare Assembly, the Connecticut Medical Group Management Association, and
the Connecticut Society of Association Executives.
EDWARD J. BERNS, ESQUIRE, VICE-PRESIDENT AND GENERAL COUNSEL
Mr. Berns is the General Counsel of the Hartford County Medical Association
and the New Haven County Medical Association and MedServ. He has practiced law
exclusively within the medical environment since 1987 with a concentration in
the field of managed care. Prior to assuming his current positions he was
engaged in the private practice of law from 1975 to 1987 in the New Haven,
Connecticut area.
Mr. Berns is a member of the Bar of the State of Connecticut and the United
States District Court for the District of Connecticut. He has served on the
adjunct faculty of the University of New Haven, Quinnipiac College, and Southern
Connecticut State University. Mr. Berns holds the appointment of Magistrate from
the State of Connecticut Judicial Department.
CURRENT DIRECTORS.
The following describes the directors whose curriculum vitae are not set
forth above:
John Aversa, M.D. has practiced medicine for the past 27 years specializing
in Orthopaedics. Dr. Aversa received his M.D. from SUNY Downstate in 1967.
Joseph Balsamo, M.D. has practiced medicine for the past 8 years
specializing in Internal Medicine. Dr. Balsamo received his M.D. from
Universidad del Noreste in 1985.
John R. Galvin, M.D. has practiced medicine for the past 30 years
specializing in Family Practice. Dr. Galvin received his M.D. from Tufts
University in 1964.
Ellen R. Fischbein, M.D. has practiced Psychiatry for the past 19 years. Dr.
Fischbein received her M.D. from the State University of New York at Buffalo in
1970.
F.J. Montegut, M.D. has practiced medicine for the past 27 years
specializing in Thoracic Surgery. Dr. Montegut received his M.D. from Meharry
Medical College in 1958.
N. Chandra Narayanan, M.D. has practiced medicine for the past 22 years
specializing in Surgical Oncology. Dr. Narayanan received his M.D. from Calcutta
National Medical College and Hospital in 1964.
John W. Rodgers, M.D. has practiced medicine for the past 18 years
specializing in Pulmonary Diseases. Dr. Rodgers received his M.D. from the
University of Connecticut in 1974.
Earle J. Sittambalam, M.D. has practiced medicine for the past 22 years
specializing in Internal Medicine. Dr. Sittambalam received his M.D. from the
University of Ceylon in 1969.
43
<PAGE>
COMPENSATION OF OFFICERS, DIRECTORS AND COMMITTEE MEMBERS
The Company intends to pay its directors a $200 stipend for attending
meetings of the Board of Directors. Officers who are directors and are not
employed by MedServ will receive the additional stipends of $10,000 per year for
the President and $5,000 per year for all other officers.
EXECUTIVE COMPENSATION
The following chart provides a summary of the compensation received by the
Company's Chief Executive Officer from the Company's inception through December
31, 1996. No officer or employee of the Company received compensation of greater
than $100,000 during that period.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- --------------------------------------------------------- ----------- ------------ -------------
<S> <C> <C> <C>
Joseph R. Coffey, Chief Executive Officer $20,730 -- --
</TABLE>
- ------------------------------
(1) Paid to Mr. Coffey by MedServ during the period from the Company's inception
through December 31, 1996 for all services rendered by him to MedServ, which
services include serving as the Company's Chief Executive Officer.
The Company has no stock option, stock incentive or long term incentive
plans.
PRINCIPAL SECURITY HOLDERS
<TABLE>
<CAPTION>
AMOUNT OF
NAME AND ADDRESS OF BENEFICIAL
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS
- ------------------------------------- ------------------------------------- ------------------- -------------------
<S> <C> <C> <C>
Class A Common....................... N/A N/A N/A
Class B Common....................... N/A N/A N/A
Class C Common....................... MedServ of Connecticut, Inc.(1)(2) 3 Shares 100%
</TABLE>
- ------------------------
(1) The address of this Stockholder is 1520 Highland Avenue, Cheshire,
Connecticut 06410.
(2) MedServ is a for-profit corporation owned by the Hartford County Medical
Association and the New Haven County Medical Association. MedServ's Board of
Directors consists of eleven physicians associated with the Hartford County
Medical Association and the New Haven County Medical Association, of whom
six serve as Directors of Physicians Care.
MedServ owns all of the outstanding Class C Common Stock of the Company.
Prior to this Offering, there is no outstanding Class A Common Stock or Class B
Common Stock of the Company. The Company anticipates that each director who is
an Eligible Purchaser will purchase at least the minimum number of shares of
Common Stock in this Offering and that no director will hold one percent or more
of the outstanding shares.
PHYSICIAN ADVOCATE COUNCIL
The Board of Directors has authorized the establishment of the Physician
Advocate Council as an ad hoc committee appointed by the Board of Directors
which will advise the Board of Directors on matters of Company policy or
operations as they affect physician participation in products offered by the
Company, including product design, physician compensation, physician
credentialing criteria, the physicians' role in member services support, the
effectiveness of the Company's medical management model and the conduct of the
Company's capital campaign. The Board of Directors appoints physician members to
the Advocate Council in its discretion. Participation of physicians in the
Physician Advocate Council is voluntary and no compensation will be paid by the
Company to such physicians.
44
<PAGE>
CONFLICTS OF INTEREST
Some of the shareholders and directors of the Company are or will be and
will continue to be physicians who have entered into Physician Participation
Agreements with IPA. The interests of the physicians, as Participating
Physicians to the Company through IPA, may differ from the interests of the
physicians, as shareholders and/or directors of the Company. As Participating
Physicians, physicians may have an interest in maximizing the amount of
reimbursement from the Company for services provided by them to the Enrollees.
On the other hand, as shareholders and/or directors of the Company, physicians
may benefit from the containment of the costs of providing services through
appreciation in share value, increased compensation or otherwise. The Company's
ability to operate its business effectively will depend in part upon its
resolution of this conflict in a way that enables the Company to offer its
products at competitive rates. See "Business" and "Risk Factors--Method of
Reimbursement for Physician Services."
The Company intends to solicit employers and individuals throughout the
State of Connecticut, including physicians who are shareholders and directors of
the Company, to become Enrollees of the HMO. Physicians, as employers and/or
Enrollees, may be interested in minimizing the Company's premiums (and other
financial aspects of the Company), as well as maximizing the breadth of services
provided by the Company. On the other hand, physicians, as shareholders and/or
directors of the Company, may be interested in maximizing premiums of Enrollees,
and minimizing the breadth of services covered by the Company. Although the
Board of Directors recognizes this potential conflict of interest, its current
intention is to operate the Company in a manner that maintains market
competitive premiums and benefit designs.
Further, the Company's shareholders and/or directors may own stock in and/or
participate in competing organizations. The Company's shareholders and/or
directors may also have an interest in freestanding facilities or institutions
with which the Company may contract.
The Company intends to enter into the Management Agreement with MedServ.
Under this Management Agreement, MedServ will be responsible for all of the
day-to-day management of the Company. The terms and conditions of the Management
Agreement are subject to approval of a majority of the Board of Directors then
in office. The amounts which will be paid to MedServ by the Company pursuant
thereto, are subject to approval by the Board of Directors by a majority vote
and a two-thirds vote of Directors then in office. MedServ, as the sole
shareholder of the Class C Common Stock, has the right to designate a majority
of the Board of Directors. In the negotiations of the Management Agreement,
MedServ was represented by its general counsel, who also serves as general
counsel to the Company.
The Company understands that MedServ will enter into a long-term exclusive
IPA Agreement with IPA. Pursuant to the IPA Agreement, IPA shall be responsible
for the development of the physician network and for the clinical aspects of
operations. MedServ manages the affairs of IPA, and MedServ's general counsel
has provided legal advice to IPA with regard to certain transactions described
herein.
RELATED PARTY TRANSACTIONS
The Company will maintain the Management Agreement with MedServ for the
management of the HMO. MedServ, as the sole shareholder of the Company's Class C
Common Stock, has the right to appoint a majority of the Board of Directors.
Accordingly, MedServ will be able to determine the outcome of all actions of the
Company requiring approval of the Board of Directors and will substantially
control the business affairs of the Company. See "Risk Factors--Control by
Current Shareholder." The Management Agreement and all future arrangements
between the Company and MedServ will be on terms no less favorable to the
Company than those available from unaffiliated parties. In addition, hospitals
and other purchasers which invest in the Company may have service arrangements
with the Company which may make their interests inconsistent with their
interests as shareholders of the Company.
45
<PAGE>
Mr. Coffey, Ms. Camarco, Mr. Berns, and Mr. Fiorentino are each employed by
MedServ, which in the year ended December 31, 1996 paid them $154,420, $59,150,
$80,172, and $92,652 respectively, which included compensation for serving as
officers of the Company.
TERMS OF OFFERING
THE OFFERING
The Company is offering two classes of Common Stock, Class A and Class B,
until all the Common Stock offered hereby is sold, for a period of up to one
hundred and eighty days after the date of this Prospectus, with one sixty day
extension at the discretion of the Board of Directors (the "Offering Period").
Class A Common Stock will be sold to both individual physicians and Groups at a
price of $4,000 per share, subject to a "prompt subscription" price of $3,000
per share for Eligible Purchasers who execute and deliver to the Subscription
Agent the completed Subscription Documents in a form sufficient to establish
eligibility to purchase Common Stock within ninety days of the date of this
Prospectus. Every physician who desires to provide medical services to Enrollees
must purchase one share of Class A Common Stock. No physician may hold more than
one share of Class A Common Stock. In addition to purchasing one share of Class
A Common Stock, each Specialist Physician who desires to provide medical
services to Enrollees must purchase not less than one share of Class B Common
Stock.
Class B Common Stock will be sold at a price of $4,000 per share to
physicians and to hospitals that have been approved by the Company, in its
discretion, subject to a prompt subscription price of $3,000 per share for
Eligible Purchasers who execute and deliver to the Subscription Agent completed
Subscription Documents in a form sufficient to establish eligibility to purchase
Common Stock within ninety days of the date of this Prospectus. Although the
Company does not anticipate limiting the number of shares of Class B Common
Stock any purchaser may purchase, a maximum of 3,000 shares of Class B Common
Stock may be sold pursuant to this Offering, and, in response to an
over-subscription, the Company may limit the number of shares of Class B Common
Stock a particular Eligible Purchaser may purchase.
Licensed hospitals that seek to purchase Class B Common Stock are required
to purchase such number of shares which, when multiplied by the price per share,
results in a purchase price of not less than $250,000; provided, however, that a
hospital which is licensed to operate fewer than 100 beds is required to
purchase such number of shares which, when multiplied by the price per share,
results in a purchase price of not less than $100,000.
Professional corporations, corporations, limited liability corporations,
business trusts, trusts, independent practice associations, physician hospital
organizations ("PHOs"), and partnerships that are majority-owned and controlled,
directly or indirectly, by physicians who provide medical services on behalf of
the entity (each referred to as a "Group") are eligible to purchase shares of
Class A Common Stock and are eligible for the prompt subscription price for
Class A Common Stock and Class B Common Stock if and only if (i) physicians
practicing in the Group ("Group Physicians") meet the qualifications of
individual physician investors; (ii) the number of shares of Class A Common
Stock purchased equals the number of Group Physicians in any particular
purchasing Group, and the number of shares of Class B Common Stock purchased
shall at least equal the number of Specialist Physicians practicing in any
particular purchasing Group; and (iii) each Group Physician in a purchasing
Group executes a Participation Agreement together with the appropriate
Physicians Care Primary Care Physician Attachment and Physicians Care Specialist
Physician Attachment, as more fully described under "Eligibility Requirements to
Purchase Stock." However, with regard to any entity purchasing on behalf of
physicians affiliated therewith who hold full time geographic academic
appointments, the number of shares to be purchased shall be calculated based on
full time equivalent physician time devoted to clinical care based on Medicare
reports completed for the most recent fiscal year of the affiliated hospital,
and if a hospital is a shareholder of such Group, Class B Common Stock must be
purchased in such amount required for a hospital purchasing individually.
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No Group may purchase more than the number of shares of Class A Common Stock
that could be purchased by Group Physicians if purchased individually.
The Offering is subject to receipt of completed Subscription Documents
during the Offering Period for purchases by Eligible Purchasers of not less than
$8,000,000 of Common Stock. Subscription Documents received by the Subscription
Agent but rejected and returned to the Subscriber for failure to include all
required and completed documents shall be nonetheless deemed received on the
date originally received by the Subscription Agent if the Subscriber submits to
the Subscription Agent, within 10 days after notice of such rejection, properly
completed Subscription Documents. Within five business days after the
achievement of the $8,000,000 threshold, there shall be an Initial Closing. The
Company shall conduct subsequent Closings occurring five days after receipt of
incremental subscriptions of at least $1,500,000, with a final Closing to occur
180 days following the date of this Prospectus subject to a 60 day extension at
the discretion of the Board of Directors. In the event that the $8,000,000
threshold is not satisfied, the purchase price of the Common Stock, plus
interest thereon, shall be refunded minus $450 per share which shall be retained
by the Company in order to offset the costs associated with the Offering. See
"Risk Factors."
ELIGIBILITY REQUIREMENTS TO PURCHASE STOCK
The Common Stock offered hereby may be purchased only by Eligible
Purchasers, which includes only persons meeting each of the following
requirements:
Class A Common shareholders:
FOR INDIVIDUAL PHYSICIANS:
(i) must be a physician licensed in the state in which the physician
practices.
(ii) unless such requirement is waived by the Corporation's Board of
Directors in its sole discretion, shall have and maintain, or shall have
applied for, membership in the state medical association and (if a county
medical association or equivalent exists in the location in which the
physician practices) the applicable county medical association; provided,
however, that physicians who have applied for and not obtained membership
in the state and/or a county medical association must in order to retain
Class A shares, maintain such membership(s) once approved; and provided,
further, that if such membership(s) is/are denied or not maintained, the
physicians' Class A Common Stock shall automatically be converted to
Class B Common Stock.
(iii) must maintain in effect with IPA a Participation Agreement.
(iv) must have in effect with IPA a Physicians Care Primary Care Physician
Attachment or a Physicians Care Specialist Physician Attachment to the
Participation Agreement.
(v) Specialist Physicians must also purchase not less than one share of
Class B Common Stock.
FOR GROUPS OF PHYSICIANS:
Groups may acquire shares for such number of Group Physicians who
individually satisfy the qualifications of a Class A Common shareholder.
Class B Common shareholders:
QUALIFICATIONS
(i) at the discretion of the Board of Directors, physician groups, hospitals
and/or other investors may purchase Class B Common Stock of the Company.
(ii) all physicians who have purchased a share of Class A Common Stock may
purchase shares of Class B Common Stock.
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(iii) licensed hospitals that seek to purchase Class B Common Stock are
required to purchase such number of shares which, when multiplied by the
price per share, results in a purchase price of not less than $250,000;
provided, however, that if a hospital has less than 100 licensed beds,
then such investor is required to purchase such number of shares which,
when multiplied by the price per share, results in a purchase price of
not less than $100,000.
Because the Company has no present intentions and is not currently
considering a proposal to exercise the Board's discretion to issue Class B
Common Stock to investors other than physicians, physician groups or hospitals,
the Company has not developed any criteria by which it may or will issue such
shares.
OFFERING PERIOD
The Offering will remain open for one hundred and eighty days from the date
of this Prospectus, subject to a sixty day extension at the discretion of the
Board of Directors.
ESCROW ARRANGEMENTS
All amounts received from subscribers whose subscriptions are not rejected
will be promptly forwarded by the Subscription Agent to the Escrow Agent (State
Street Bank & Trust Company, 777 Main Street, Hartford, Connecticut 06115),
shall be cashed by the Escrow Agent, and the Purchase Price less $450 per
subscribed share (the "Subscription Fee") shall be deposited into the Escrow
Account, until the first to occur of (i) a Closing applicable to the applicable
subscription, or (ii) the termination of the Offering. The first closing of the
Offering will occur five days after receipt of accepted subscriptions in the
amount of $8,000,000 of Class A Common Stock and Class B Common Stock with a
subsequent closing occurring five days after the receipt thereafter by the
Company of subscriptions in incremental amounts of $1,500,000. All Subscription
Fees shall be deposited by the Escrow Agent into the account of the Company.
During the period of escrow, subscribers will have no right to demand return
of their subscriptions.
Upon a Closing, investors whose subscriptions have been accepted by the
Company will not be entitled to any interest. No interest will be paid on funds
held in escrow unless the Offering is terminated by the Company without a
Closing. If the Offering is terminated, the Escrow Agent will promptly remit to
each prospective subscriber an amount equal to the Purchase Price per share plus
his or her pro rata amount of the interest accrued on all the funds held in
escrow less the sum of $450 per share. At the written direction of the Company,
the Escrow Agent shall invest the Escrow Account in any of the following: U.S.
Government Obligations, bank certificates of deposit (insured to the amount of
any such deposit), or repurchase obligations secured by U.S. Government
Obligations.
SUBSCRIPTION AGENT
Newbury, Piret & Co., Inc. or its designee has been engaged by the Company
to assist it in effecting the Offering by serving as Subscription Agent. The
Subscription Agent will cause copies of this Prospectus and subscription
materials to be forwarded to prospective subscribers upon request. Following
receipt of completed Subscription Documents from prospective subscribers, the
Subscription Agent will (i) transmit the submitted checks and money orders to
the Escrow Agent, (ii) verify that the Subscription Agreement has been fully and
properly completed and signed, and (iii) forward, if received, the IPA
Participation Agreement, the Physicians Care Primary Care Physician Attachment
or Physicians Care Specialist Physician Attachment and the accompanying separate
check or money orders for IPA membership to MedServ. Any subscription which the
Subscription Agent is not able to verify will be rejected and returned to the
prospective subscriber.
Upon the closing of the Offering, the Subscription Agent will cause stock
certificates to be sent to those subscribers whose subscriptions have been
accepted by the Company. Each of the foregoing will be sent by the Subscription
Agent via first class mail promptly following the closing of the Offering. See
"How to Subscribe in this Offering."
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DESCRIPTION OF SECURITIES
CLASS A COMMON STOCK
The Class A Common Stock shall be issuable only to physicians or entities
who can demonstrate the following qualifications:
FOR INDIVIDUAL PHYSICIANS:
(i) Must be a physician licensed in the state in which the physician
practices,
(ii) Unless such requirement is waived by the Company's Board of
Directors in its sole discretion, shall have and maintain, or shall have
applied for, membership in the state medical association and (if a county
medical association or equivalent exists in the location in which the
physician practices) the applicable county medical association; provided,
however, that physicians who have applied for and not obtained membership in
the state and/or a county medical association must in order to retain Class
A shares, maintain such membership(s) once approved; and provided, further,
that if such membership(s) is/are denied or not maintained, the physicians'
Class A Common Stock shall automatically be converted to Class B Common
Stock.
(iii) Must have in effect a Participation Agreement with IPA.
(iv) Must have in effect a Physicians Care Primary Care Physician
Attachment or a Physicians Care Specialist Physician Attachment to the
Participation Agreement with IPA.
FOR GROUPS OF PHYSICIANS:
Class A Common Stock may be held by a corporation, professional corporation,
business trust, trust, partnership, limited liability corporation or other legal
entity in which physicians who provide medical services on behalf of the
corporation, professional corporation, business trust, trust, partnership,
limited liability corporation or other legal entity have not less than fifty
percent (50%) ownership interest or control (referred to as a "Group"), provided
that each of the physicians satisfies qualifications (i), (ii), (iii) and (iv)
enumerated above, unless waived by the Board of Directors in its sole
discretion.
RIGHTS AND PREFERENCES
- VOTING RIGHTS. Each share of Class A Common Stock shall entitle the holder
of such share to one vote on all matters which are properly before the
shareholders. Class A shareholders shall be entitled to elect only certain
Directors to the Board of Directors as specified in the Bylaws and the
Certificate of Incorporation.
- DIVIDEND RIGHTS. Class A shareholders shall be entitled to receive
dividend distributions when, as, and if declared by the Board of
Directors, in its sole discretion.
- LIQUIDATION RIGHTS. After the liabilities of the Company have been
discharged, Class B shareholders shall be entitled to a liquidation
preference equal to $1,500 per share of Class B Common Stock. After the
Class B shareholders' liquidation preference is satisfied, all
shareholders will share any remaining liquidating distributions pro rata.
- OWNERSHIP INTEREST. No physician may hold more than one share of Class A
Common Stock.
CLASS B COMMON STOCK
QUALIFICATIONS:
At the discretion of the Board of Directors, physicians, hospitals and/or
other investors may be issued Class B Common Stock. Because the Company has no
present intentions and is not currently considering a
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proposal to exercise the Board's discretion to issue Class B Common Stock to
investors other than physicians, physician groups or hospitals, the Company has
not developed any criteria by which it may or will sell such shares.
RIGHTS AND PREFERENCES
- VOTING RIGHTS. Each share of Class B Common Stock shall entitle the holder
of such share to one vote on all matters which require a vote in
accordance with law, except that Class B shareholders shall not be
entitled to elect representatives to the Board of Directors, to vote on
amendments to the Bylaws or to vote on such other matters reserved to the
holders of Class A Common Stock.
- DIVIDEND RIGHTS. Class B shareholders shall be entitled to receive
dividend distributions, when, as, and if declared by the Board of
Directors, in its sole discretion.
- LIQUIDATION RIGHTS. After the liabilities of the Company have been
discharged, Class B shareholders shall be entitled to a liquidation
preference equal to $1,500 per share of Class B Common Stock. After the
Class B shareholders' liquidation preference is satisfied, all
shareholders will share any remaining liquidating distributions pro rata.
CLASS C COMMON STOCK
QUALIFICATIONS
The Class C Common Stock shall only be issuable to MedServ.
RIGHTS AND PREFERENCES
- VOTING RIGHTS. Each share of Class C Common Stock shall entitle the holder
of such stock to one vote on all matters properly before the shareholders.
The Class C shareholder shall have certain special voting rights as set
forth in "--Governance," below. The Class C shareholder shall be entitled
to elect certain Directors to the Board of Directors as specified in the
Bylaws and in the Certificate of Incorporation.
- DIVIDEND RIGHTS. The Class C shareholder shall be entitled to receive
dividend distributions, when, as, and if declared by the Board of
Directors, in its sole discretion.
- LIQUIDATION RIGHTS. After the liabilities of the Company have been
discharged, Class B shareholders shall be entitled to a liquidation
preference equal to $1,500 per share of Class B Common Stock. After the
Class B shareholders' liquidation preference is satisfied, all
shareholders will share any remaining liquidating distributions pro rata.
GOVERNANCE
BOARD OF DIRECTORS. The number of directors shall be not less than seventeen
nor more than twenty-one; provided, however, that prior to issuance of Class A
Common Stock and Class B Common Stock there shall be eleven directors.
Six of the directors shall be elected by the Class A shareholders with the
first election occurring not more than one hundred and eighty days after the
completion of this Offering. Each of these directors (the "Class A Directors")
must be a physician and a member of a county medical society other than the
Hartford County Medical Association or the New Haven County Medical Association.
No more than two of the Class A Directors may be members of any one county
medical society at any given time; and at all times, not less than three of the
Class A Directors shall be "Primary Care Physicians", as said term is defined by
policy adopted by the Board of Directors from time to time.
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Eleven of the directors shall be appointed and subject to removal by the
Class C shareholder (the "MedServ Directors"). Six of the MedServ Directors
shall be Primary Care Physicians.
Up to four directors (such number to be determined in the discretion of the
Board of Directors) shall be representatives of area employers, hospitals,
investors in the Company or individuals representing the interests of the
Company's subscribers. These directors will be elected by a majority of the
Class A shareholders at the annual meeting of the shareholders from a list of
nominees developed by the Board of Directors.
VOTING REQUIREMENTS. The following actions shall require a vote of the
shareholders:
CLASSES A COMMON STOCK AND B COMMON STOCK:
- These actions which require shareholder action as a matter of law;
provided that nothing contained herein shall have the effect of expanding
the voting rights of the shares of Class B Common Stock described herein.
CLASS C COMMON STOCK:
At least two-thirds in interest of the Class C Common Stock must approve the
following actions:
- the sale or liquidation of the Company;
- the merger or consolidation of the Company;
- the amendment of the Certificate of Incorporation; and
- all other matters required by law to be submitted to the shareholders for
a vote.
RESTRICTIONS ON TRANSFER; SHARE CERTIFICATE
RESTRICTIONS ON TRANSFER. At any time a Class A or Class B shareholder
receives a bona fide offer to transfer shares of the Company's stock to an
individual or entity who/which satisfies the requirements for stock ownership
set forth in the Certificate of Incorporation, the shareholder must offer to the
Company in writing (the "Transfer Notice") a right of first opportunity to
purchase such shares at an amount equal to that contained in the bona fide offer
("Purchase Price"). The Company shall notify the shareholder in writing (the
"Election Notice") of its election to purchase such shares within thirty days of
receipt of the Transfer Notice (the "Election Period"). If the Company elects to
purchase such shares, the Company may, at its election, pay the Purchase Price
in cash or deliver a promissory note to the selling shareholder stating that the
Company will pay the Purchase Price for the shares over a two year period with
interest at the prime rate as reported in the Money Rates section of the Wall
Street Journal on the first day of the month preceding the notice of sale or
transfer. The transfer shall occur within sixty days of the Election Notice at
the offices of the Company on the date and at the time set forth in the Election
Notice. The promissory note shall obligate the Company to pay the selling
shareholder the principal amount due with interest thereon in equal quarterly
installments over the two year repayment term. If the Company does not elect to
purchase such shares, the shareholder may sell such shares to the individual or
entity identified in the Transfer Notice, for the Purchase Price specified in
the Transfer Notice; provided that the closing of such sale occurs within sixty
days following the expiration of the Election Period. If a shareholder otherwise
wishes to sell his or her Common Stock back to the Company, the Company, in its
sole discretion, may redeem such shareholder's Common Stock (optional
redemption) for book value or for such other amount and on such other terms
agreeable to the Company and the shareholder.
MANDATORY REDEMPTION. At any time after the fifth anniversary of the
issuance date of a Class A shareholder's shares of Common Stock, but not before,
the Company shall redeem all shares of Common Stock (including Class A Common or
Class B Common shares) of the Class A shareholder wishing to sell
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or transfer his/her shares upon the occurrence of one of the following events
(termed an "Involuntary Transfer"):
- the death or permanent disability of the Class A shareholder; or
- the Class A shareholder's discontinuation as a provider of medical
services in Connecticut (E.G., retirement or relocation), provided, that
physicians who acquire shares of Common Stock through the initial offering
of the Company's Common Stock and are 55 years of age or older on the date
of receipt of an executed Subscription Agreement shall be eligible to
redeem their Common Stock at any time after the third anniversary of the
issuance date of such Common Stock.
The Company shall redeem such shares of Common Stock at the greater of the
then current net book value of such shares determined pursuant to Generally
Accepted Accounting Principles ("GAAP") as of the most recently completed fiscal
quarter of the Company, or the original issue price of such shares to the
shareholder ("Redemption Price"). At the election of the Company, the Company
may make payment in cash or deliver a promissory note to the selling shareholder
stating that the Company may pay the Redemption Price for the shares over a five
year period with interest at the prime rate as reported in the Money Rates
section of the Wall Street Journal on the first day of the month preceding the
notice of sale or transfer. The promissory note shall obligate the Company to
pay the selling shareholder the principal amount due and accrued interest
thereon in equal quarterly installments over the five year repayment term.
CONVERSION OF SHARES FROM CLASS A COMMON STOCK TO CLASS B COMMON STOCK.
In the event that a Class A shareholder no longer satisfies the
qualifications for Class A shareholder status or transfers the shares to a party
which does not satisfy the qualifications for Class A shareholder status, the
Class A shareholder shall immediately surrender his/her Class A Common Stock,
and the Company will cancel such shares and will issue an equal number of Class
B shares to such shareholder.
LIMITATIONS ON THE COMPANY'S PURCHASE OF SHARES.
Notwithstanding anything to the contrary contained herein, the Company shall
not redeem a shareholder's Common Stock if the Company is insolvent or, by
reason of such redemption, is rendered insolvent, or violates any contract to
which the Company is a party or if the Board of Directors shall determine that
the Company is otherwise not obligated to redeem such Common Stock. The
determination to be made by the Board of Directors from time to time as to
whether the Company is obligated to redeem shares will depend upon a number of
variable factors, including but not limited to (i) the amount of net proceeds
received from this Offering or subsequent financing, if any; (ii) the income
from operations earned and anticipated to be earned in connection with the
Company's business; (iii) the amount of prior redemptions of Common Stock by the
Company; and (iv) the amount needed to meet statutory reserve requirements.
The Board of Directors may adopt annually by resolution a limitation on the
amount of funds available each fiscal year for the redemption of shares, which
resolution shall set forth the priority of payments to shareholders, and/or the
proportionate amount of Common Stock to be redeemed from shareholders, in the
event the aggregate Redemption Price of shares for which redemption is otherwise
required exceeds the limitation duly adopted.
MISCELLANEOUS.
(i) Any or all of the foregoing restrictions may be waived by the Board
of Directors. The certificate of the Treasurer or Secretary of such waiver,
or of the compliance of a shareholder with the above requirements shall be
conclusive evidence thereof.
(ii) No transfer of Common Stock shall be binding on the Company unless
made and recorded on its stock transfer books. The Company shall have the
right to refuse to transfer any shares of Common Stock that are not effected
in compliance with this section.
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(iii) A reference to the restrictions on transfer described herein shall
be printed upon each certificate representing shares of Common Stock issued
by the Company, and those provisions shall be binding upon every person who
becomes a shareholder, all of whom shall take such Common Stock subject to
the provisions hereof. Each certificate representing shares of Common Stock
issued by the Company shall contain the following restrictive legend:
Notice is hereby given that the shares of stock
represented by this certificate is subject to the
provisions and restrictions on transfer and redemption
included in the Certificate of Incorporation of the
Corporation [Company], a copy of which is on file at the
office of the Corporation [Company], and that any transfer
of the shares of stock represented by this Certificate
shall be void unless said transfer is in compliance with
said Certificate.
TRANSFER AGENT
The Company currently intends to engage Boston EquiServe to act as transfer
agent and registrar for shares of its Common Stock.
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UNDERWRITING
Effective the date of the Prospectus, the Company has entered into an
Underwriting Agreement ("Agreement") with Legg Mason Wood Walker, Incorporated
and Newbury, Piret & Co., Inc. (collectively referred to as the "Underwriter").
Pursuant to the terms of the Agreement, the Underwriter has agreed to sell on a
minimum "best efforts, all or none," basis an aggregate of $8,000,000 of Common
Stock, the Common Stock offered by this Prospectus, within a period of 180 days
after the date hereof (the "Offering Period"), which period may be extended for
an additional sixty days at the discretion of the Board of Directors, to
Eligible Purchasers at the offering prices set forth on the cover page of this
Prospectus. The Underwriting Agreement and Offering may be terminated by the
Underwriter by notice to the Company at any time prior to a Closing if, in the
sole judgment of the Underwriter, the sale, payment for or delivery of the
Common Stock is rendered impractical or inadvisable for any reason. The
Underwriter will not sell any of the Common Stock offered hereby to any account
over which they exercise discretionary control.
If the Underwriter is unable to sell the minimum required Common Stock to
reach $8,000,000 of aggregate subscriptions within the Offering Period, then the
Offering will terminate, and all subscriptions tendered with interest thereon
less $450 per share of Common Stock will be returned to the subscribers, and
without additional deduction for commissions or other expenses relating to the
Offering. All funds received by the Underwriter shall be transmitted promptly to
the Escrow Agent, pursuant to the terms of the Escrow Agreement. During the
period of escrow, subscribers will have no right to demand return of their
subscriptions. See "Escrow Arrangements."
Subject to the sale of $8,000,000 of Common Stock prior to the termination
of this Offering, the Company has agreed to pay the Underwriter a sales
commission of 7% of the offering price. The Company also has agreed to pay to
the Underwriter a non-accountable expense allowance computed on the basis of one
and one-half percent of the gross proceeds, up to a maximum of $15 million, and
one-half of one percent of the gross proceeds in excess of $15 million up to a
maximum of $20 million, from the sale of Common Stock and an additional expense
allowance on an accountable basis for certain of the Underwriter's expenses. Of
such expense allowances, $50,000 has already been paid. The Underwriter's
expenses in excess of the stated expense allowance will be borne by the
Underwriter. To the extent that the actual expenses of the Underwriter are less
than the stated expense allowance, the difference shall be deemed to be
compensation to the Underwriter in addition to the stated sales commission.
Prior to the Offering, there has been no public market for the Common Stock.
Common Stock cannot be transferred to any person or entity other than an
Eligible Purchaser. As a result, there will be no public market for the Common
Stock. The initial public offering price of the Common Stock has been determined
by consultations between the Company and the Underwriter. The offering price of
the Common Stock is not necessarily related to the Company's asset value, net
worth or any other established criteria of value. Factors considered in
determining the offering price of the Common Stock include estimates of business
potential, historical earnings, future prospects, gross proceeds to be raised,
the type of business in which the Company engages, and an assessment of the
Company's management. See "Risk Factors--Restrictions on Transferability of
Common Stock" and "--Absence of a Public or Other Trading Market for Common
Stock."
The foregoing does not purport to be a complete statement of the terms and
conditions of the Agreement. A copy of the Agreement has been filed with the
Commission as an exhibit to the Registration Statement of which this Prospectus
is a part.
INDEMNIFICATION
The Company and the Underwriter have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended. In addition, the Company's Certificate of Incorporation provides that
directors of the Company will not be personally liable to the Company or its
stockholders for monetary damages resulting from breaches of any duty owed to
the Company or its
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stockholders if such breach did not (i) involve a knowing violation of law; (ii)
enable the director to receive an improper economic gain; (iii) show a lack of
good faith and a conscious disregard for the duty of director; (iv) constitute a
sustained and unexcused pattern of inattention that amounts to an abdication of
duty; or (v) create liability under relevant sections of Connecticut law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
EXPERTS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by the law firm of Fabiani & Kone, P.C., 714 State Street,
New Haven, Connecticut 06511. Certain legal matters relating to the Offering
will be passed upon for the Underwriter by Sullivan & Worcester LLP, Boston,
Massachusetts.
The financial statements included in this Prospectus have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
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ADDITIONAL INFORMATION
GLOSSARY
"AAPCC"--average adjusted per capita costs.
"Agreement"--the Underwriting Agreement among the Company, Legg Mason Wood
Walker, Incorporated, and Newbury, Piret & Co., Inc., effective the date of the
Prospectus.
"Board of Directors"--The Board of Directors of Physicians Care of
Connecticut, Inc.
"Budget"--The Administrative Services Budget approved by the Board of
Directors.
"Care Manager"--The Primary Care Physician selected by each Enrollee as
required by the Company who may deliver or coordinate the delivery of medical
services for the Enrollee. Psychiatrists may serve as Care Managers for mental
health benefits.
"Certificate of Authority" (COA)--a certificate of license issued by the DOI
that must be obtained to operate an HMO in the State of Connecticut.
"Class A Common Stock"--Class A Common Stock, without par value, of the
Company.
"Class B Common Stock"--Class B Common Stock, without par value, of the
Company.
"Class C Common Stock"--Class C Common Stock, without par value, of the
Company, the sole shareholder of which is MedServ.
"Closing"--the consummation of the formal purchase and sale of Common Stock
at which money received from Eligible Purchasers relating to subscriptions shall
be transferred from the Escrow Account to the Company and corresponding
certificates representing shares of Common Stock shall be issued to Eligible
Purchasers.
"Code"--Internal Revenue Code.
"Common Stock"--the Class A Common Stock and Class B Common Stock.
"Commission"--the United States Securities and Exchange Commission.
"Company"--Physicians Care for Connecticut, Inc.
"Competitive Medical Plan" (CMP)--A prepayment organization that does not
meet the strict requirements of HMO provisions of the Public Health Service Act
but which is still capable of providing services to Medicare beneficiaries on a
prepayment basis. CMPs must assume full financial risk on a prospective basis
for the provision of the health care services they provide, and they must make
adequate provision against the risk of insolvency.
"CVO"--Central Verification Organization operated by MedServ to provide
credentialing services intended to meet NCQA standards.
"Development Stage"--the period through the date ending three months prior
to the anticipated date of enrollment of the first Enrollee.
"Division of Insurance" (DOI)--the State of Connecticut's Division of
Insurance.
"Election Notice"--notice in writing by the Corporation to the shareholder
of its intent to purchase shares pursuant to its right of first opportunity set
forth in Description of Securities, Section E.
"Election Period"--the 30 day period following receipt of Notice of Transfer
within which the Corporation may decide to purchase shares.
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"Eligible Purchasers"--persons or entities that meet the following
requirements:
- Class A Shareholders:
FOR INDIVIDUAL PHYSICIANS: (i) must be a physician licensed in the state
in which the physician practices; (ii) unless such requirement is waived by
the Company's Board of Directors in its sole discretion, shall have and
maintain, or shall have applied for, membership in the state medical
association and (if a county medical association or equivalent exists in the
location in which the physician practices) the applicable county medical
association; provided, however, that physicians who have applied for and not
obtained membership in the state and/or a county medical association must in
order to retain Class A shares, maintain such membership(s) once approved;
and provided, further, that if such membership(s) is/are denied or not
maintained, the physicians' Class A Common Stock shall automatically be
converted to Class B Common Stock; (iii) must have in effect a Participation
Agreement with IPA in effect. (iv) must have a Physicians Care Primary Care
Physician Attachment or a Physicians Care Specialist Physician Attachment to
the Participation Agreement with IPA in effect.
FOR MEDICAL GROUPS: Class A Common Stock may be held by a professional
corporation, corporation, limited liability corporation, business trust,
trust, independent practice association, physician hospital organization or
partnership, in which physicians who provide medical services on behalf of
such entity have not less than fifty percent (50%) ownership interest or
control, provided that each of the physicians in the Group meet the
qualifications for physicians as if purchasing individually, unless
otherwise waived by the Company's Board of Directors in its sole discretion.
- Class B Shareholders:
At the discretion of the Board of Directors, physicians, groups,
hospitals and/or other investors may be issued Class B Common Stock of the
Company. Every Specialist Physician seeking to provide medical services to
the Company's Enrollees must agree to purchase not less than one share of
Class B shares. Licensed hospitals that seek to purchase Class B Common
Stock are required to purchase such number of shares which, when multiplied
by the price per share, results in a purchase price of not less than
$250,000; provided, however, that if a hospital has less than 100 licensed
beds, then such an investor is required to purchase such number of shares
which, when multiplied by the price per share, results in a purchase price
of not less than $100,000.
"Enrollee"--any person for whom the Company provides, arranges, and/or
finances managed healthcare or administrative services.
"Escrow Agent"--State Street Bank and Trust Company.
"FFS"--Fee for service payment arrangement.
"GAAP"--Generally Accepted Accounting Principles.
"Group"--professional corporation, partnership, limited liability
corporation, business trust, trust, IPA, PHO or other entity owned and
controlled by a majority of physicians who provide physician services on behalf
of the entity, provided that the physicians meet the Class A Common shareholder
eligibility requirements.
"Group Physicians"--Physicians practicing in a Group as defined herein.
"HCFA"--Health Care Financing Administration.
"Health Maintenance Organization" (HMO)--a healthcare delivery system that
provides a broad range of healthcare services to individuals directly or through
programs sponsored by employers in return for a prepaid premium.
"Initial Closing"--the Closing which will occur as soon as is practicable
after the receipt by the Company of subscriptions totalling at least $8 million.
57
<PAGE>
"Initial Operations Stage"--begins approximately three months prior to the
date of enrollment of the first Enrollee and concludes twenty-seven (27) months
after the date of enrollment of its first Enrollee.
"Involuntary Redemption Price"--the greater of the then current net book
value of Common Stock determined pursuant to GAAP as of the most recently
completed fiscal quarter of the Company, or the original issuance price of the
Common Stock.
"IPA"--MedServ IPA, Inc.
"IPA Agreement"--a long-term agreement to be executed between IPA and
MedServ pursuant to which IPA will develop a network of physicians to provide
services to Enrollees and oversee certain clinical
"LIBOR"--London Interbank Offered Rate.
"Management Agreement"--the long-term contract to be executed between the
Company and MedServ to provide certain management and administrative services
described herein.
"Management Fee"--the fee paid to MedServ under the Management Agreement.
"MedServ"--MedServ of Connecticut, Inc.
"MSO"--Medical Service Organization.
"NCQA"--National Commission for Quality Assurance.
"Offering"--the current offering of the Company's Common Stock, as set forth
in this Prospectus.
"Offering Period"--one hundred and eighty days from the date of this
Prospectus with one sixty day extension at the discretion of the Board of
Directors.
"Participating Physician"--a physician who has executed a Physicians Care
Primary Care Physician Attachment or Physicians Care Specialist Physician
Attachment and who otherwise meets all conditions of participation in Physicians
Care.
"Participating Provider"--a health care provider who or which has executed a
Participation Agreement and otherwise meets all conditions of participation in
Physicians Care.
"Participation Agreement"--the agreement executed by a Participating
Provider which sets forth the terms and conditions under which the Participating
Provider participates as a provider of covered services to Enrollees.
"Physicians Care"--Physicians Care for Connecticut, Inc.
"Physicians Care Primary Care Physician Attachment"--the document executed
by a Primary Care Physician pursuant to which such Primary Care Physician agrees
to provide services to Enrollees.
"Physicians Care Specialist Physician Attachment"--the document executed by
a Specialist Physician pursuant to which such Specialist Physician agrees to
provide services to Enrollees.
"Physician Reimbursement"--compensation for Participating Physicians for the
provision of healthcare services to Enrollees in an amount equal to the lesser
of (a) their usual and customary fees, (b) the fees set forth on a fee schedule
adopted by the Company, a sample of which is set forth on Appendix C hereto, or
(c) a negotiated rate (in each case, less any applicable copayments, coinsurance
or deductibles).
"PHO"--Physician Hospital Organization.
"PPO"--Preferred Provider Organization.
"Primary Care Physician"--a person licensed to practice medicine by the
applicable state licensing board who (a) is board eligible or board certified in
Internal Medicine, Family Medicine, General Practice, or Pediatrics, or meets
such other standards as determined by the Board of Directors from time to time,
58
<PAGE>
and (b) devotes significant practice time to providing primary care services or
managing the delivery of other medical services with a capability to make
preliminary diagnoses or to provide treatment of medical and healthcare needs,
without limitation by problem origin, organ system or gender, to arrange for
delivery of all necessary care and to satisfy other requirements as established
in Board of Directors policy recording relating to qualifications of Primary
Care Physicians. For the limited purpose of determining which physicians qualify
to purchase Common Stock as a Primary Care Physician, psychiatrists shall be
considered Primary Care Physicians. Psychiatrists may serve as Care Managers for
mental health benefits.
"Purchase Price"--the price at which the Company may purchase shares when
exercising a right of first opportunity pursuant to the Transfer Notice
provision, equal to the amount contained in the Offer.
"PSO"--Provider Sponsored Organization"--an organization of healthcare
providers engaging in direct contracting with HCFA to provide care to Medicare
beneficiaries.
"QMP"--Quality Management Program--A program to provide physicians with
physician-defined quality and cost of services data and performance feedback and
perform credentialing functions.
"Resource Based Relative Value Scale" (RBRVS)--a fee schedule payment
methodology that determines relative amounts to be paid to physicians according
to overhead costs, skill, intensity of effort and time associated with specific
physician services.
"Specialist Physician"--a licensed physician who (i) executes the Physicians
Care Specialist Physician Attachment to the IPA Participation Agreement and (ii)
is listed as a Specialist Physician in the Company's provider directory, and
(iii) provides medical services to Enrollees upon referral from a Care Manager,
as applicable, and submits a claim for payment therefor, and (iv) is board
eligible or board certified in a medical specialty other than Internal Medicine,
Family Medicine, General Practice, Pediatrics or Psychiatry.
"Subscription Agent"--Newbury, Piret & Co., Inc. or its designee.
"Subscription Documents"--(i) a check or money order made payable to State
Street Bank & Trust Company in the amount of the Purchase Price, (ii) a
Subscription Agreement, properly completed and signed, and (iii) the executed
IPA Participation Agreement, including a separate check made payable to MedServ
IPA, Inc. to cover the $200 administration fee relating thereto (unless the
subscriber is already a member of IPA), and (iv) the Physicians Care Primary
Care Physician Attachment or Physicians Care Specialist Physician Attachment, as
applicable.
"Transfer Notice"--notice, in writing, to the Company of a bona fide offer
to transfer shares of the Corporation's Common Stock to an individual or entity
who/which satisfies the requirements for stock ownership set forth in the
Certificate of Incorporation, providing a right of first opportunity to purchase
the shares of the Company.
"UMP"--Utilization Management Program.
"Underwriter"--Legg Mason Wood Walker, Incorporated and Newbury, Piret &
Co., Inc.
59
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Balance Sheet as of August 31, 1997........................................................................ F-3
Statement of Operations for the period from inception (November 12, 1996) to August 31, 1997............... F-4
Statement of Stockholder's Equity (Deficit) for the period from inception (November 12, 1996) to August 31,
1997..................................................................................................... F-5
Statement of Cash Flows for the period from inception (November 12, 1996) to August 31, 1997............... F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Physicians Care for Connecticut, Inc.:
We have audited the accompanying balance sheet of Physicians Care for
Connecticut, Inc. (a development stage, Connecticut corporation) (the Company)
as of August 31, 1997 and the related statements of operations, stockholder's
equity (deficit) and cash flows for the period from inception (November 12,
1996) to August 31, 1997. These financial statements are the responsibility of
the Company's and MedServ of Connecticut, Inc.'s (see Note 1) management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The Company is in the development stage as of August 31, 1997. As discussed
in Note 1 to the financial statements, successful completion of the Company's
development program and, ultimately, the attainment of profitable operations is
dependent upon future events, including obtaining adequate capital to fulfill
its development activities, obtaining regulatory approval and achieving a level
of revenues adequate to support the Company's cost structure.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Physicians Care for
Connecticut, Inc. as of August 31, 1997, and the results of its operations and
cash flows for the period from inception (November 12, 1996) to August 31, 1997,
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Hartford, Connecticut
September 8, 1997
F-2
<PAGE>
PHYSICIANS CARE FOR CONNECTICUT, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF AUGUST 31, 1997
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS:
<S> <C>
Cash and cash equivalents..................................................... $ 34,094
----------
Total assets............................................................ $ 34,094
----------
----------
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
<S> <C>
CURRENT LIABILITIES:
Borrowings under line of credit............................................... $ 625,000
Accounts payable.............................................................. 485,994
Related party payable, net.................................................... 121,791
Accrued expenses.............................................................. 60,000
----------
Total current liabilities............................................... 1,292,785
----------
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock--
Class A, no par value, 10,000 shares authorized, no shares issued and
outstanding............................................................... --
Class B, no par value, 10,000 shares authorized, no shares issued and
outstanding............................................................... --
Class C, no par value, 100 shares authorized, 3 shares issued and
outstanding............................................................... 12,000
Accumulated deficit........................................................... (1,270,691)
----------
Total stockholder's equity (deficit).................................... (1,258,691)
----------
Total liabilities and stockholder's equity (deficit).................... $ 34,094
----------
----------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-3
<PAGE>
PHYSICIANS CARE FOR CONNECTICUT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 12, 1996) TO AUGUST 31, 1997
<TABLE>
<S> <C>
INTEREST INCOME................................................................. $ 1,895
----------
EXPENSES:
Consultants................................................................. 472,249
Legal....................................................................... 417,566
Actuarial................................................................... 229,841
Accounting.................................................................. 102,300
Interest.................................................................... 26,344
Other....................................................................... 24,286
----------
Total expenses............................................................ 1,272,586
----------
NET LOSS................................................................ $(1,270,691)
----------
----------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-4
<PAGE>
PHYSICIANS CARE FOR CONNECTICUT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (NOVEMBER 12, 1996) TO AUGUST 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------------------------------------
CLASS A CLASS B CLASS C
-------------------- -------------------- ---------------------- ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL
--------- --------- --------- --------- ----------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
November 12, 1996........ -- $-- -- $-- -- $ -- $ -- $ --
Issuance of 3 shares of
Class C common stock..... -- -- -- -- 3 12,000 -- 12,000
Net loss................... -- -- -- -- -- -- (1,270,691) (1,270,691)
--------- --------- --------- --------- --- --------- ------------- -------------
BALANCE,
March 31, 1997........... -- $-- -- $-- 3 $ 12,000 $ (1,270,691) $ (1,258,691)
--------- --------- --------- --------- --- --------- ------------- -------------
--------- --------- --------- --------- --- --------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-5
<PAGE>
PHYSICIANS CARE FOR CONNECTICUT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 12, 1996) TO AUGUST 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................................................... $(1,270,691)
Adjustments to reconcile net loss to net cash used in operating activities:
Changes in liabilities--
Accounts payable.......................................................... 485,994
Related party payable, net................................................ 121,791
Accrued expenses.......................................................... 60,000
----------
Net cash used in operating activities................................... (602,906)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit............................................... 625,000
Issuance of common stock...................................................... 12,000
----------
Net cash provided by financing activities............................... 637,000
----------
NET INCREASE IN CASH AND CASH EQUIVALENTS....................................... 34,094
CASH AND CASH EQUIVALENTS, November 12, 1996.................................... --
----------
CASH AND CASH EQUIVALENTS, August 31, 1997...................................... $ 34,094
----------
----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest...................................... $ 26,344
----------
----------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-6
<PAGE>
PHYSICIANS CARE FOR CONNECTICUT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997
1. ORGANIZATION:
Physicians Care for Connecticut, Inc. (the Company), was formed as a
Connecticut corporation on November 12, 1996 under the sponsorship of private
practicing physicians of Hartford County Medical Association and New Haven
Medical Association to develop a physician-owned and directed insurance company
licensed as a Health Maintenance Organization (HMO) and offer a comprehensive
array of health insurance products throughout the state of Connecticut. The
Company intends to provide coverage for comprehensive healthcare services to
members under its insured products for a fixed, prepaid enrollment fee paid by
or on behalf of the members.
The Company is in the development stage and has not yet commenced its
business activities. The Company has no operating history and has generated no
operating revenues. As such, the Company is subject to all of the risks inherent
in a new enterprise. The Company will prepare and file an application for a
Certificate of Authority with the Connecticut Department of Insurance to operate
an HMO throughout the state of Connecticut and will also seek such other
regulatory approvals as necessary to offer its products. MedServ of Connecticut,
Inc. (MedServ) is committed to support the development stage operations and cash
flow requirements of the Company until the earlier of the completion of the
first closing (after receipt of accepted subscriptions for the amount of not
less than $8,000,000) of the stock offering discussed in the following paragraph
or September 1, 1998.
MedServ owns all of the outstanding shares of common stock as of August 31,
1997. The Company plans to offer Class A Common Stock and Class B Common Stock
to certain eligible purchasers. The net proceeds from the offering, if
successful, will be used to repay borrowings and for other working capital
purposes.
There can be no assurance that the Company's development will be successful
or that its services or products will be successfully marketed, or that the
Company will ever achieve profitable operations.
2. SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS--
The Company considers all short-term investments in highly liquid debt
instruments purchased with original maturities of three months or less to be
cash equivalents. The Company maintains its cash in an overnight sweep account
maintained by MedServ.
INCOME TAXES--
The Company has not as yet determined its tax reporting position for federal
and state income tax purposes. There will be temporary differences in reporting
certain expenses for financial statement and income tax purposes. A principal
difference relates to accounting for organization costs. A deferred income tax
benefit has not been recorded as its realization is not considered more likely
than not. The Company has a tax net operating loss carryforward which
approximates the loss for financial reporting purposes for the period from
inception (November 12, 1996) to August 31, 1997, which may be used to offset
taxable income in future years. Such carryforward expires by 2011.
F-7
<PAGE>
PHYSICIANS CARE FOR CONNECTICUT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1997
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
USE OF ESTIMATES--
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
3. RELATED PARTY TRANSACTIONS:
The Company intends to enter into a Management Agreement (the Management
Agreement) with MedServ. MedServ was organized in 1995 as a joint venture
between the Hartford and New Haven County Medical Associations. MedServ is a
for-profit entity performing administrative functions for both county medical
associations and operates as a Central Verification Organization to provide
credentialing services which are intended to meet National Commission for
Quality Assurance credentialing standards. MedServ and the Company's management
will conduct the day to day operations of the Company.
Under the Management Agreement, MedServ will exclusively provide management
and administrative services in connection with the development, licensing,
marketing and operations of the Company. MedServ will be permitted to contract
with third-party independent contractors to provide services to health plan
enrollees.
The Company intends to enter into a Provider Network Agreement (Network
Agreement) with MedServ IPA, Inc. (MedServ IPA) under which MedServ IPA will
arrange for the availability of a network of qualified physicians throughout the
state of Connecticut to provide medical services to the Company's members.
MedServ IPA (formerly known as ProCare IPA, Inc.) is a Connecticut corporation
formed specifically for the purpose of developing a network of physicians to
provide services to health plan enrollees.
4. FINANCING ARRANGEMENTS:
The Company has a $650,000 revolving credit facility with a bank. The credit
facility, when used, bears interest at the prime rate or the London interbank
borrowing rate plus 100 basis points at the Company's election (rates ranging
from 6.7% to 6.8% at August 31, 1997), and matures on November 22, 1997.
5. COMMON STOCK:
Holders of Class A and Class B common stock are entitled to one vote on all
matters presented to the stockholders for vote or consent, except that Class B
stockholders will not be entitled to elect representatives to the Board of
Directors. There is no cumulative voting for the election of directors, nor do
any stockholders have preemptive rights. Dividend rights will be available to
stockholders of both classes of stock when, as and if declared by the Company's
Board of Directors, at the Board's discretion, out of funds legally available
therefore. Receipt of dividends by one class of stock does not necessitate
receipt by another. Upon liquidation, after the liabilities of the Company have
been discharged, Class B stockholders will have a liquidation preference of up
to $1,500 per share of Class B common stock. After the Class B stockholders'
liquidation preference is satisfied, all stockholders will share any remaining
liquidating
F-8
<PAGE>
PHYSICIANS CARE FOR CONNECTICUT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1997
5. COMMON STOCK: (CONTINUED)
distributions pro rata. Outstanding shares are not subject to and do not benefit
from any sinking fund provisions. As of August 31, 1997, there were no shares of
Class A and Class B common stock outstanding.
The Company also has Class C common stock which has been issued to MedServ.
MedServ is the only eligible holder of Class C common stock in the Company. With
its Class C stock investment, MedServ has the right to appoint eleven out of not
more than twenty-one of the Directors to the Company's Board of Directors. In
addition, the Company must have a vote of two-thirds of the MedServ appointed
Directors to approve the sale or liquidation of the Company, the appointment of
management, the merger or consolidation of the Company, the decision to incur
debt over $1,000,000, the amendment of the Articles of Organization or By-laws
of the Company and all other decisions required by law.
F-9
<PAGE>
APPENDIX A
PHYSICIANS CARE FOR CONNECTICUT, INC.
Questions and Answers
The following is a summary of certain information contained in this
Prospectus and is qualified in its entirety by the more detailed information
appearing in this Prospectus.
<TABLE>
<C> <S>
1. Question: What is Physicians Care For Connecticut ("Physicians Care")?
ANSWER: PHYSICIANS CARE IS A CONNECTICUT CORPORATION ORGANIZED TO ESTABLISH AND
OPERATE A HEALTH MAINTENANCE ORGANIZATION WHICH IS PREDOMINANTLY
PHYSICIAN-OWNED, CONTROLLED AND DIRECTED. THE PRINCIPAL GOAL OF PHYSICIANS
CARE IS TO BECOME THE INSURER PREFERRED BY EMPLOYERS AND INDIVIDUALS TO
PROVIDE HEALTH INSURANCE PRODUCTS IN THE STATE OF CONNECTICUT. THE COMPANY
ACCEPTS THE CHALLENGE TO PASS ON TO FUTURE GENERATIONS OF PHYSICIANS THE
LEGACY THAT THE DELIVERY OF HEALTHCARE IS A MORAL ENTERPRISE AND THAT THE
PHYSICIAN-PATIENT RELATIONSHIP IS A SACRED TRUST THAT SHALL REMAIN INVIOLABLE.
IN ITS PURSUIT OF THESE MANDATES THE COMPANY WILL STRIVE TO DEFINE HIGH
STANDARDS FOR MEDICAL CARE IN THE STATE OF CONNECTICUT AND PROVIDE THAT CARE
TO ITS ENROLLEES THROUGHOUT THE STATE. FROM THESE PRECEPTS, THE COMPANY
BELIEVES THAT ITS PARTICIPATING PHYSICIANS WILL DEMONSTRATE A STRONG
COMMITMENT TO PRACTICE HIGH QUALITY, YET COST EFFECTIVE MEDICINE.
2. Question: Who will manage Physicians Care?
ANSWER: PHYSICIANS CARE INTENDS TO ENTER INTO A LONG-TERM MANAGEMENT AGREEMENT WITH
MEDSERV OF CONNECTICUT, INC., A JOINT VENTURE BETWEEN THE HARTFORD COUNTY
MEDICAL ASSOCIATION AND THE NEW HAVEN COUNTY MEDICAL ASSOCIATION, TO PROVIDE
COMPREHENSIVE MANAGEMENT SERVICES TO PHYSICIANS CARE. AS A START-UP, MEDSERV
MAY ENGAGE AN HMO MANAGEMENT CONSULTING COMPANY TO PROVIDE MANAGEMENT OR
MANAGEMENT SUPPORT AND CONSULTING SERVICES TO MEDSERV, IN WHOLE OR IN PART,
DURING THE DEVELOPMENT STAGE AND THE INITIAL OPERATIONS STAGE.
3. Question: What products will Physicians Care offer?
ANSWER: INITIALLY, THE COMPANY INTENDS TO OFFER A MODIFIED OPEN ACCESS PRODUCT,
PURSUANT TO WHICH EACH ENROLLEE WILL SELECT A CARE MANAGER WHO WILL COORDINATE
THE ENROLLEE'S MEDICAL CARE TO THE EXTENT CONSULTED BY THE ENROLLEE OR
INFORMED BY A PARTICIPATING PHYSICIAN OR COMPANY. ALTHOUGH ENROLLEES MAY
ACCESS ANY PARTICIPATING PHYSICIAN AT ANY TIME WITHOUT A CARE MANAGER'S
REFERRAL, THE COMPANY BELIEVES IT HAS STRUCTURED ITS BENEFITS DESIGN TO
ENCOURAGE ENROLLEES TO UTILIZE THEIR CARE MANAGERS TO COORDINATE REFERRALS,
FOR EXAMPLE, THROUGH THE USE OF A REDUCED OR WAIVED COPAYMENT IF A REFERRAL IS
COORDINATED THROUGH A CARE MANAGER.
4. Question: What is Physicians Care's philosophy concerning clinical decision-making?
ANSWER: PHYSICIANS CARE INTENDS TO SUPPORT PARTICIPATING PHYSICIANS' CLINICAL
DECISION-MAKING BY PROMOTING INCREASED PHYSICIAN AUTONOMY OVER CLINICAL
DECISIONS, AND BY DEVELOPING STANDARDS FOR BEST CLINICAL PRACTICES AND
CUSTOMER SERVICE, AND PROVIDING EXTENSIVE EDUCATION TO PROMOTE USE OF SUCH
STANDARDS.
5. Question: Who serves on the Board of Directors of Physicians Care?
ANSWER: THE NUMBER OF DIRECTORS SHALL BE NOT LESS THAN SEVENTEEN NOR MORE THAN TWENTY
ONE DIRECTORS.
</TABLE>
A-1
<PAGE>
<TABLE>
<C> <S>
ELEVEN OF THE DIRECTORS MUST BE APPOINTED AND REMOVED BY MEDSERV, SIX OF WHOM
MUST BE PRIMARY CARE PHYSICIANS.
SIX OF THE DIRECTORS WILL BE ELECTED BY THE CLASS A SHAREHOLDERS, EACH OF WHOM
MUST BE A PHYSICIAN AND A MEMBER OF A COUNTY MEDICAL ASSOCIATION OTHER THAN
THE HARTFORD COUNTY MEDICAL ASSOCIATION OR THE NEW HAVEN COUNTY MEDICAL
ASSOCIATION. NO MORE THAN TWO OF THESE CLASS A DIRECTORS MAY BE MEMBERS OF ANY
ONE COUNTY MEDICAL SOCIETY AT ANY GIVEN TIME; AND AT ALL TIMES, THREE OF THE
CLASS A DIRECTORS SHALL BE PRIMARY CARE PHYSICIANS.
UP TO FOUR DIRECTORS (SUCH NUMBER TO BE DETERMINED IN THE DISCRETION OF THE
BOARD OF DIRECTORS) SHALL BE REPRESENTATIVES OF AREA EMPLOYERS, HOSPITALS,
ETC. THESE DIRECTORS WILL BE ELECTED BY A MAJORITY OF THE CLASS A SHAREHOLDERS
AT THE ANNUAL MEETING OF THE BOARD OF DIRECTORS FROM A LIST OF NOMINEES
DEVELOPED BY THE BOARD OF DIRECTORS.
6. Question: Will Physicians Care seek to limit the number of physicians who will provide
medical services to its Enrollees?
ANSWER: UNLIKE OTHER HMOS WHICH MAY SEEK TO SIGNIFICANTLY RESTRICT ACCESS TO
HEALTHCARE PROVIDERS, PHYSICIANS CARE THROUGH ITS MANAGEMENT AGREEMENT WITH
MEDSERV WILL OFFER PARTICIPATION TO ALL QUALIFIED PHYSICIANS WHO ARE ELIGIBLE
PURCHASERS.
7. Question: How will Physicians Care compensate physicians for services rendered?
ANSWER: PHYSICIANS CARE CURRENTLY INTENDS TO REIMBURSE PARTICIPATING PHYSICIANS THE
LESSER OF (A) THEIR USUAL AND CUSTOMARY FEES, (B) THE FEE SET FORTH ON A FEE
SCHEDULE ADOPTED BY THE COMPANY, AN EXTRACT OF WHICH IS SET FORTH ON APPENDIX
C HERETO, OR (C) A NEGOTIATED RATE (IN EACH CASE, LESS ANY APPLICABLE
COPAYMENT; COINSURANCE, OR DEDUCTIBLES). THE COMPANY CURRENTLY INTENDS TO
WITHHOLD TWENTY PERCENT OF THE PHYSICIAN REIMBURSEMENT AMOUNT FROM THE PAYMENT
TO PARTICIPATING PHYSICIANS TO DEFRAY COSTS THAT MAY BE INCURRED. THE TWENTY
PERCENT WITHHELD FROM PHYSICIAN REIMBURSEMENT MAY BE RETURNED TO PARTICIPATING
PHYSICIANS AT THE DISCRETION OF THE BOARD OF DIRECTORS. EVENTUALLY, AS ITS
ENROLLEE MEMBERSHIP GROWS, PHYSICIANS CARE INTENDS TO EXPERIMENT WITH
INNOVATIVE REIMBURSEMENT METHODOLOGIES.
8. Question: If I want to provide medical services to Enrollees of Physicians Care, must I
purchase stock in Physicians Care?
ANSWER: YES, EVERY PHYSICIAN WHO WISHES TO PROVIDE MEDICAL SERVICES TO PHYSICIANS
CARE'S ENROLLEES MUST EXECUTE AN IPA PARTICIPATION AGREEMENT AND, AS
APPLICABLE, A PHYSICIANS CARE PRIMARY CARE PHYSICIAN ATTACHMENT OR PHYSICIANS
CARE SPECIALIST PHYSICIAN ATTACHMENT, AND IF A PRIMARY CARE PHYSICIAN MUST
AGREE TO PURCHASE ONE SHARE OF CLASS A COMMON STOCK, AND IF A SPECIALIST, MUST
AGREE TO PURCHASE ONE SHARE OF CLASS A COMMON STOCK AND ONE SHARE OF CLASS B
COMMON STOCK.
9. Question: What is the purpose of the Offering?
ANSWER: THE PURPOSE OF THE OFFERING IS TO RAISE A MINIMUM OF $8 MILLION OF GROSS
PROCEEDS TO ENABLE PHYSICIANS CARE TO ORGANIZE AND OPERATE ON A STATEWIDE
BASIS AS A HMO.
10. Who may purchase shares of stock in Physicians Care?
Question:
ANSWER: THE FOLLOWING PARTIES MAY PURCHASE STOCK IN PHYSICIANS CARE:
PHYSICIANS SATISFYING THE FOLLOWING REQUIREMENTS MAY PURCHASE STOCK IN
PHYSICIANS CARE:
- BE A PHYSICIAN LICENSED IN THE STATE IN WHICH THE PHYSICIAN PRACTICES
</TABLE>
A-2
<PAGE>
<TABLE>
<C> <S>
- UNLESS SUCH REQUIREMENT IS WAIVED BY THE CORPORATION'S BOARD OF
DIRECTORS IN ITS SOLE DISCRETION, SHALL HAVE AND MAINTAIN, OR SHALL HAVE
APPLIED FOR, MEMBERSHIP IN THE STATE MEDICAL ASSOCIATION AND (IF A
COUNTY MEDICAL ASSOCIATION OR EQUIVALENT EXISTS IN THE LOCATION IN WHICH
THE PHYSICIAN PRACTICES) THE APPLICABLE COUNTY MEDICAL ASSOCIATION;
PROVIDED, HOWEVER, THAT PHYSICIANS WHO HAVE APPLIED FOR AND NOT OBTAINED
MEMBERSHIP IN THE STATE AND/OR A COUNTY MEDICAL ASSOCIATION MUST IN
ORDER TO RETAIN CLASS A SHARES, MAINTAIN SUCH MEMBERSHIP(S) ONCE
APPROVED; AND PROVIDED, FURTHER, THAT IF SUCH MEMBERSHIP(S) IS/ARE
DENIED OR NOT MAINTAINED, THE PHYSICIANS' CLASS A COMMON STOCK SHALL
AUTOMATICALLY BE CONVERTED TO CLASS B COMMON STOCK.
- HAVE IN EFFECT A PARTICIPATION AGREEMENT WITH IPA
- MUST HAVE IN EFFECT A PHYSICIANS CARE PRIMARY CARE PHYSICIAN ATTACHMENT
OR A PHYSICIANS CARE SPECIALIST PHYSICIAN ATTACHMENT TO THE PARTICIPATION
AGREEMENT WITH IPA
HOSPITALS SATISFYING THE FOLLOWING REQUIREMENTS MAY PURCHASE CLASS B STOCK IN
PHYSICIANS CARE:
- BE A LICENSED ACUTE CARE HOSPITAL IN CONNECTICUT
11. If I am a member of a physician group practice, may the group practice
Question: purchase the shares of stock on my behalf?
ANSWER: PROFESSIONAL CORPORATIONS, CORPORATIONS, BUSINESS TRUSTS, TRUSTS, PARTNERSHIPS
OR LIMITED LIABILITY CORPORATIONS, WHICH ARE OWNED AND CONTROLLED, DIRECTLY OR
INDIRECTLY, BY A MAJORITY OF PHYSICIANS WHO PROVIDE MEDICAL SERVICES ON BEHALF
OF THE ENTITY (COLLECTIVELY "GROUP") MAY PURCHASE CLASS A COMMON STOCK OR
CLASS B COMMON STOCK, AS APPLICABLE, ON BEHALF OF THEIR PHYSICIANS, PROVIDED
THAT THE PHYSICIAN AFFILIATED WITH THE GROUP INDIVIDUALLY MEETS THE
QUALIFICATIONS OF STOCK OWNERSHIP. THE GROUP MUST PURCHASE NOT LESS THAN THE
NUMBER OF SHARES REQUIRED TO BE PURCHASED BY PHYSICIANS AS IF EACH PHYSICIAN
IN THE GROUP PARTICIPATED IN PHYSICIANS CARE AND PURCHASED STOCK INDIVIDUALLY.
IF A HOSPITAL IS A SHAREHOLDER IN THE GROUP, THE GROUP MUST ALSO PURCHASE
CLASS B COMMON STOCK IN SUCH AMOUNT AS IF THE HOSPITAL WERE PURCHASING THE
SHARES SEPARATELY.
12. How much does a share of stock cost?
Question:
ANSWER: PHYSICIANS MAY PURCHASE CLASS A COMMON STOCK AND CLASS B COMMON STOCK OF
PHYSICIANS CARE FOR $4,000 PER SHARE. HOWEVER, IF AN ELIGIBLE PURCHASER'S
PAYMENT AND COMPLETED SUBSCRIPTION DOCUMENTS IN FORM SUFFICIENT TO ESTABLISH
ELIGIBILITY ARE RECEIVED BY THE SUBSCRIPTION AGENT WITHIN NINETY DAYS OF THE
DATE OF THIS PROSPECTUS, THE PHYSICIAN WILL PAY A PROMPT SUBSCRIPTION PRICE OF
$3,000 PER SHARE.
HOSPITALS WISHING TO PURCHASE CLASS B COMMON STOCK MUST PURCHASE SUCH NUMBER
OF SHARES WHICH, WHEN MULTIPLIED BY THE PRICE PER SHARE, RESULTS IN A PURCHASE
PRICE OF NOT LESS THAN $250,000; PROVIDED, HOWEVER, THAT IF A LICENSED
HOSPITAL HAS LESS THAN 100 BEDS, THEN THE HOSPITAL IS REQUIRED TO PURCHASE
SUCH NUMBER OF SHARES WHICH, WHEN MULTIPLIED BY THE PRICE PER SHARE, RESULTS
IN A PURCHASE OF NOT LESS THAN $100,000. HOWEVER, IF A HOSPITAL'S PAYMENT AND
COMPLETED SUBSCRIPTION DOCUMENTS IN FORM SUFFICIENT TO ESTABLISH ELIGIBILITY
ARE RECEIVED BY THE SUBSCRIPTION AGENT WITHIN NINETY DAYS OF THE DATE OF THIS
PROSPECTUS, THE HOSPITAL WILL PAY A PROMPT SUBSCRIPTION PRICE OF $3,000 PER
SHARE.
</TABLE>
A-3
<PAGE>
<TABLE>
<C> <S>
13. If I am a Primary Care Physician, how many shares of stock must I purchase?
Question:
ANSWER: PRIMARY CARE PHYSICIANS MUST PURCHASE ONE SHARE OF CLASS A COMMON STOCK.
PRIMARY CARE PHYSICIANS MAY, AT THEIR ELECTION, PURCHASE SHARES OF CLASS B
COMMON STOCK. NO PHYSICIAN MAY HOLD MORE THAN ONE SHARE OF CLASS A COMMON
STOCK.
14. If I am a Specialist, how many shares of stock must I purchase?
Question:
ANSWER: SPECIALISTS MUST PURCHASE ONE SHARE OF CLASS A COMMON STOCK AND AT LEAST ONE
SHARE OF CLASS B COMMON STOCK. SPECIALISTS MAY, AT THEIR ELECTION, PURCHASE
ADDITIONAL SHARES OF CLASS B COMMON STOCK. NO PHYSICIAN MAY HOLD MORE THAN ONE
SHARE OF CLASS A COMMON STOCK.
15. What is the difference between Class A Common Stock and Class B Common Stock?
Question:
ANSWER: CLASS A SHAREHOLDERS ARE ENTITLED TO ELECT SIX OF THE DIRECTORS OF PHYSICIANS
CARE. CLASS B SHAREHOLDERS ARE NOT ENTITLED TO ELECT DIRECTORS TO THE BOARD OF
PHYSICIANS CARE. HOWEVER, CLASS B SHAREHOLDERS HAVE A PREFERENCE UPON
LIQUIDATION OF PHYSICIANS CARE. THIS MEANS THAT IF THERE IS A LIQUIDATION OF
PHYSICIANS CARE, AFTER THE LIABILITIES OF PHYSICIANS CARE HAVE BEEN
DISCHARGED, CLASS B SHAREHOLDERS WILL HAVE A LIQUIDATION PREFERENCE EQUAL TO
$1,500 PER SHARE OF CLASS B COMMON STOCK. AFTER THE CLASS B SHAREHOLDERS'
LIQUIDATION PREFERENCE IS SATISFIED, ALL SHAREHOLDERS WILL SHARE ANY REMAINING
DISTRIBUTIONS FROM PHYSICIANS CARE ON A PRO RATA BASIS.
16. May a hospital purchase shares of stock?
Question:
ANSWER: YES, A HOSPITAL MAY PURCHASE CLASS B COMMON STOCK. HOSPITALS MUST PURCHASE
SUCH NUMBER OF SHARES WHICH, WHEN MULTIPLIED BY THE PRICE PER SHARE, RESULTS
IN A PURCHASE PRICE OF NOT LESS THAN $250,000; PROVIDED, HOWEVER, THAT IF A
LICENSED HOSPITAL HAS LESS THAN 100 BEDS, THEN SUCH HOSPITAL IS REQUIRED TO
PURCHASE SUCH NUMBER OF SHARES WHICH, WHEN MULTIPLIED BY THE PRICE PER SHARE,
RESULTS IN A PURCHASE OF NOT LESS THAN $100,000.
17. Are there any other classes of Common Stock of Physicians Care?
Question:
ANSWER: YES, THERE IS CLASS C COMMON STOCK WHICH MAY BE HELD ONLY BY MEDSERV.
PRESENTLY, MEDSERV OWNS ALL OF THE ISSUED AND OUTSTANDING CLASS C SHARES.
CLASS C COMMON STOCK PROVIDES MEDSERV WITH THE RIGHT TO ELECT ELEVEN DIRECTORS
TO THE BOARD OF DIRECTORS. IN ADDITION, PHYSICIANS CARE MUST HAVE A VOTE OF
TWO-THIRDS IN INTEREST OF THE CLASS C SHARES TO APPROVE ANY OF THE FOLLOWING
ACTIONS OF PHYSICIANS CARE:
- THE SALE OR LIQUIDATION OF THE COMPANY;
- THE MERGER OR CONSOLIDATION OF THE COMPANY;
- THE AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF THE COMPANY;
- ALL OTHER MATTERS REQUIRED BY LAW TO BE SUBMITTED TO THE SHAREHOLDERS
FOR A VOTE.
18. What if Physicians Care does not raise enough money from the Offering to start
Question: the HMO?
ANSWER: THIS OFFERING IS SUBJECT TO THE REQUIREMENT THAT PHYSICIANS CARE MUST RECEIVE
SUBSCRIPTIONS TO PURCHASE NOT LESS THAN $8 MILLION OF COMMON STOCK. IF
PHYSICIANS CARE DOES NOT RAISE $8 MILLION IN GROSS PROCEEDS FROM THE OFFERING,
THE PURCHASE PRICE OF ALL SHARES WILL BE REFUNDED, PLUS INTEREST THEREON,
MINUS $450 DOLLARS PER SHARE, WHICH WILL BE RETAINED BY PHYSICIANS CARE TO
OFFSET THE COSTS ASSOCIATED WITH THE OFFERING.
</TABLE>
A-4
<PAGE>
<TABLE>
<C> <S>
19. What happens if I no longer meet the qualifications for Class A Common Stock?
Question:
ANSWER: IF YOU NO LONGER MEET THE QUALIFICATIONS NECESSARY FOR CLASS A SHAREHOLDER
STATUS OR IF YOU TRANSFER YOUR STOCK TO AN INDIVIDUAL WHO DOES NOT MEET THE
QUALIFICATIONS FOR CLASS A SHAREHOLDER STATUS, YOU MUST IMMEDIATELY SURRENDER
YOUR CLASS A COMMON STOCK AND PHYSICIANS CARE WILL CANCEL THE SHARES AND ISSUE
AN EQUAL NUMBER OF CLASS B COMMON STOCK.
20. Can I sell my stock to other interested investors?
Question:
ANSWER: IF YOU RECEIVE A BONA FIDE OFFER TO PURCHASE YOUR SHARES, YOU MUST FIRST OFFER
PHYSICIANS CARE A RIGHT OF FIRST OPPORTUNITY TO PURCHASE YOUR SHARES AT AN
AMOUNT EQUAL TO THE BONA FIDE OFFER. IF PHYSICIANS CARE DECLINES AND/OR FAILS
TO PURCHASE THE SHARES WITHIN THIRTY DAYS, YOU MAY SELL THE SHARES TO THE
INTERESTED INVESTOR.
21. If I die, become disabled or retire, what happens to my stock?
Question:
ANSWER: AT ANY TIME AFTER THE FIFTH ANNIVERSARY OF THE ISSUANCE DATE OF A CLASS A
STOCKHOLDER'S SHARES OF STOCK, PHYSICIANS CARE AGREES, SUBJECT TO CERTAIN
CONDITIONS SET FORTH IN THE PROSPECTUS, TO REDEEM ALL SHARES OF STOCK
(INCLUDING CLASS A AND CLASS B SHARES) OF A CLASS A STOCKHOLDER WISHING TO
SELL OR TRANSFER HIS/HER SHARES UPON THE OCCURRENCE OF ONE OF THE FOLLOWING
EVENTS: (I) THE DEATH OR PERMANENT DISABILITY OF THE PHYSICIAN; OR (II) THE
CESSATION OF THE PHYSICIAN'S PROVISION OF MEDICAL SERVICES IN CONNECTICUT
(I.E., RETIREMENT OR RELOCATION); PROVIDED THAT PHYSICIANS WHO ACQUIRE SHARES
OF STOCK THROUGH THE INITIAL OFFERING OF PHYSICIAN CARE'S STOCK AND ARE 55
YEARS OR OLDER ON THE DATE OF RECEIPT OF AN EXECUTED SUBSCRIPTION AGREEMENT
SHALL BE ELIGIBLE TO REDEEM THEIR STOCK AT ANY TIME AFTER THE THIRD
ANNIVERSARY OF THE ISSUANCE OF THE STOCK. SUBJECT TO CERTAIN CONDITIONS SET
FORTH IN THE PROSPECTUS THE COMPANY SHALL PURCHASE SUCH SHARES OF STOCK AT THE
GREATER OF (I) THE THEN CURRENT NET BOOK VALUE OF SUCH SHARES DETERMINED
PURSUANT TO GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") AS OF THE MOST
RECENTLY COMPLETED FISCAL QUARTER OF PHYSICIANS CARE, OR (II) THE ORIGINAL
ISSUANCE PRICE OF SUCH SHARES.
22. What will Physicians Care do with its profits?
Question:
ANSWER: WHILE PHYSICIANS CARE REQUIRES PROFITS TO MAINTAIN A VIABLE BUSINESS,
PHYSICIANS CARE INTENDS TO REINVEST ITS PROFITS IN THE COMPANY.
23. Will this stock generate dividends?
Question:
ANSWER: PHYSICIANS CARE DOES NOT ANTICIPATE PAYING DIVIDENDS TO SHAREHOLDERS FOR THE
FORESEEABLE FUTURE. IT IS ANTICIPATED THAT PROFITS FROM OPERATIONS WILL BE
REINVESTED IN THE COMPANY TO PROVIDE BETTER BENEFITS FOR PATIENTS, MORE
COMPETITIVE PRICING, IMPROVED REIMBURSEMENT LEVELS FOR PROVIDERS AND FOR OTHER
CORPORATE PURPOSES.
24. How will stock be allocated in the event of an oversubscription?
Question:
ANSWER: PHYSICIANS CARE REGISTERED 3,000 SHARES OF CLASS A COMMON STOCK AND 3,000
SHARES OF CLASS B COMMON STOCK WHICH CAN BE ISSUED IN THIS OFFERING. BECAUSE
APPROXIMATELY 9,000 PHYSICIANS ARE CURRENTLY LICENSED TO PRACTICE MEDICINE IN
THE STATE OF CONNECTICUT, THE POTENTIAL FOR A TOTAL SUBSCRIPTION IN EXCESS OF
THESE AMOUNTS EXISTS. IF ORDERS FOR MORE THAN 3,000 SHARES OF CLASS A COMMON
STOCK ARE RECEIVED, THE ORDERS WILL BE FILLED ON A FIRST-COME, FIRST-SERVED
BASIS. IF ORDERS FOR MORE THAN 3,000 SHARES OF CLASS B COMMON STOCK ARE
RECEIVED, THE COMPANY MAY LIMIT THE NUMBER OF SHARES OF CLASS B COMMON STOCK A
PARTICULAR ELIGIBLE PURCHASER MAY PURCHASE.
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
25. Will interest be paid on my subscription during the time the funds are held in
Question: escrow?
ANSWER: IN THE EVENT THE SUM OF $8 MILLION IN SUBSCRIPTIONS IS NOT GENERATED FROM THE
OFFERING, THE PURCHASE PRICE OF BOTH CLASS A AND CLASS B SHARES, PLUS INTEREST
THEREON, SHALL BE REFUNDED, MINUS $450 DOLLARS PER SHARE, WHICH SHALL BE
RETAINED BY THE COMPANY TO OFFSET THE COSTS ASSOCIATED WITH THE OFFERING. IN
THE EVENT $8 MILLION OR MORE IN SUBSCRIPTIONS ARE GENERATED AND A CLOSING
OCCURS, ANY INTEREST ON ESCROWED FUNDS WILL BE DISTRIBUTED TO THE COMPANY.
26. What do I need to do to purchase shares of Common Stock in Physicians Care?
Question:
ANSWER: IN ORDER TO PURCHASE COMMON STOCK IN PHYSICIANS CARE, YOU MUST RETURN THE
FOLLOWING DOCUMENTS TO THE SUBSCRIPTION AGENT:
- A SIGNED SUBSCRIPTION AGREEMENT
- IF YOU HAVE NOT ALREADY DONE SO, A COMPLETED AND EXECUTED IPA
PARTICIPATION AGREEMENT WITH A SEPARATE CHECK IN THE AMOUNT OF $200 MADE
PAYABLE TO MEDSERV IPA;
- A PHYSICIANS CARE PRIMARY CARE PHYSICIAN ATTACHMENT OR A PHYSICIANS CARE
SPECIALIST PHYSICIAN ATTACHMENT
- A CHECK OR MONEY ORDER MADE PAYABLE TO STATE STREET BANK & TRUST COMPANY
AS ESCROW AGENT EQUALING THE PURCHASE PRICE OF THE SHARES YOU WOULD LIKE
TO PURCHASE.
</TABLE>
<TABLE>
<C> <S>
27. How long do I have to purchase stock in Physicians Care?
Question:
ANSWER: YOU WILL HAVE ONE HUNDRED AND EIGHTY DAYS FROM THE DATE OF THIS PROSPECTUS TO
PURCHASE SHARES OF STOCK IN PHYSICIANS CARE. THE BOARD OF DIRECTORS MAY, IN
ITS DISCRETION, EXTEND THE OFFERING FOR AN ADDITIONAL SIXTY DAYS. HOWEVER, IF
YOU WOULD LIKE TO TAKE ADVANTAGE OF THE PROMPT PAYMENT DISCOUNT DESCRIBED IN
THE PROSPECTUS, YOU MUST RETURN YOUR PAYMENT AND COMPLETED SUBSCRIPTION
DOCUMENTS IN FORM SUFFICIENT TO ESTABLISH ELIGIBILITY TO THE SUBSCRIPTION
AGENT WITHIN NINETY DAYS OF THE DATE OF THIS PROSPECTUS.
28. Can I purchase shares with a check drawn on Individual Retirement Accounts
Question: ("IRAs"), Keough accounts, mutual fund accounts, cash management accounts or
other types of retirement or investment accounts?
ANSWER: NO.
29. How can I pay for my Common Stock?
Question:
ANSWER: ONLY CHECKS AND MONEY ORDERS WILL BE ACCEPTED AS PAYMENT. CASH, CREDIT CARD
NUMBERS AND OTHER FORMS OF PAYMENT SHOULD NOT BE SENT AND WILL NOT BE
ACCEPTED. THE CHECK OR MONEY ORDER MUST BE PAYABLE IN U.S. DOLLARS AND DRAWN
ON A BANK IN THE UNITED STATES. THE CHECK MUST BE HONORED UPON INITIAL
DEPOSIT; NO ATTEMPT WILL BE MADE TO REDEPOSIT ANY DISHONORED CHECK.
</TABLE>
A-6
<PAGE>
APPENDIX B
HOW TO SUBSCRIBE IN THIS OFFERING
GENERAL
Accompanying this Prospectus are the following documents:
(1) A Subscription Agreement;
(2) An IPA Participation Agreement and the Physicians Care Primary Care
Physician Attachment or Physicians Care Specialist Physician Attachment;
(3) An envelope for returning completed subscriptions through the U.S.
Postal Service.
To be eligible to subscribe for a share of Class A Common Stock and Class B
Common Stock in the Offering, the subscriber should return the enclosed postage
paid envelope with (i) a check or money order payable to State Street Bank &
Trust Company, as Escrow Agent in the amount of the Purchase Price, (ii) the
Subscription Agreement, properly completed and signed, (iii) the executed IPA
Participation Agreement, including a check made payable to MedServ IPA, Inc. to
cover the $200 administration fee relating thereto if such amount has not been
paid previously, and (iv) the Physicians Care Primary Care Physician Attachment
or Physicians Care Specialist Physician Attachment, as applicable. The checks or
money orders, the executed Subscription Agreement, the executed IPA
Participation Agreement and Physicians Care Primary Care Physician Attachment or
Physicians Care Specialist Physician Attachment are referred to as the
"Subscription Documents." Subscriptions may be limited and will be accepted on a
first come first served basis. Subscription Documents must be received by the
Subscription Agent no later than the last day of the Offering Period (the
"Expiration Time"). Subscription Documents are considered "received" on the date
they are delivered to the Subscription Agent.
COMPLETION AND MAILING OF SUBSCRIPTION AGREEMENTS
A subscription will be rejected by the Subscription Agent unless the
Subscription Documents are (i) fully and properly completed, signed and received
by the Company's Subscription Agent, and (ii) the Subscription Agent has
received a check or money order for good funds in the amount of the Purchase
Price payable to "State Street Bank & Trust Company, as Escrow Agent" and, if
applicable, a separate check or money order for good funds in the amount of $200
made payable to "MedServ IPA, Inc." prior to the Expiration Time at:
State Street Bank & Trust Company
70 Campanelli Drive
Attn: Physicians Care for Connecticut, Inc.
Braintree, MA 02184
The Subscription Agent will promptly forward all checks and money orders
made payable to "State Street Bank & Trust Company, as Escrow Agent" for
subscriptions that have not been rejected to the Escrow Agent for deposit into
an escrow account (the "Escrow Account") maintained with the Escrow Agent. See
"Escrow Arrangements."
Subscriptions will be rejected by the Subscription Agent and returned to the
subscriber if (i) the Subscription Agreement is improperly completed or
unsigned, (ii) the Subscription Agreement is sent without accompanying check or
money order in good funds in the amount of the Purchase Price, (iii) the
Subscription Agreement accompanied by a check or money order for the Purchase
Price in good funds is not received by the Subscription Agent by the Expiration
Time, (iv) the proposed subscriber does not complete and execute the IPA
Participation Agreement and the Physicians Care Primary Care Physicians
Attachment or Physicians Care Specialist Physician Attachment and, if
applicable, include a check or money order for good funds in the amount of $200
made payable to "MedServ IPA," (v) the proposed subscriber does not meet the
qualification of an Eligible Purchaser, (vi) all shares of Class A Common
B-1
<PAGE>
Stock offered in the Offering have been fully subscribed, or (vii) the Offering
has been terminated as described below under--"Termination of Offering."
METHOD OF PAYMENT
Only checks and money orders will be accepted as payment. Cash, credit card
numbers and other forms of payment should not be sent and will not be accepted.
The check or money order must be payable in U.S. dollars and drawn on a bank in
the United States. The check must be honored upon initial deposit; no attempt
will be made to redeposit any dishonored check.
ACCEPTED SUBSCRIPTIONS
Unless the Offering is terminated, subscriptions meeting the subscription
requirements discussed above which are received by the Subscription Agent will
be accepted by the Company, subject to qualification of the Subscriber as an
Eligible Purchaser. The Company will cause the Subscription Agent to forward to
each subscriber whose subscription has been accepted promptly following the
closing of the Offering a certificate representing the number of shares of Class
A Common Stock and, if applicable, Class B Common Stock subscribed and for which
payment has been made.
No Subscription Agreement will be formally accepted by the Company until the
Purchase Price of all subscribed Class A Common Stock and Class B Common Stock
totals $8 million. Therefore, subscribers will not be notified that their
Subscription Agreements have been accepted, and should not expect to receive
certificates representing their shares of Class A Common Stock or Class B Common
Stock until some time after the Expiration Time. Pending the Initial Closing of
the Offering, all monies, less $450 per subscribed share, will be held in the
Escrow Account maintained with the Escrow Agent. See "Escrow Arrangements"
below. Thereafter, subscriptions will be accepted by the Company and additional
Closings will occur upon receipt by the Company of subscriptions in increments
of $1,500,000, with a final Closing to occur 180 days after the date of this
Prospectus, subject to a sixty day extension at the discretion of the Board of
Directors.
TERMINATION OF OFFERING
The Offering may be terminated by the Company at any time in its absolute
discretion. If the Offering is terminated, all amounts received from subscribers
whose subscriptions were not rejected by the Subscription Agent and whose funds
were deposited into the Escrow Account will be promptly refunded with interest
less $450 per subscribed share no later than thirty days after the later of the
date of termination of the Offering or the Expiration Time. Interest on such
funds will be paid as described under "Escrow Arrangements."
RETURNED SUBSCRIPTIONS
If a subscription is rejected by the Subscription Agent because (i) the
Subscription Agreement was improperly completed or unsigned, (ii) the
Subscription Agreement was sent without an accompanying check or money order in
good funds in the amount of the Purchase Price, (iii) the Subscription Agreement
accompanied by a separate check or money order in good funds in the amount of
the Purchase Price was not received by the Subscription Agent by the Expiration
Time, (iv) the proposed Subscriber does not complete and execute the IPA
Participation Agreement and the Physicians Care Primary Care Physician
Attachment or Physicians Care Specialist Physician Attachment and, if
applicable, include a check or money order for good funds in the amount of $200
made payable to "MedServ IPA, Inc." (v) the proposed purchaser does not meet the
qualifications of an Eligible Purchaser, or (vi) the Offering has been fully
subscribed, then the Escrow Agent will promptly return to each subscriber the
accompanying check or money order. No interest will be paid on checks or money
orders that have not been deposited into the Escrow Account or that have been
deposited, but are not in good funds. Subscription Documents received by the
Subscription Agent but rejected and returned to the Subscriber for failure to
include all required and completed documents shall be nonetheless deemed
received on the date originally received by the Subscription Agent if the
Subscriber submits to the Subscription Agent, within 10 days after notice of
such rejection, properly completed Subscription Documents.
B-2
<PAGE>
APPENDIX C
SAMPLE PHYSICIAN FEE SCHEDULE
<TABLE>
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
ALLERGY & IMMUNOLOGY
70210 RAD EXAM SINUSES PARANASAL LESS
THAN 3 VIEWS $ 54.47
70220 RAD EXAM SINUSES PARANASAL COMPLT
MINI 3 VIEWS $ 72.83
70486 CAT MAXILLOFACIAL AREA; WO
CONTRAST $ 398.41
71020 RAD EXAM CHEST 2 VIEWS FRONTAL &
LAT $ 58.75
80019 AUTO MULTICHANNEL TEST; 19/MORE
CHEM TESTS $ 19.58
85023 BLD CT; HG/PLATELET CT AUTO &
MANUAL WBC $ 24.48
85031 BLD CT; HG MANUAL COMPLT CBC $ 12.85
88161 CYTOPATH SMEARS OTHR SOURCE;
PREP/SCREEN/INTERPT $ 56.30
89190 NASAL SMEAR EOSINOPHILS $ 10.40
90782 THERAP/DX INJ; SUBQ/IM $ 6.73
92567 TYMPANOMETRY $ 34.27
94010 SPIROMETRY W/RECRD-TOT & TIMED
VC-EXPIR FLO RATE $ 55.08
94060 BRONCHOSPSM EVAL: SPIROM PRE &
POST BRONCHODILAT $ 102.20
95004 PERQ W/ALLERG EXTRACT-IMMED
REACT-SPEC # TEST $ 6.12
95015 INTRACUT SEQUENT/INCREM-IMMED
REACT-SPEC # TESTS $ 16.52
95024 INTRACUT W/ALLERG EXTRCT-IMMED
REACT-SPEC # TEST $ 9.18
95070 INHALA BRONCHIAL CHALLENGE;
W/HISTAMINE-COMPOUND $ 134.03
95115 PROF SERV ALLERG IMMUNOTX NOT INCL
EXTRCT; 1 INJ $ 23.87
95117 PROF SERV ALLERG IMMUNOTX WO
EXTRACT; MX INJ $ 30.60
95125 PROF SERV ALLERG IMMUNOTX INCL
EXTRACT; MX INJ $ 28.76
95145 PRO SERV SUPERVS/PROVIS-IMMUNOTX;
1 VENM-MX VIAL $ 26.32
CARDIOVASCULAR & THORACIC SURGERY
32480 REMOV LUNG OTHER THAN TOT
PNEUMONECTOMY; 1 LOBE $2,657.51
32500 REMOV LUNG NOT TOT PNEUMONECT;
WEDGE RESECT 1/MX $2,079.88
33120 EXC INTRACARDIAC TUMOR RESECT W/CP
BYPASS $4,043.38
33246 IMPLNT/REPLAC CARDIOVERT-DEFIB;
W/INSRT PULS GEN $3,088.76
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
33405 REPLAC AORTIC VALV W/CP BYPASS;
W/PROSTH VALV $4,589.59
33430 REPLAC MITRAL VALV W/
CARDIOPULMONARY BYPASS $5,025.13
33510 CORON ART BYPASS-VEIN ONLY; 1
CORON VENOUS GFT $4,144.06
33511 CORON ART BYPASS-VEIN ONLY; 2
CORON VENOUS GFT $4,549.61
33512 CORON ART BYPASS-VEIN ONLY; 3
CORON VENOUS GFT $4,954.45
33513 CORON ART BYPASS-VEIN ONLY; 4
CORON VENOUS GFT $5,359.28
33514 CORON ART BYPASS-VEIN ONLY; 5
CORON VENOUS GFT $5,762.69
33516 CORON ART BYPASS-VEIN ONLY; 6/MORE
VENOUS GFT $6,166.82
33533 CORONARY ART BYPASS W/ART GFT; 1
ART GFT $4,270.43
33670 REPR COMPLT ATRIOVENT CANAL W/WO
PROSTH VALV $5,521.36
33681 CLO VENTRICULAR SEPTAL DEFECT W/WO
PATCH $4,823.78
33750 SHUNT; SUBCLAVIAN PULM ART $3,322.96
33851 EXC COARCTAT AORTA; REPR W/LT
SUBCLAV/PROSTH MAT $4,059.09
33935 HEART-LUNG TRANSPL W/ RECIPIENT
CARDIECT-PNEUMONE $10,567.20
35301 THROMBOENDARTERECT;
CAROTID/SUBCLAV BY NECK INCS $2,503.28
35646 BYPASS GFT W/OTHER THAN VEIN;
AORTOFEM/BIFEM $3,749.21
35656 BYPASS GFT W/OTHER THAN VEIN;
FEMORAL-POP $2,838.15
35820 EXPLOR POSTOP HEMORR
THROMBOSIS/INFEC; CHEST $1,498.69
36200 INTRO CATH AORTA $ 430.54
36216 SELECT CATH PLCMT ART SYST; INIT
2ND ORDER THORA $ 631.18
CARDIOVASCULAR DISEASES
33208 INSRT/REPLAC PERM PACEMAKER;
ATRIAL & VENTRICULR $1,308.05
36200 INTRO CATH AORTA $ 430.54
36215 SELECT CATH PLCMT ART SYST; EA 1ST
ORDER THORAC $ 549.07
36216 SELECT CATH PLCMT ART SYST; INIT
2ND ORDER THORA $ 631.18
78461 MYOCARDIAL PERFUS IMAG; MX STUDIES
REST/STRESS $ 406.37
78464 MYOCARDIAL PERFUS IMAG;
TOMOGRAPHIC SNGL STUDY $ 539.17
78465 MYOCARDIAL PERFUS IMAG;
TOMOGRAPHIC MX STUDIES $ 865.98
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
78473 CARDIAC BLD POOL IMAG GATED
EQUILIB; MX STUDIES $ 647.50
78483 CARDIAC BLD POOL IMAG 1ST PASS;
MX-REST & STRESS $ 623.63
80019 AUTO MULTICHANNEL TEST; 19/MORE
CHEM TESTS $ 19.58
80061 LIPID PANEL $ 26.93
83718 LIPOPROTEIN DIRECT MEASUR; HIGH
DENSITY CHOL $ 20.81
92960 CARDIOVERSION ELECT ELEC
CONVERSION ARRHY EXT $ 262.55
92982 PERQ TRNSLUMNL CORON BALOON
ANGIOPLSTY; 1 VESSEL $1,606.50
92984 PERQ TRNSLUMNL CORON BALOON
ANGIOPLSTY; EA ADD $ 441.25
93000 ECG-ROUTINE W/12 LEADS; W/ INTERPT
& REPORT $ 48.96
93010 ECG-ROUTINE W/12 LEADS; INTERPT &
REPORT ONLY $ 20.81
93015 CV STRESS TEST W/TREADMILL-PHARM;
INTRPT & REPRT $ 201.96
93018 CV STRESS TEST W/TREADMILL;
INTERPT & REPRT ONLY $ 43.45
93224 ECG-24 HR W/SUPERIMPOSIT SCAN;
REPRT-REVW-INTRPT $ 291.31
93227 ECG-24 HR W/SUPERIMPOSIT SCAN; MD
REVIEW & REPRT $ 76.50
93307 ECHO REAL-TIME W/DOCUMEN W/WO
M-MODE; COMPLT $ 364.75
93320 DOPPLER ECHO WAVE W/ SPECTRAL
DISPLY; COMPLT $ 163.40
93325 DOPPLER COLOR FLOW VELOCITY
MAPPING $ 190.94
93350 ECHO DURING REST & CV STRESS
INTERPT & REPORT $ 284.58
93503 INSRT & PLCMT FLO DIREC
CATH-MONITOR PURPOSES $ 345.17
93505 ENDOMYOCARDIAL BX $ 597.31
93545 INJ PROC-CARDIAC CATH; SELECT
CORONARY ANGIO $ 102.20
COLON AND RECTAL SURGERY
44120 ENTERECTOMY RESECT SM INTESTINE;
W/ANASTOMOSIS $1,758.58
44140 COLECTOMY PART; W/ANASTOM $2,194.84
44141 COLECTOMY PART; W/SKIN LEVEL
CECOSTOMY/ COLOSTOMY $2,268.38
44145 COLECTOMY PART; W/ COLOPROCTOSTOMY $2,664.65
44150 COLECTOMY-TOT ABD-WO PROCTECTOMY;
W/ILEOSTOMY $2,645.37
44620 CLO ENTEROSTOMY LG/SM INTEST $1,205.23
45110 PROCTECTOMY; COMPLT W/ COLOSTOMY 1
OR 2 STAGES $2,958.10
45300 PROCTOSIGMOIDOSCOPY RIGID; DX W/WO
COLLEC SPECMN $ 94.25
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
45330 SIGMOIDOSCOPY FLEX; DX W/ WO
COLLEC SPECMN $ 164.93
45378 COLONOSCOPY FLEX-PROX SPLEN FLEX;
DX (SEP PRO) $ 586.91
45380 COLONOSCOPY FLEX-PROX SPLEN FLEX;
W/BX 1/MX $ 656.88
45383 COLONOSCOPY FLEX; W/ABLAT LES NOT
AMENABLE-SNARE $ 877.51
45385 COLONOSCOPY FLEX; W/REMOV
TUMOR/LES BY SNARE $ 895.36
45505 PROCTOPLASTY; PROLAPSE MUCOS
MEMBRN $ 932.48
46060 I&D ISCHIORECTAL/ INTRAMURAL
ABSCESS W/ FISTULECT $ 821.10
46200 FISSURECTOMY W/WO SPHINCTEROTOMY $ 497.66
46221 HEMORRHOIDECTOMY BY SIMPL LIG $ 155.65
46255 HEMORRHOIDECTOMY INT & EXT SIMPL $ 751.13
46260 HEMORRHOIDECTOMY INT & EXT
COMPLX/EXTEN $1,001.03
46261 HEMORRHOIDECTOMY COMPLX/EXTEN; W/
FISSURECTOMY $1,112.41
46262 HEMORRHOIDECTOMY COMPLX/EXTEN; W/
FISTULECTOMY $1,150.97
46600 ANOSCOPY; DX W/WO COLLEC SPECMN
(SEPART PROC) $ 57.83
46700 ANOPLASTY PLASTIC OR STRICT; ADULT $ 983.89
52281 CYSTOURETHROSCOPY W/ CALIBRAT &/OR
DILAT URETHRAL $ 381.28
DERMATOLOGY
10040 ACNE SURG $ 122.40
11100 BX SKIN/SUBQ TISS/MUCOUS MEMB (SEP
PRO); 1 LES $ 110.98
11101 BX SKIN/SUBQ TISS/MUCOUS MEMB (SEP
PRO); EA ADD $ 58.75
11200 REMOV SKIN TAGS ANY AREA; TO &
INCL 15 LES $ 94.66
11400 EXC BEN LES TRUNK/ARMS/ LEGS; 0.5
CM/LESS $ 117.50
11401 EXC BEN LES TRUNK/ARMS/ LEGS; 0.6
TO 1.0 CM $ 163.20
11402 EXC BEN LES TRUNK/ARMS/ LEGS; 1.1
TO 2.0 CM $ 207.26
11420 EXC BEN LES SCALP/HANDS/FT/ GENIT;
0.5 CM/LESS $ 128.93
11421 EXC BEN LES SCALP/HANDS/FT/ GENIT;
0.6 TO 1.0 CM $ 184.42
11440 EXC BEN LES FACE/EARS/NOSE/ LIPS;
0.5 CM/LESS $ 150.96
11441 EXC BEN LES FACE/EARS/NOSE/ LIPS;
0.6 TO 1.0 CM $ 203.18
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
11602 EXC MALIG LES TRUNK/ARMS/ LEGS;
1.1 TO 2.0 CM $ 328.03
11641 EXC MALIG LES FACE/EARS/
NOSE/LIPS; 0.6 TO 1.0 CM $ 380.26
11642 EXC MALIG LES FACE/EARS/
NOSE/LIPS; 1.1 TO 2.0 CM $ 463.49
11900 INJ INTRALES; UP TO & INCL 7 LES $ 64.46
17000 DESTRCT-ANY METHD-BEN FACE LES
W/ANES; 1 LES $ 82.42
17001 DESTRCT-ANY METHD-BEN FACE LES
W/ANES; 2ND & 3RD $ 32.64
17002 DESTRCT-ANY METHD-BEN FACE LES
W/ANES; >3 EA ADD $ 24.48
17100 DESTRCT-ANY METHD- LES NOT FACE
W/ANES; 1 LES $ 75.89
17101 DESTRCT-ANY METHD- LES NOT FACE
W/ANES; 2ND LES $ 25.30
17102 DESTRCT-ANY METHD-LES NOT FACE
W/ANES; > 2 TO 15 $ 16.32
17104 DESTRCT-ANY METHD-LES NOT FACE
W/ANES; 15/MORE $ 170.54
17110 DESTRCT WARTS/MOLLUSCUM
CONTAG/MILIA TO 15 LES $ 79.97
17304 CHEMOSURG (MOH'S TECH); 1ST STAGE
UP TO 5 SPECMN $ 973.49
87101 CULTURE FUNGI ISOLATION; SKIN $ 22.03
87220 TISS EXAM FUNGI $ 12.85
88304 LEVEL III-SURG PATH GROSS/ MICRO
EXAM $ 53.24
88305 LEVEL IV-SURG PATH GROSS/ MICRO
EXAM $ 113.83
88307 LEVEL V-SURG PATH GROSS/ MICRO
EXAM $ 197.68
90782 THERAP/DX INJ; SUBQ/IM $ 6.73
96545 PROVISION CHEMOTX AGENT $ 46.51
96900 ACTINOTHERAPY $ 25.09
96910 PHOTOCHEMOTX; TAR & UV B/
PETROLATUM & UV B $ 36.11
96912 PHOTOCHEMOTHERAPY; PSORALENS &
ULTRAVIOLET A $ 41.62
EMERGENCY MEDICINE
10120 INCS & REMOV F B SUBQ TISS; SIMPL $ 138.72
11750 EXC NAIL/MATRIX PART/ COMPLT PERM
REMOV $ 322.32
12001 SIMPL REPR SCLP/AX/GENIT/
TRUNK/EXTREM; 2.5/LESS $ 185.23
12002 SIMPL REPR SCLP/AX/GENIT/
TRUNK/EXTREM; 2.6-7.5CM $ 217.87
12011 SIMPL REPR FACE/EARS/NOSE/ MUCOUS
MEMB; 2.5/LESS $ 204.82
12013 SIMPL REPR FACE/EARS/NOSE/ MUCOUS
MEMB; 2.6-5.0 $ 248.88
12032 LAYER CLO SCLP/AX/TRUNK/ EXTREM;
2.6 TO 7.5 CM $ 291.31
12051 LAYER CLO FACE/EARS/NOSE/ LIPS;
2.5 CM/LESS $ 288.05
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
12052 LAYER CLO FACE/EARS/NOSE/ LIPS;
2.6 TO 5.0 CM $ 353.33
13300 REPR UNUSUAL COMPLIC OVER 7.5 CM
ANY AREA $ 953.09
25600 CLO TX DIST RAD FX W/WO FX ULNA
STYLOID; WO MANI $ 468.38
31500 INTUBATION ENDOTRACHEAL ER PROC $ 294.58
36000 INTRO NEEDLE/ INTRACATHETER VEIN $ 32.84
62270 SPINAL PUNCT LUMBAR DX $ 155.04
63030 LAMINOT W/DECOMP NERV ROOT; 1
INTERSPACE LUMBAR $2,399.86
64450 INJ ANES AGENT; OTHER PERIPHERAL
NERV/BRANCH $ 150.96
90780 IV INFUS THERAP/DX-BY PHYS/
SUPERVS; TO 1 HR $ 69.77
90782 THERAP/DX INJ; SUBQ/IM $ 6.73
90784 THERAP/DX INJ; IV $ 29.99
94656 VENTILATION ASSIST & MGMT; 1 ST DA $ 151.16
94760 NONINVASIVE EAR/PULSE OXIMETRY-O2
SAT; 1 DETERM $ 16.52
94770 CO2 EXPIRED GAS DETERM-INFRARED
ANALY $ 40.39
ENDOCRINOLOGY
78006 THYROID IMAGING W/UPTAKE; SNGL
DETERM $ 193.39
78010 THYROID IMAGING; ONLY $ 148.72
78018 THYROID CARCINOMA METASTASES
IMAGING; WHOLE BODY $ 424.73
78990 PROVISION DX RADIONUCLIDE $ 44.68
79000 RADIONUCLIDE THERAP HYPERTHYROID;
INIT W/EVAL PT $ 330.48
82947 GLU; QUAN $ 11.63
83036 HGB; GLYCATED $ 16.52
84436 THYROXINE; TOT $ 15.30
84443 THYROID STIM HORMONE $ 33.66
84479 TRIIODOTHYRONINE; RESIN UPTAKE $ 16.52
91000 ESOPH INTUBATION &
COLLECT-CYTOLOGY W/PREP (SEP) $ 88.74
94010 SPIROMETRY W/RECRD-TOT & TIMED
VC-EXPIR FLO RATE $ 55.08
94664 AEROSOL/VAPOR INHALA; INIT DEMO &/
EVAL $ 33.05
96410 CHEMOTX ADMIN IV; INFUSION TECH
UP-1 HR $ 95.47
96530 REFILLING & MAINTENANCE IMPLNT
PUMP/RESERVOIR $ 66.10
99000 HANDL &/OR CONVEY SPECMN-TRANSF
OFFIC TO LAB $ 20.81
99050 SERV REQUEST AFTR OFFIC HRS ADD TO
BASIC SERV $ 26.93
99054 SERV REQUESTED SUN & HOLIDAYS ADD
BASIC SERV $ 53.24
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
EVALUATION AND MANAGEMENT
99202 OFFIC/OUTPT VISIT E&M NEW LOW-MOD
SEVERITY 20MIN $ 88.68
99203 OFFIC/OUTPT VISIT E&M NEW MODERAT
SEVERITY 3OMIN $ 123.38
99204 OFFIC/OUTPT VISIT E&M NEW MOD-HI
SEVERITY 45 MIN $ 183.78
99212 OFFIC/OUTPT VISIT E&M EST
SELF-LIMIT/MINOR 10MIN $ 48.20
99213 OFFIC/OUTPT VISIT E&M EST LOW-MOD
SEVERITY 15MIN $ 69.40
99214 OFFIC/OUTPT VISIT E&M EST MOD-HI
SEVERITY 25 MIN $ 105.39
99215 OFFIC/OUTPT VISIT E&M ESTAB MOD-HI
SEVRTY 40 MIN $ 167.08
99222 INIT HOSP CARE-DA E&M MODERATE
SEVERITY 50 MIN $ 210.13
99223 INIT HOSP CARE-DA E&M HIGH
SEVERITY 70 MIN $ 269.89
99231 SUBSQT HOSP CARE-DA E&M
STABLE/RECOVER 15 MIN $ 67.47
99232 SUBSQT HOSP CARE-DA E&M MINOR
COMPLIC 25 MIN $ 99.60
99233 SUBSQT HOSP CARE-DA E&M SIGNIFIC
COMPLIC 35 MIN $ 138.80
99242 OFFIC CONS NEW/ESTAB LOW SEVERITY
30 MIN $ 138.16
99243 OFFIC CONS NEW/ESTAB MODERATE
SEVERITY 40 MIN $ 179.29
99244 OFFIC CONS NEW/ESTAB MOD-HIGH
SEVERITY 60 MIN $ 251.90
99245 OFFIC CONS NEW/ESTAB MOD-HIGH
SEVERITY 80 MIN $ 339.29
99281 ER DEPT VISIT E&M SELF
LIMITED/MINOR $ 39.84
99282 ER DEPT VISIT E&M LOW-MODERATE
SEVERITY $ 61.69
99283 ER DEPT VISIT E&M MODERATE
SEVERITY $ 113.74
99284 ER DEPT VISIT E&M HIGH SEVERITY
URGENT EVAL $ 174.14
99285 ER DEPT VISIT E&M HIGH SEVER IMMED
SIGNIF THREAT $ 274.39
FAMILY PRACTICE
10060 I&D ABSCESS; SIMPL/SNGL $ 130.56
11750 EXC NAIL/MATRIX PART/ COMPLT PERM
REMOV $ 322.32
12001 SIMPL REPR SCLP/AX/GENIT/
TRUNK/EXTREM; 2.5/LESS $ 185.23
17100 DESTRCT-ANY METHD- LES NOT FACE
W/ANES; 1 LES $ 75.89
17340 CRYOTHERAPY-ACNE $ 84.05
45330 SIGMOIDOSCOPY FLEX; DX W/ WO
COLLEC SPECMN $ 164.93
59400 ROUTINE OB CARE INCL ANTEPARTUM
CARE-VAG DEL-PP $2,964.53
59410 VAG DELIV ONLY; INCL PP CARE $1,962.07
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
59515 CAESAREAN DELIV ONLY; INCL PP CARE $2,279.09
69210 REMOV IMPACTED CERUMEN (SEP PRO)
1/BOTH EARS $ 70.18
70220 RAD EXAM SINUSES PARANASAL COMPLT
MINI 3 VIEWS $ 72.83
71010 RAD EXAM CHEST; SNGL VIEW FRONTAL $ 45.90
71020 RAD EXAM CHEST 2 VIEWS FRONTAL &
LAT $ 58.75
73630 RAD EXAM FT; COMPLT MINI 3 VIEWS $ 48.96
76091 MAMMO; BILAT $ 135.86
80019 AUTO MULTICHANNEL TEST; 19/MORE
CHEM TESTS $ 19.58
80050 GENERAL HEALTH PANEL $ 63.04
81000 UA DIP STICK/TABLET REAGENT;
W/MICRO $ 7.96
90701 IMMUNIZ ACTIVE; DIPHTHERIA/
TETANUS/PERTUSSIS $ 55.08
90707 IMMUNIZ ACTIVE; MEASLES/
MUMPS/RUBELLA VIRUS LIVE $ 66.10
90712 IMMUNIZ ACTIVE; POLIOVIRUS VACCINE
LIVE ORAL $ 44.06
90724 IMMUNIZ ACTIVE; INFLUENZA VIRUS
VACCINE $ 35.50
90737 IMMUNIZ ACTIVE; HEMOPHILUS
INFLUENZA B $ 42.84
90782 THERAP/DX INJ; SUBQ/IM $ 6.73
93000 ECG-ROUTINE W/12 LEADS; W/ INTERPT
& REPORT $ 48.96
93005 ECG-ROUTINE ECG W/12 LEADS;
TRACING ONLY $ 28.15
93015 CV STRESS TEST W/TREADMILL-PHARM;
INTRPT & REPRT $ 201.96
97035 ULTRASOUND TREATMENT; 15 MINUTES $ 20.20
97260 MANIP (SEPART PROC) PERFORMED BY
PHYS; 1 AREA $ 25.09
GASTROENTEROLOGY
43220 ESOPHAGOSCOPY RIGID/FLEX;
W/BALLOON DILAT $ 360.57
43235 UGI ENDO; DX W/WO COLLEC
SPECMN-BRUSH/WASH (SEP) $ 410.55
43239 UGI ENDO; W/BX 1/MX $ 461.24
43243 UGI ENDO; W/INJ SCLEROSIS-
ESOPH/GASTRIC VARICES $ 756.13
43245 UGI ENDO; W/DILAT OUTLET-OBSTRUC
ANY METHD $ 580.48
43246 UGI ENDO; W/DIRECTED PLCMT PERQ
GASTROSTOMY TUBE $ 741.85
43247 UGI ENDO; W/REMOV F B $ 579.05
43255 UGI ENDO; W/CONTRL BLEEDING ANY
METHD $ 743.27
43260 ERCP; DX W/WO COLLEC
SPECMN-BRUSH/WASH (SEP PRO) $ 880.36
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
43262 ERCP; W/SPHINCTEROTOMY/
PAPILLOTOMY $1,211.66
43264 ERCP; W/ENDO RETRO REMOV
STONE-BILI/PANCREAT DUC $1,315.90
43450 DILAT ESOPH-UNGUIDED
SOUND/BOUGIE-1/MX PASSES $ 150.65
43453 DILAT ESOPH OVER GUIDE WIRE $ 223.48
45330 SIGMOIDOSCOPY FLEX; DX W/ WO
COLLEC SPECMN $ 164.93
45331 SIGMOIDOSCOPY FLEX; W/BX 1/MX $ 215.63
45378 COLONOSCOPY FLEX-PROX SPLEN FLEX;
DX (SEP PRO) $ 586.91
45380 COLONOSCOPY FLEX-PROX SPLEN FLEX;
W/BX 1/MX $ 656.88
45382 COLONOSCOPY FLEX-PROX SPLEN FLEX;
W/CONTRL BLEED $ 857.51
45383 COLONOSCOPY FLEX; W/ABLAT LES NOT
AMENABLE-SNARE $ 877.51
45385 COLONOSCOPY FLEX; W/REMOV
TUMOR/LES BY SNARE $ 895.36
47000 BX LIVER; PERCUT NEEDLE $ 244.90
71020 RAD EXAM CHEST 2 VIEWS FRONTAL &
LAT $ 58.75
74245 RAD EXAM GI TRACT UPPER; W/SM
BOWEL W/MX SERIAL $ 232.56
74249 RAD EXAM GI TRACT UPPER-AIR
CONTRAST; W/SM BOWEL $ 244.19
74280 RAD EXAM COLON; AIR CONTRAST W/HI
DENSITY BARIUM $ 231.34
76700 ECHO ABD B-SCAN W/IMAGE DOCUMEN;
COMPLT $ 197.68
80019 AUTO MULTICHANNEL TEST; 19/MORE
CHEM TESTS $ 19.58
82150 AMYLASE $ 17.75
85024 BLD CT; HG/PLATELET CT AUTO & AUTO
PART WBC $ 23.26
85730 THROMBOPLASTIN TIME PART;
PLASMA/WHOLE BLD $ 11.63
90780 IV INFUS THERAP/DX-BY PHYS/
SUPERVS; TO 1 HR $ 69.77
90782 THERAP/DX INJ; SUBQ/IM $ 6.73
90784 THERAP/DX INJ; IV $ 29.99
91010 ESOPH MOTILITY STUDY $ 226.44
91033 ESOPH ACID REFLUX TEST; PROLONGED
RECORDING $ 276.62
91055 GASTRIC INTUBAT WASH & PREP SLIDES
(SEPART PROC) $ 110.16
91065 BREATH HYDROGEN TEST $ 66.10
GENERAL PRACTICE
10060 I&D ABSCESS; SIMPL/SNGL $ 130.56
11750 EXC NAIL/MATRIX PART/ COMPLT PERM
REMOV $ 322.32
17000 DESTRCT-ANY METHD-BEN FACE LES
W/ANES; 1 LES $ 82.42
33877 REPR THORACOABD AORTIC ANEURY
W/GFT W/WO BYPASS $6,624.49
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
36216 SELECT CATH PLCMT ART SYST; INIT
2ND ORDER THORA $ 631.18
58150 TOT ABD HYST W/WO REMOV
TUBE(S)--OVARY(S) $2,117.52
59400 ROUTINE OB CARE INCL ANTEPARTUM
CARE-VAG DEL-PP $2,964.53
69210 REMOV IMPACTED CERUMEN (SEP PRO)
1/BOTH EARS $ 70.18
71010 RAD EXAM CHEST; SNGL VIEW FRONTAL $ 45.90
71020 RAD EXAM CHEST 2 VIEWS FRONTAL &
LAT $ 58.75
72110 RAD EXAM SPINE LUMBOSACRAL; COMPLT
W/ OBLIQ VIEWS $ 85.68
73630 RAD EXAM FT; COMPLT MINI 3 VIEWS $ 48.96
76092 SCREENING MAMMO BILAT $ 109.55
80019 AUTO MULTICHANNEL TEST; 19/MORE
CHEM TESTS $ 19.58
81000 UA DIP STICK/TABLET REAGENT;
W/MICRO $ 7.96
83718 LIPOPROTEIN DIRECT MEASUR; HIGH
DENSITY CHOL $ 20.81
85023 BLD CT; HG/PLATELET CT AUTO &
MANUAL WBC $ 24.48
85024 BLD CT; HG/PLATELET CT AUTO & AUTO
PART WBC $ 23.26
90707 IMMUNIZ ACTIVE; MEASLES/
MUMPS/RUBELLA VIRUS LIVE $ 66.10
90724 IMMUNIZ ACTIVE; INFLUENZA VIRUS
VACCINE $ 35.50
90782 THERAP/DX INJ; SUBQ/IM $ 6.73
90853 GRP MED PSYCHOTHERAP & DRUG MGMT
WHEN INDICATED $ 53.86
93000 ECG-ROUTINE W/12 LEADS; W/ INTERPT
& REPORT $ 48.96
95115 PROF SERV ALLERG IMMUNOTX NOT INCL
EXTRCT; 1 INJ $ 23.87
95117 PROF SERV ALLERG IMMUNOTX WO
EXTRACT; MX INJ $ 30.60
95125 PROF SERV ALLERG IMMUNOTX INCL
EXTRACT; MX INJ $ 28.76
97010 PHYS MEDS TX-1 AREA; HOT/ COLD
PACKS $ 17.75
97014 PHYS MEDS TX-1 AREA; ELEC STIM $ 24.48
97032 ELECTRICAL STIMULATION; 15 MINUTES $ 24.48
97035 ULTRASOUND TREATMENT; 15 MINUTES $ 20.20
97260 MANIP (SEPART PROC) PERFORMED BY
PHYS; 1 AREA $ 25.09
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
GENERAL SURGERY
19120 EXC CYST/BEN-MALIG TISS/ DUCT/LES
MALE/FE 1/MORE $ 722.16
19162 MASTEC PART; W/AXILRY
LYMPHADENECTOMY $1,970.64
19240 MASTEC MOD RAD W/AX NODES EXCL PEC
MAJOR MUSCL $2,133.02
36533 INSRT IMPLNT VENOUS ACCES PORT
W/WO RESERVOIR $ 724.00
44005 ENTEROLYSIS (SEPART PROC) $1,610.07
44120 ENTERECTOMY RESECT SM INTESTINE;
W/ANASTOMOSIS $1,758.58
44140 COLECTOMY PART; W/ANASTOM $2,194.84
44145 COLECTOMY PART; W/ COLOPROCTOSTOMY $2,664.65
44153 COLECTOMY WO PROCTECT; W/ CREAT
ILEAL RESERVOIR $3,403.64
44950 APPY $1,010.31
44960 APPY; RUPT APPY W/ABSCESS/ GEN
PERITONITIS $1,207.37
45378 COLONOSCOPY FLEX-PROX SPLEN FLEX;
DX (SEP PRO) $ 586.91
46260 HEMORRHOIDECTOMY INT & EXT
COMPLX/EXTEN $1,001.03
47600 CHOLEY $1,413.01
47605 CHOLEY; W/ CHOLANGIOGRAPHY $1,529.39
49500 REPR INIT ING HERNIA 6 MO-/ 5 YR;
REDUCIBLE $ 738.28
49505 REPR INIT ING HERNIA 5 YR/ MORE;
REDUCIBLE $ 829.67
49520 REPR RECURRENT ING HERNIA ANY AGE;
REDUCIBLE $1,013.88
49560 REPR INIT INCS HERNIA; REDUCIBLE
(SEPART PROC) $1,165.25
50360 RENAL HOMOTRANSPL; EXCLD DONOR &
RECIP NEPHRECT $3,979.84
58150 TOT ABD HYST W/WO REMOV
TUBE(S)--OVARY(S) $2,117.52
80019 AUTO MULTICHANNEL TEST; 19/MORE
CHEM TESTS $ 19.58
85025 BLD CT; HG/PLATELET CT AUTO & AUTO
COMPLT WBC $ 23.26
88170 FINE NEEDL ASPIRAT W/WO PREP
SMEARS; SUPERF TISS $ 143.82
88304 LEVEL III-SURG PATH GROSS/ MICRO
EXAM $ 53.24
88305 LEVEL IV-SURG PATH GROSS/ MICRO
EXAM $ 113.83
HEMATOLOGY/ONCOLOGY
36000 INTRO NEEDLE/ INTRACATHETER VEIN $ 32.84
36430 TRANSFUSION BLD/BLD COMPONENTS $ 73.54
38230 BONE MARROW HARVESTING TRANSPL $ 514.79
38241 BONE MARROW TRANSPL; AUTOLOGOUS $ 314.87
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
74160 CAT ABD; W/CONTRAST $ 541.62
77336 CONT MED RADIAT PHYSICS CONS W/QA
REPORT WK-THER $ 184.82
77413 RADIATION TX DELIV-3/MORE TX
AREAS; 6-10 MEV $ 145.04
77414 RADIATION TX DELIV-3/MORE TX
AREAS; 11-19 MEV $ 145.04
77430 WK RAD THERAP MGMT; COMPLX $ 332.93
80019 AUTO MULTICHANNEL TEST; 19/MORE
CHEM TESTS $ 19.58
85023 BLD CT; HG/PLATELET CT AUTO &
MANUAL WBC $ 24.48
85024 BLD CT; HG/PLATELET CT AUTO & AUTO
PART WBC $ 23.26
85025 BLD CT; HG/PLATELET CT AUTO & AUTO
COMPLT WBC $ 23.26
90780 IV INFUS THERAP/DX-BY PHYS/
SUPERVS; TO 1 HR $ 69.77
90781 IV INFUS THERAP/DX-BY PHYS/
SUPERVS; EA HR TO 8HR $ 34.88
90782 THERAP/DX INJ; SUBQ/IM $ 6.73
90784 THERAP/DX INJ; IV $ 29.99
96408 CHEMOTX ADMIN IV; PUSH TECH $ 59.98
96410 CHEMOTX ADMIN IV; INFUSION TECH
UP-1 HR $ 95.47
96412 CHEMOTX ADMIN IV; INFUSION TECH
1-8 HR EA ADD HR $ 72.22
96414 CHEMOTX ADMIN IV; INFUSION
TECH-PROLONGED W/PUMP $ 83.23
96520 REFILLING & MAINTENANCE PORTABLE
PUMP $ 55.69
96530 REFILLING & MAINTENANCE IMPLNT
PUMP/RESERVOIR $ 66.10
96545 PROVISION CHEMOTX AGENT $ 46.51
INFECTIOUS DISEASES
96414 CHEMOTX ADMIN IV; INFUSION
TECH-PROLONGED W/PUMP $ 83.23
96520 REFILLING & MAINTENANCE PORTABLE
PUMP $ 55.69
99000 HANDL &/OR CONVEY SPECMN-TRANSF
OFFIC TO LAB $ 20.81
99025 INIT VISIT WHEN (*) SURG PROC =
MAJ SERV @ VISIT $ 26.93
99052 SERV REQUEST BETWEEN 10 PM & 8 AM
ADD TO BASIC $ 53.24
99054 SERV REQUESTED SUN & HOLIDAYS ADD
BASIC SERV $ 53.24
INTERNAL MEDICINE
31622 BRONCHOSCOPY; DX W/WO CELL
WASHING/BRUSHING $ 547.54
43235 UGI ENDO; DX W/WO COLLEC
SPECMN-BRUSH/WASH (SEP) $ 410.55
43239 UGI ENDO; W/BX 1/MX $ 461.24
45330 SIGMOIDOSCOPY FLEX; DX W/ WO
COLLEC SPECMN $ 164.93
45378 COLONOSCOPY FLEX-PROX SPLEN FLEX;
DX (SEP PRO) $ 586.91
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
45380 COLONOSCOPY FLEX-PROX SPLEN FLEX;
W/BX 1/MX $ 656.88
45385 COLONOSCOPY FLEX; W/REMOV
TUMOR/LES BY SNARE $ 895.36
71010 RAD EXAM CHEST; SNGL VIEW FRONTAL $ 45.90
71020 RAD EXAM CHEST 2 VIEWS FRONTAL &
LAT $ 58.75
76091 MAMMO; BILAT $ 135.86
80019 AUTO MULTICHANNEL TEST; 19/MORE
CHEM TESTS $ 19.58
80061 LIPID PANEL $ 26.93
84443 THYROID STIM HORMONE $ 33.66
85025 BLD CT; HG/PLATELET CT AUTO & AUTO
COMPLT WBC $ 23.26
90724 IMMUNIZ ACTIVE; INFLUENZA VIRUS
VACCINE $ 35.50
90780 IV INFUS THERAP/DX-BY PHYS/
SUPERVS; TO 1 HR $ 69.77
90782 THERAP/DX INJ; SUBQ/IM $ 6.73
92982 PERQ TRNSLUMNL CORON BALOON
ANGIOPLSTY; 1 VESSEL $1,606.50
93000 ECG-ROUTINE W/12 LEADS; W/ INTERPT
& REPORT $ 48.96
93005 ECG-ROUTINE ECG W/12 LEADS;
TRACING ONLY $ 28.15
93010 ECG-ROUTINE W/12 LEADS; INTERPT &
REPORT ONLY $ 20.81
93015 CV STRESS TEST W/TREADMILL-PHARM;
INTRPT & REPRT $ 201.96
93018 CV STRESS TEST W/TREADMILL;
INTERPT & REPRT ONLY $ 43.45
93224 ECG-24 HR W/SUPERIMPOSIT SCAN;
REPRT-REVW-INTRPT $ 291.31
93307 ECHO REAL-TIME W/DOCUMEN W/WO
M-MODE; COMPLT $ 364.75
93320 DOPPLER ECHO WAVE W/ SPECTRAL
DISPLY; COMPLT $ 163.40
93325 DOPPLER COLOR FLOW VELOCITY
MAPPING $ 190.94
95115 PROF SERV ALLERG IMMUNOTX NOT INCL
EXTRCT; 1 INJ $ 23.87
96410 CHEMOTX ADMIN IV; INFUSION TECH
UP-1 HR $ 95.47
NEONATOLOGY
31500 INTUBATION ENDOTRACHEAL ER PROC $ 294.58
31520 LARYNGOSCOPY DIRECT W/WO
TRACHEOSCOPY; DX NB $ 357.41
33960 PROLONG EXTRACORPOR CIRCUL CP
INSUFF; INIT 24 HR $1,949.93
36000 INTRO NEEDLE/ INTRACATHETER VEIN $ 32.84
36430 TRANSFUSION BLD/BLD COMPONENTS $ 73.54
36440 PUSH TRANSFUSION BLD 2 YR/ UNDER $ 145.66
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
36450 EXCHG TRANSFUSION BLD; NB $ 306.31
36510 CATH UMBILICAL VEIN DX/ THERAP NB $ 103.53
36600 ART PUNCT WITHDRAWAL BLD DX $ 44.27
36620 ART CATH/CANNULAT-SAMPL MONITOR
(SEP PRO); PERQ $ 139.23
36660 CATH UMBILICAL-ART-NB-DX/ THERAP $ 137.80
61070 PUNCT SHUNT TUBING/
RESERVOIR-ASPIRAT/INJ PROC $ 115.06
62230 REPLAC/REVIS CSF SHUNT/ OBSTRUC
VALV/DISTAL CATH $1,742.98
62270 SPINAL PUNCT LUMBAR DX $ 155.04
94656 VENTILATION ASSIST & MGMT; 1 ST DA $ 151.16
94657 VENTILATION ASSIST & MGMT; SUBSQT
DA $ 91.80
94660 CONT POS AIRWAY PRESS VENTILATION
INIT & MGMT $ 93.64
94761 NONINVASIVE EAR/PULSE OXIMETRY O2
SAT; MX DETERM $ 42.84
NEPHROLOGY
36489 PLCMT CENTRAL VENOUS CATH; PERCUT
OVER AGE 2 $ 179.21
36520 THERAP APHERESIS $ 269.89
36800 INSRT CANNULA HEMODIALYSIS/OTHER;
VEIN-VEIN $ 352.00
50200 RENAL BX; PERCUT BY TROCAR/NEEDLE $ 389.84
50590 LITH EXTRACORPOREAL SHOCK WAVE $1,418.72
76700 ECHO ABD B-SCAN W/IMAGE DOCUMEN;
COMPLT $ 197.68
76775 ECHO RETROPERITON B-SCAN W/IMAGE
DOCUMEN; LTD $ 142.60
76778 ECHO TRANSPL KIDNEY B-SCAN W/IMAGE
DOCUMEN $ 191.56
80019 AUTO MULTICHANNEL TEST; 19/MORE
CHEM TESTS $ 19.58
82565 CREATININE; BLD $ 14.08
83970 PARATHORMONE $ 99.14
85025 BLD CT; HG/PLATELET CT AUTO & AUTO
COMPLT WBC $ 23.26
86287 HEPATITIS B SURFACE ANTIG $ 30.60
90784 THERAP/DX INJ; IV $ 29.99
90935 HEMODIALYSIS PROC W/SNGL PHYS EVAL $ 171.97
90937 HEMODIALYSIS PROC W/ REPEAT EVAL
W/WO REVIS DIALY $ 302.33
90945 DIALYSIS PROC OTHER THAN
HEMODIALYSIS W/1 EVAL $ 160.96
90947 DIALYSIS OTHER THAN HEMODIALYSIS
W/REPEAT EVAL $ 268.67
90989 DIALYSIS TRAIN-PT-INCL HELPR WHERE
APPLIC-COMPLT $ 317.02
90997 HEMOPERFUSION $ 266.22
</TABLE>
C-7
<PAGE>
<TABLE>
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
95900 NERV CONDUCT VELOCITY/ LATENCY
STDY; MOTR EA NERV $ 66.71
95904 NERV CONDUC VELOCITY/ LATENCY
STDY; SENSRY EA NRV $ 57.53
92002 OPHTH SERV: MED EXAM & EVAL;
INTERMED NEW PT
22554 ARTHRODESIS-ANT INTERBOD; CERV
BELOW C2 W/GFT $3,310.51
22842 POST INSTRUM; SEGMT FIXA $1,677.70
61313 CRANIECTOMY-HEMATOMA-SUPRATENT;
INTRACEREBRAL $4,155.07
61510 CRANIECTOMY; EXC BRAIN
TUMOR-SUPRATENTORIAL $4,790.74
61512 CRANIECTOMY; EXC
MENINGOMA-SUPRATENTORIAL $5,533.30
61518 CRANIECTOMY-EXC TUMOR-POST FOSSA;
EX MENINGIOMA $5,799.31
61520 CRANIECTOMY-POST FOSSA;
CEREBELLOPONTINE ANGLE $7,565.95
61548 HYPOPHYSECTOMY-TRANSNASAL
NONSTEREOTACTIC $3,995.14
61700 SURG ANEURY INTRACRAN APPROACH;
CAROTID CIRCULAT $6,989.86
61751 STEREOTACTIC BX/ASPIRAT/EXC
INTRACRAN LES; W/CAT $3,307.25
62121 CRANIOTOMY REPR ENCEPHALOCELE
SKULL BASE $3,359.47
62223 CREAT SHUNT; VENTRICULO-
PERITONEAL/-PLEURAL $2,560.61
62230 REPLAC/REVIS CSF SHUNT/ OBSTRUC
VALV/DISTAL CATH $1,742.98
63005 LAMINECT W/EXPLOR 1-2 VERTEB;
LUMBAR EX SPONDYLO $2,798.88
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
63020 LAMINOTOMY W/DECOMP NERV ROOT; 1
INTERSPACE CERV $2,708.30
63030 LAMINOT W/DECOMP NERV ROOT; 1
INTERSPACE LUMBAR $2,399.86
63042 LAMINOTOMY W/DECOMP NERV ROOT
RE-EXPLOR; LUMBAR $3,512.06
63045 LAMINECTOMY SNGL VERTEBRAL SEGMT;
CERV $3,205.25
63047 LAMINECTOMY SNGL VERTEBRAL SEGMT;
LUMBAR $2,805.41
63075 DISKECTOMY ANT W/DECOMP; CERV SNGL
INTERSPACE $3,205.25
63081 VERTEBRAL CORPECTOMY-ANT W/DECOMP;
CERV 1 SEGMT $4,311.74
63200 LAMINECTOMY W/RELEASE TETHERED
CORD LUMBAR $2,609.57
64721 NEUROPLASTY &/OR TRANSPO; MEDIAN @
CARPAL TUNNEL $ 793.15
95869 NEEDLE EMG LTD STUDY SPEC MUSCL $ 58.14
95900 NERV CONDUCT VELOCITY/ LATENCY
STDY; MOTR EA NERV $ 66.71
95904 NERV CONDUC VELOCITY/ LATENCY
STDY; SENSRY EA NRV $ 57.53
95920 INTRAOPERATIVE NEUROPHYSIOLOGY
TESTING PER HOUR $ 304.78
95925 SOMATOSENSORY TESTING 1/MORE NERV $ 132.80
</TABLE>
C-8
<PAGE>
<TABLE>
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
NEUROLOGY
22554 ARTHRODESIS-ANT INTERBOD; CERV
BELOW C2 W/GFT $3,310.51
36216 SELECT CATH PLCMT ART SYST; INIT
2ND ORDER THORA $ 631.18
62223 CREAT SHUNT; VENTRICULO-
PERITONEAL/-PLEURAL $2,560.61
62270 SPINAL PUNCT LUMBAR DX $ 155.04
70470 CAT HEAD/BRAIN; WO CONTRAST
FOLLOWED BY CONTRAST $ 556.31
70551 MRI BRAIN; WO CONTRAST $ 831.71
70553 MRI BRAIN; WO CONTRAST FOLLOWED BY
CONTRAST $1,762.56
72141 MRI SPINAL CANAL & CONTENTS CERV;
WO CONTRAST $ 843.34
72148 MRI SPINAL CANAL & CONTENTS
LUMBAR; WO CONTRAST $ 908.21
80019 AUTO MULTICHANNEL TEST; 19/MORE
CHEM TESTS $ 19.58
84443 THYROID STIM HORMONE $ 33.66
84450 TRANSFERASE; ASPARTATE AMINO $ 11.63
85025 BLD CT; HG/PLATELET CT AUTO & AUTO
COMPLT WBC $ 23.26
90830 PSYCH TEST W/INTERPT & REPRT PER
HR $ 80.78
92280 VISUALLY EVOKED POTENTIAL STUDY
W/MED DX EVAL $ 25.09
92585 BRAINSTEM EVOKED RESPONSE
RECORDING $ 248.47
95819 EEG INCL AWAKE & ASLEEP;
STAND/PORT SAME FACILIT $ 184.82
95860 NEEDLE EMG; 1 EXTREM & RELATED
PARASPINAL AREAS $ 130.97
95861 NEEDLE EMG; 2 EXTREM & RELATED
PARASPINAL AREAS $ 224.60
95900 NERV CONDUCT VELOCITY/ LATENCY
STDY; MOTR EA NERV $ 66.71
95904 NERV CONDUC VELOCITY/ LATENCY
STDY; SENSRY EA NRV $ 57.53
95925 SOMATOSENSORY TESTING 1/MORE NERV $ 132.80
95935 'H/'F' REFLEX STUDY BY ELEC-DX
TESTING $ 13.46
OBSTETRICS & GYNOCOLOGY
56304 LAP SURG; W/LYSIS ADHESIONS $ 911.47
57452 COLPOSCOPY; (SEPART PROC) $ 145.25
57454 COLPOSCOPY; W/BX-CERV &/OR
ENDOCERV CURET $ 223.58
57520 CONIZATION CERV W/WO FULG W/WO D&C
W/WO REPR $ 664.22
58100 ENDOMETRIAL &/OR ENDOCERV SAMPL
(SEPART PROC) $ 123.22
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
58120 DILAT & CURET DX &/OR THERAP (NON
OB) $ 503.47
58150 TOT ABD HYST W/WO REMOV
TUBE(S)--OVARY(S) $2,117.52
58260 VAG HYST $1,864.56
58605 LIG/TRANSECT FALLOPIAN TUBE-SAME
HOSP (SEP PRO) $ 694.42
58720 SALPINGO-OOPHORECTOMY COMPLT/PART
(SEPART PROC) $1,616.50
58740 LYSIS ADHESIONS $1,135.87
59025 FETAL NON-STRESS TEST $ 89.96
59400 ROUTINE OB CARE INCL ANTEPARTUM
CARE-VAG DEL-PP $2,964.53
59410 VAG DELIV ONLY; INCL PP CARE $1,962.07
59510 ROUTINE OB CARE INCL ANTEPARTUM
CARE-C SECT-PP $3,358.66
59515 CAESAREAN DELIV ONLY; INCL PP CARE $2,279.09
59820 TX MISSED AB COMPLT SURGICALLY;
FIRST TRIMESTER $ 589.05
59840 INDUCED AB BY DILAT & CURET $ 486.95
76091 MAMMO; BILAT $ 135.86
76805 ECHO PG UTERUS B-SCAN W/ IMAGE
DOCUMEN; COMPLT $ 222.77
76830 ECHO TRANSVAGINAL $ 159.73
76856 ECHO PELVIC B-SCAN W/IMAGE
DOCUMEN; COMPLT $ 159.73
76946 ULTRASONIC GUIDANCE
AMNIOCENTESIS-RAD S & I $ 130.36
80055 OB PANEL $ 69.77
81000 UA DIP STICK/TABLET REAGENT;
W/MICRO $ 7.96
84703 GONADOTROPIN CHORIONIC; QUAL $ 41.00
88150 CYTPTH SMEARS CERV/VAG 1-3; SCRN
TECH PHYS SUPER $ 10.40
88305 LEVEL IV-SURG PATH GROSS/ MICRO
EXAM $ 113.83
90730 IMMUNIZ ACTIVE; HEPATITIS A
VACCINE $ 80.78
90742 IMMUNIZ PASSIVE; SPEC HYPERIMMUNE
SERUM GLOBULIN $ 58.75
90780 IV INFUS THERAP/DX-BY PHYS/
SUPERVS; TO 1 HR $ 69.77
90782 THERAP/DX INJ; SUBQ/IM $ 6.73
90784 THERAP/DX INJ; IV $ 29.99
OPHTHALMOLOGY
65855 TRABECULOPLASTY-LASER SURG 1/MORE
SESSIONS $ 871.49
66761 IRIDOTOMY/IRIDECTOMY BY LASER SURG $ 762.14
66821 DISCISSION SECNDRY MEMBRN
CATARACT; LASER SURG $ 516.53
66984 EXTRACAPSULAR CATARACT REMOV
W/INSRT IOL PROSTH $1,916.78
</TABLE>
C-9
<PAGE>
<TABLE>
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
67036 VITRECTOMY MECH PARS PLANA
APPROACH $2,324.78
67038 VITRECTOMY MECH; W/ EPIRETINAL
MEMBRN STRIPPING $3,904.56
67107 REPR RETINAL DETACHMENT; SCLERAL
BUCKLING $2,692.80
67108 REPR RETINAL DETACHMENT;
W/VITRECTOMY ANY METHD $3,845.81
67145 PROPHYLAXIS RETINAL DETACH;
PHOTOCOAGULATION $ 984.10
67210 DESTRCT LOCALIZ LES RETINA;
PHOTOCOAGULATION $1,547.95
67228 DESTRCT PROGRESSIVE RETINOPATHY;
PHOTOCOAGULAT $1,816.42
67311 STRABISMUS SURG; 1 HORIZONTAL
MUSCL $1,210.13
67312 STRABISMUS SURG; 2 HORIZONTAL
MUSCL $1,499.81
67420 ORBITOTOMY W/BONE FLAP/ WINDOW;
W/REMOV LES $3,010.22
76511 OPHTH ULTRASOUND ECHO DX; A-SCAN
ONLY $ 153.00
76512 OPHTH ULTRASOUND ECHO DX; CONTACT
B-SCAN $ 156.67
OPHTH SERV: MED EXAM & EVAL;
INTERMED NEW PT $ 85.07
92004 OPHTH SERV: MED EXAM; COMP NEW PT
1/MORE VISITS $ 138.31
92012 OPHTH SERV: MED EXAM & EVAL;
INITERMED ESTAB PT $ 69.16
92014 OPHTH SERV: MED EXAM & EVAL; COMP
ESTAB PT $ 101.59
92015 DETERM REFRACTIVE STATE $ 44.06
92020 GONIOSCOPY W/MED DX EVAL (SEPART
PROC) $ 41.00
92082 VISUAL FIELD EXAM UNILAT/ BILAT
W/EVAL; INTERMED $ 58.14
92083 VISUAL FIELD EXAM UNILAT/ BILAT
W/EVAL; EXTEN $ 83.84
92225 OPHTH EXTEN W/RETINAL DRAW W/MED
DX EVAL; INIT $ 52.02
92235 FLUORESCEIN ANGIOGRAPHY W/MED DX
EVAL $ 151.78
92250 FUNDUS PHOTOGRAPHY W/ MED DX EVAL $ 53.86
OPTOMETRY
92002 OPHTH SERV: MED EXAM & EVAL;
INTERMED NEW PT $ 85.07
92004 OPHTH SERV: MED EXAM; COMP NEW PT
1/MORE VISITS $ 138.31
92012 OPHTH SERV: MED EXAM & EVAL;
INITERMED ESTAB PT $ 69.16
92014 OPHTH SERV: MED EXAM & EVAL; COMP
ESTAB PT $ 101.59
92015 DETERM REFRACTIVE STATE $ 44.06
92020 GONIOSCOPY W/MED DX EVAL (SEPART
PROC) $ 41.00
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
92065 ORTHOPTIC &/OR PLEOPTIC TRAIN
W/MED DIRECT $ 45.29
92081 VISUAL FIELD EXAM UNILAT/ BILAT
W/DX EVAL; LTD $ 42.23
92082 VISUAL FIELD EXAM UNILAT/ BILAT
W/EVAL; INTERMED $ 58.14
92083 VISUAL FIELD EXAM UNILAT/ BILAT
W/EVAL; EXTEN $ 83.84
92100 SERIAL TONOMETRY (SEP PRO) W/DX
EVAL SAME DA $ 72.22
92225 OPHTH EXTEN W/RETINAL DRAW W/MED
DX EVAL; INIT $ 52.02
92226 OPHTH EXTEN W/RETINAL DRAW W/MED
DX EVAL; SUBSQT $ 45.90
92250 FUNDUS PHOTOGRAPHY W/ MED DX EVAL $ 53.86
92285 EXT OCULAR PHOTOGRAPHY
W/EVAL-DOCUMN MED PROGRES $ 30.60
92310 SCRIPT & FIT CONTACT LENS; CORNEAL
EX APHAKIA $ 152.39
92325 MODIFICAT LENS (SEP PRO) W/ MED
SUPERVS ADAPTAT $ 23.87
92326 REPLAC CONTACT LENS $ 99.14
ORTHOPEDIC SURGERY
20680 REMOV IMPLNT; DEEP $ 578.54
22842 POST INSTRUM; SEGMT FIXA $1,677.70
23130 ACROMIOPLASTY/ ACROMIONECTOMY PART $1,247.66
23420 REPR COMPLT SHOULDER CUFF AVULSION
CHRONIC $2,416.99
25605 CLOSED RED FX-DIST RAD OR EPIPH
SEP $ 809.47
27130 ARTHROPLASTY ACETABULAR & PROX FEM
PROSTH REPLAC $3,849.07
27134 REVIS TOT HIP ARTHROPLASTY; BOTH
COMPON W/WO GFT $5,252.59
27425 LAT RETINACULAR RELEASE $1,026.53
27447 ARTHROPLASTY KNEE CONDYLE &
PLATEAU; MED & LAT $4,066.94
27814 OP TX BIMALLEOLAR ANK FX W/WO
INT/EXT FIXA $1,751.95
28285 HAMMERTOE OR; 1 TOE $ 748.27
28296 HALLUX VALGUS CORRECT; W/
METATARSAL OSTEOTOMY $1,507.97
29075 CAST SHORT ARM $ 120.77
29425 CAST SHORT LEG AMBULATORY TYPE $ 172.99
29826 ARTHROSCOPY SHOULDER SURG; DECOMP
SUBACROM SPACE $1,807.44
29870 ARTHROSCOPY KNEE DX W/WO SYNOVIAL
BX (SEP PRO) $ 783.36
29875 ARTHROSCOPY KNEE SURG; SYNOVECTOMY
LTD (SEP PRO) $1,277.04
</TABLE>
C-10
<PAGE>
<TABLE>
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
29876 ARTHROSCOPY KNEE SURG; SYNOVECTOMY
MAJOR $1,556.11
29877 ARTHROSCOPY KNEE SURG; DEBRID/SHAV
ARTIC CARTIL $1,459.82
29879 ARTHROSCOPY KNEE SURG; ABRASION
ARTHROPLASTY $1,597.73
29880 ARTHROSCOPY KNEE SURG; W/
MENISECTMY (MED & LAT) $1,685.86
29881 ARTHROSCOPY KNEE SURG; W/
MENISECTMY (MEDIAL/LAT) $1,535.71
29888 ARTHROSCOPICALLY AIDED ACL
REPAIR/AUGMENT/RECON $2,730.34
63030 LAMINOT W/DECOMP NERV ROOT; 1
INTERSPACE LUMBAR $2,399.86
64721 NEUROPLASTY &/OR TRANSPO; MEDIAN @
CARPAL TUNNEL $ 793.15
72100 RAD EXAM SPINE LUMBOSACRAL; AP &
LAT $ 61.81
73100 RAD EXAM WRIST; ANTEROPOSTERIOR &
LAT VIEWS $ 45.29
73560 RAD EXAM KNEE; ANTEROPOSTERIOR &
LAT VIEWS $ 47.74
73620 RAD EXAM FT; ANTEROPOSTERIOR & LAT
VIEWS $ 45.29
73630 RAD EXAM FT; COMPLT MINI 3 VIEWS $ 48.96
90782 THERAP/DX INJ; SUBQ/IM $ 6.73
97010 PHYS MEDS TX-1 AREA; HOT/ COLD
PACKS $ 17.75
97012 PHYS MEDS TX-1 AREA; TRACTION MECH $ 28.15
97110 PHYS MEDS-1 AREA 1ST 30 MIN EA
VISIT; EXERCISE $ 36.72
97530 KINETIC ACTIVITIES 1 AREA; 1ST 30
MIN EA VISIT $ 38.56
97700 OFFIC VISIT W/'CHECK-OUT'
TEST/MEASUR; 1ST 30MIN $ 80.17
97750 PHYSICAL PERFORMANCE TEST; 15 MIN. $ 44.06
OTOLARYNGOLOGY
21147 RECON MIDFACE LEFORT I; 3/MORE
PIECES REQ GFT $3,060.82
21196 RECON MANDIB RAMUS SAGITTAL SPLIT;
W/INT FIXA $2,703.41
21240 ARTHROPLASTY TEMPOROMANDIBULAR JT
W/ WO AUTOGFT $2,607.94
30140 SUBMUCOUS RESECT TURBINATE
PART/COMPLT $ 543.46
30420 RHINOPLASTY PRIMARY; INCL MAJOR
SEPTAL REPR $2,888.64
30520 SEPTOPLASTY/SMR W/WO CARTIL
SCORING/REPLAC W/ GFT $1,110.58
30620 SEPTAL/OTHER INTRANASAL
DERMATOPLASTY $1,122.00
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
31090 SINUSOTOMY COMBO 3/MORE SINUSES $1,802.54
31575 LARYNGOSCOPY FLEXIBLE FIBEROPTIC;
DX $ 230.93
42820 TONSILLECTOMY & ADENOIDECTOMY;
UNDER AGE 12 $ 576.10
42821 TONSILLECTOMY & ADENOIDECTOMY; AGE
12/OVER $ 692.78
42826 TONSILLECTOMY PRIM/ SECNDRY; AGE
12/OVER $ 610.37
42830 ADENOIDECTOMY PRIM; UNDER AGE 12 $ 376.99
69436 TYMPANOSTOMY GEN ANES $ 348.43
69631 TYMPANOPLASTY WO MASTOIDEC; WO
OSSICULAR CHAIN $1,907.81
69641 TYMPANOPLASTY W/ MASTOIDEC; WO
OSSICULAR CHAIN $2,439.02
70210 RAD EXAM SINUSES PARANASAL LESS
THAN 3 VIEWS $ 54.47
70220 RAD EXAM SINUSES PARANASAL COMPLT
MINI 3 VIEWS $ 72.83
70460 CAT HEAD/BRAIN; W/CONTRAST MAT $ 455.94
70480 CAT ORBIT/SELLA/OUTER-MID-INNER
EAR; WO CONTRAST $ 411.88
70486 CAT MAXILLOFACIAL AREA; WO
CONTRAST $ 398.41
82785 GG; IGE $ 34.88
87060 CULTURE BACTERIAL DEFINITIVE;
THROAT/NOSE $ 14.08
87070 CULTURE BACTERIAL DEFINITIVE; ANY
OTHER SOURCE $ 15.30
87184 SENSITIVITY ANTIBIOTIC; DISK METHD
PER PLATE $ 14.08
88170 FINE NEEDL ASPIRAT W/WO PREP
SMEARS; SUPERF TISS $ 143.82
92506 MED EVAL SPEECH/LANGUAGE &/OR
HEARING PROBLEMS $ 87.52
92507 SPEECH/LANG/HEAR THERAP W/MED
SUPERVS; INDIVI $ 53.86
92552 PURE TONE AUDIOMETRY; AIR ONLY $ 28.15
92553 PURE TONE AUDIOMETRY; AIR & BONE $ 42.84
92557 BASIC COMP AUDIOMETRY (92553 &
92556 COMBO) $ 77.11
92567 TYMPANOMETRY $ 34.27
92585 BRAINSTEM EVOKED RESPONSE
RECORDING $ 248.47
PATHOLOGY
80019 19 BLOOD/URINE TESTS $ 19.58
80050 GENERAL HEALTH PANEL $ 63.04
</TABLE>
C-11
<PAGE>
<TABLE>
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
80061 LIPID PANEL $ 26.93
80091 THYROID PANEL $ 26.93
81000 URINALYSIS/ NONAUTO/ W/ SCOPE $ 7.96
82270 TEST FECES FOR BLOOD $ 6.12
82785 ASSAY/ GAMMAGLOBULIN IGE $ 34.88
82947 ASSAY QUANTITATIVE/ GLUCOSE $ 11.63
83718 BLOOD LIPOPROTEIN ASSAY $ 20.81
84443 ASSAY THYROID STIM HORMONE $ 33.66
84702 CHORIONIC GONADOTROPIN TEST $ 43.45
84703 CHORIONIC GONADOTROPIN ASSAY $ 41.00
85021 AUTOMATED HEMOGRAM $ 11.63
85022 AUTOMATED HEMOGRAM $ 16.52
85023 AUTOMATED HEMOGRAM $ 24.48
85024 AUTOMATED HEMOGRAM $ 23.26
85025 AUTOMATED HEMOGRAM $ 23.26
85027 AUTOMATED HEMOGRAM $ 20.81
86316 IMMUNOASSAY/ TUMOR ANTIGEN $ 39.78
86317 IMMUNOASSAY/ INFECTIOUS $ 32.44
86403 PARTICLE AGGLUTINATION TEST $ 22.03
86585 TB TINE TEST $ 12.24
87060 NOSE/THROAT CULTURE/ $ 14.08
87086 URINE CULTURE/ COLONY COUNT $ 15.30
88150 CYTOPATHOLOGY/ PAP SMEAR $ 10.40
88304 TISSUE EXAM BY PATHOLOGIST $ 53.24
88305 TISSUE EXAM BY PATHOLOGIST $ 113.83
88307 TISSUE EXAM BY PATHOLOGIST $ 197.68
PEDIATRICS
54150 CIRCUMCISION USING CLAMP/ OTHER
DEVICE; NB $ 169.22
70210 RAD EXAM SINUSES PARANASAL LESS
THAN 3 VIEWS $ 54.47
71010 RAD EXAM CHEST; SNGL VIEW FRONTAL $ 45.90
71020 RAD EXAM CHEST 2 VIEWS FRONTAL &
LAT $ 58.75
73620 RAD EXAM FT; ANTEROPOSTERIOR & LAT
VIEWS $ 45.29
74241 RAD EXAM GI TRACT UPPER; W/WO
DELAY FILM W/KUB $ 157.28
81000 UA DIP STICK/TABLET REAGENT;
W/MICRO $ 7.96
86317 IMMUNOASSAY INFEC AGENT ANTIB QUAN
NES $ 32.44
86403 PARTICLE AGGLUTINATION ANTIB EA $ 22.03
86585 SKIN TEST; TUBERCULOSIS TINE TEST $ 12.24
87060 CULTURE BACTERIAL DEFINITIVE;
THROAT/NOSE $ 14.08
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
90701 IMMUNIZ ACTIVE; DIPHTHERIA/
TETANUS/PERTUSSIS $ 55.08
90707 IMMUNIZ ACTIVE; MEASLES/
MUMPS/RUBELLA VIRUS LIVE $ 66.10
90712 IMMUNIZ ACTIVE; POLIOVIRUS VACCINE
LIVE ORAL $ 44.06
90731 IMMUNIZ ACTIVE; HEPATITIS B
VACCINE $ 80.78
90737 IMMUNIZ ACTIVE; HEMOPHILUS
INFLUENZA B $ 42.84
90782 THERAP/DX INJ; SUBQ/IM $ 6.73
90788 IM INJ ANTIBIOTIC $ 7.34
92012 OPHTH SERV: MED EXAM & EVAL;
INITERMED ESTAB PT $ 69.16
92081 VISUAL FIELD EXAM UNILAT/ BILAT
W/DX EVAL; LTD $ 42.23
92551 SCREENING TEST PURE TONE AIR ONLY $ 25.70
92552 PURE TONE AUDIOMETRY; AIR ONLY $ 28.15
92567 TYMPANOMETRY $ 34.27
95117 PROF SERV ALLERG IMMUNOTX WO
EXTRACT; MX INJ $ 30.60
95125 PROF SERV ALLERG IMMUNOTX INCL
EXTRACT; MX INJ $ 28.76
99050 SERV REQUEST AFTR OFFIC HRS ADD TO
BASIC SERV $ 26.93
99054 SERV REQUESTED SUN & HOLIDAYS ADD
BASIC SERV $ 53.24
99391 PERIODIC RE-E&M HEALTHY INDIVI
ESTAB PT; INFANT $ 138.16
99392 PERIODIC RE-E&M HEALTHY EST PT;
EARLY CHILDHOOD $ 160.65
99431 HX/EXAM NORM NB INIT DX/ TX/PREP
HOSP RECORDS $ 158.08
99433 SUBSQT HOSPITAL CARE NORMAL
NEWBORN $ 83.54
99435 HISTORY AND EXAMINATION $ 202.42
PHYSICAL MEDICINE & REHABILITATION
72040 RAD EXAM SPINE CERV;
ANTEROPOSTERIOR & LAT $ 57.53
72050 RAD EXAM SPINE CERV; MINI 4 VIEWS $ 84.46
72110 RAD EXAM SPINE LUMBOSACRAL; COMPLT
W/ OBLIQ VIEWS $ 85.68
72125 CAT CERV SPINE; WO CONTRAST $ 473.69
92507 SPEECH/LANG/HEAR THERAP W/MED
SUPERVS; INDIVI $ 53.86
95900 NERV CONDUCT VELOCITY/ LATENCY
STDY; MOTR EA NERV $ 66.71
97010 PHYS MEDS TX-1 AREA; HOT/ COLD
PACKS $ 17.75
97012 PHYS MEDS TX-1 AREA; TRACTION MECH $ 28.15
</TABLE>
C-12
<PAGE>
<TABLE>
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
97014 PHYS MEDS TX-1 AREA; ELEC STIM $ 24.48
97022 PHYS MEDS TX-1 AREA; WHIRLPOOL $ 23.26
97032 ELECTRICAL STIMULATION; 15 MINUTES $ 24.48
97033 IONTOPHORESIS; 15 MINUTES $ 25.70
97035 ULTRASOUND TREATMENT; 15 MINUTES $ 20.20
97036 HUBBARD TANK; 15 MINUTES $ 31.21
97110 PHYS MEDS-1 AREA 1ST 30 MIN EA
VISIT; EXERCISE $ 36.72
97112 PHYS MEDS-1 AREA 1ST 30 MIN;
NEUROMUSCL REEDUCAT $ 36.11
97122 PHYS MEDS-1 AREA 1ST 30 MIN/
VISIT; TRACT MANUAL $ 33.05
97124 PHYS MEDS-1 AREA 1ST 30 MIN EA
VISIT; MASSAGE $ 28.76
97260 MANIP (SEPART PROC) PERFORMED BY
PHYS; 1 AREA $ 25.09
97530 KINETIC ACTIVITIES 1 AREA; 1ST 30
MIN EA VISIT $ 38.56
97700 OFFIC VISIT W/'CHECK-OUT'
TEST/MEASUR; 1ST 30MIN $ 80.17
97750 PHYSICAL PERFORMANCE TEST; 15 MIN. $ 44.06
PLASTIC SURGERY
11440 EXC BEN LES FACE/EARS/NOSE/ LIPS;
0.5 CM/LESS $ 150.96
11441 EXC BEN LES FACE/EARS/NOSE/ LIPS;
0.6 TO 1.0 CM $ 203.18
11442 EXC BEN LES FACE/EARS/NOSE/ LIPS;
1.1 TO 2.0 CM $ 248.88
11641 EXC MALIG LES FACE/EARS/
NOSE/LIPS; 0.6 TO 1.0 CM $ 380.26
11642 EXC MALIG LES FACE/EARS/
NOSE/LIPS; 1.1 TO 2.0 CM $ 463.49
13131 REPR COMPLX FOREHEAD/
CHIN/AX/GENIT/FT; 1.1-2.5 $ 485.52
13132 REPR COMPLX FOREHEAD/
CHIN/AX/GENIT/FT; 2.6-7.5 $ 878.02
13152 REPR COMPLX LIDS/NOSE/EARS/ LIPS;
2.6 TO 7.5 CM $ 986.54
13300 REPR UNUSUAL COMPLIC OVER 7.5 CM
ANY AREA $ 953.09
14040 ADJACENT TRANSF CHIN/NECK/ AX/FT;
10 SQ CM/LESS $1,191.36
14060 ADJACENT TRANSF LIDS/NOSE/ LIPS;
10 SQ CM/LESS $1,374.14
14300 ADJACENT TRANSF MORE THAN 30.0 SQ
CM COMPLIC $1,951.06
15100 SPLIT GFT TRUNK; 100 SQ CM/
LESS-EA 1% BODY CHILD $1,099.97
15734 MUSCL MYOCUT/FASCIOCUT FLAP; TRUNK $3,163.63
15755 FREE FLAP $5,202.00
15831 EXC EXCESSIVE SKIN & SUBQ TISS;
ABD $1,918.42
19318 REDUCTION MAMMAPLASTY $2,644.66
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
19350 NIPPLE/AREOLA RECON $1,385.57
19357 BREAST RECON IMMED/DELAY W/EXPANDR
W/SUBSQT EXPA $2,549.18
19369 BREAST RECON WITH TRANSVERSE FLAP $4,299.50
19371 PERIPROSTHETIC CAPSULECTOMY BREAST $1,492.46
30420 RHINOPLASTY PRIMARY; INCL MAJOR
SEPTAL REPR $2,888.64
30520 SEPTOPLASTY/SMR W/WO CARTIL
SCORING/REPLAC W/ GFT $1,110.58
35207 REPR BLD VESSEL DIRECT;
HAND-FINGER $1,555.81
PSYCHIATRY/PSYCHOLOGY
90801 PSYCH DX INTERVIEW W/HX-
MENTAL-STATUS-DISPOSIT $ 217.87
90825 PSYCH EVAL HOSP RECORDS/ OTHER
DATA MED DX PURPOS $ 80.78
90830 PSYCH TEST W/INTERPT & REPRT PER
HR $ 80.78
90841 INDIVI MED PSYCHOTHERAP-PHYS; TIME
UNSPEC $ 123.01
90843 INDIVI MED PSYCHOTHERAP-PHYS;
APPROX 20-30 MIN $ 114.44
90844 INDIVI MED PSYCHOTHERAP-PHYS;
APPROX 45-50 MIN $ 160.34
90847 FAMILY MED PSYCHOTHERAP & DRUG
MGMT WHEN INDICAT $ 175.64
90849 MX-FAMILY GRP MED PSYCHOTHERAP &
DRUG MGMT $ 53.86
90853 GRP MED PSYCHOTHERAP & DRUG MGMT
WHEN INDICATED $ 53.86
90855 INTERACTIVE INDIVI MED
PSYCHOTHERAP $ 173.20
90862 PHARM MGMT W/SCRIPT USE &
REVIEW-MIN PSYCHOTH $ 83.84
90870 ELEC-CONVULS THERAP; SNGL SEIZURE $ 153.61
90887 INTERPT/EXPLAN RESULTS
EXAM/PROC/DATA TO FAMILY $ 113.22
PULMONARY DISEASES
31622 BRONCHOSCOPY; DX W/WO CELL
WASHING/BRUSHING $ 547.54
31625 BRONCHOSCOPY; W/BX $ 616.08
31628 BRONCHOSCOPY; W/ TRANSBRONCH LUNG
BX W/WO FLUORO $ 740.11
31645 BRONCHOSCPY; W/THERAP ASPIRAT
TRACHEOBRONCH INIT $ 577.73
32000 THORACENTESIS-ASPIRAT-INIT/ SUBSQT $ 179.93
36200 INTRO CATH AORTA $ 430.54
36215 SELECT CATH PLCMT ART SYST; EA 1ST
ORDER THORAC $ 549.07
36489 PLCMT CENTRAL VENOUS CATH; PERCUT
OVER AGE 2 $ 179.21
</TABLE>
C-13
<PAGE>
<TABLE>
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
36500 VENOUS CATH SELECT ORGAN BLD SAMPL $ 257.75
36620 ART CATH/CANNULAT-SAMPL MONITOR
(SEP PRO); PERQ $ 139.23
70210 RAD EXAM SINUSES PARANASAL LESS
THAN 3 VIEWS $ 54.47
70220 RAD EXAM SINUSES PARANASAL COMPLT
MINI 3 VIEWS $ 72.83
71020 RAD EXAM CHEST 2 VIEWS FRONTAL &
LAT $ 58.75
71260 CAT THORAX; W/CONTRAST MAT $ 553.25
75774 ANGIO SELECT EA ADD VESSEL-AFTER
BASIC EXAM-S&I $ 813.96
80019 AUTO MULTICHANNEL TEST; 19/MORE
CHEM TESTS $ 19.58
82803 GASES BLD ANY COMBO-PH/
PCO2/PO2/CO2/HCO2 $ 56.92
85023 BLD CT; HG/PLATELET CT AUTO &
MANUAL WBC $ 24.48
85027 BLD CT; HG & PLATELET CT AUTOMATED $ 20.81
90782 THERAP/DX INJ; SUBQ/IM $ 6.73
90784 THERAP/DX INJ; IV $ 29.99
93503 INSRT & PLCMT FLO DIREC
CATH-MONITOR PURPOSES $ 345.17
94010 SPIROMETRY W/RECRD-TOT & TIMED
VC-EXPIR FLO RATE $ 55.08
94060 BRONCHOSPSM EVAL: SPIROM PRE &
POST BRONCHODILAT $ 102.20
94160 VITAL CAPACITY SCREENING TESTS:
TOT CAPACITY $ 34.88
94240 FUNCT RESIDUAL CAPACITY/ RESIDUAL
VOLUM: MX METHD $ 74.05
94375 RESPIRATORY FLOW VOLUM LOOP $ 62.42
94656 VENTILATION ASSIST & MGMT; 1 ST DA $ 151.16
94657 VENTILATION ASSIST & MGMT; SUBSQT
DA $ 91.80
94720 CARBON MONOXIDE DIFFUS CAPACITY
ANY METHD $ 83.84
94760 NONINVASIVE EAR/PULSE OXIMETRY-O2
SAT; 1 DETERM $ 16.52
94761 NONINVASIVE EAR/PULSE OXIMETRY O2
SAT; MX DETERM $ 42.84
RADIOLOGY
70470 CONTRAST CAT SCAN OF HEAD $ 556.31
70551 MAGNETIC IMAGE, BRAIN (MRI) $ 831.71
70553 MAGNETIC IMAGE, BRAIN $1,762.56
71010 CHEST X-RAY $ 45.90
71020 CHEST X-RAY $ 58.75
72100 X-RAY EXAM OF LOWER SPINE $ 61.81
72110 X-RAY EXAM OF LOWER SPINE $ 85.68
72131 CAT SCAN OF LOWER SPINE $ 473.69
72148 MAGNETIC IMAGE, LUMBAR SPINE $ 908.21
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
73610 X-RAY EXAM OF ANKLE $ 48.96
73620 X-RAY EXAM OF FOOT $ 45.29
73630 X-RAY EXAM OF FOOT $ 48.96
73721 MAGNETIC IMAGE, JOINT OF LEG $ 815.18
74160 CONTRAST CAT SCAN OF ABDOMEN $ 541.62
76091 MAMMOGRAM, BOTH BREASTS $ 135.86
76700 ECHO EXAM OF ABDOMEN $ 197.68
76805 ECHO EXAM OF PREGNANT UTERUS $ 222.77
76815 ECHO EXAM OF PREGNANT UTERUS $ 148.72
76830 ECHO EXAM, TRANSVAGINAL $ 159.73
76856 ECHO EXAM OF PELVIS $ 159.73
77413 RADIATION TREATMENT DELIVERY $ 145.04
77430 WEEKLY RADIATION THERAPY $ 332.93
78465 HEART IMAGE (3D) MULTIPLE $ 865.98
RHEUMATOLOGY
20550 INJ TENDON SHEATH/LIG/ TRIGGER
PT/GANGLION CYST $ 104.45
20600 ARTHROCENTESIS/ASPIR/INJ; SM
JT/BURSA/CYST $ 96.29
20605 ARTHROCENTESIS/ASPIR/INJ; INTERMED
JT/BURSA/CYST $ 96.29
20610 ARTHROCENTESIS/ASPIR/INJ; MAJOR
JT/BURSA $ 105.26
21345 CLO TX NASOMAXIL FX W/ INTERDENTAL
FIXA/SPLINT $1,333.34
72050 RAD EXAM SPINE CERV; MINI 4 VIEWS $ 84.46
72110 RAD EXAM SPINE LUMBOSACRAL; COMPLT
W/ OBLIQ VIEWS $ 85.68
73120 RAD EXAM HAND; 2 VIEWS $ 45.29
73560 RAD EXAM KNEE; ANTEROPOSTERIOR &
LAT VIEWS $ 47.74
73620 RAD EXAM FT; ANTEROPOSTERIOR & LAT
VIEWS $ 45.29
85023 BLD CT; HG/PLATELET CT AUTO &
MANUAL WBC $ 24.48
85024 BLD CT; HG/PLATELET CT AUTO & AUTO
PART WBC $ 23.26
85025 BLD CT; HG/PLATELET CT AUTO & AUTO
COMPLT WBC $ 23.26
85027 BLD CT; HG & PLATELET CT AUTOMATED $ 20.81
85651 SED RATE ERYTHROCYTE NON-AUTOMATED $ 9.18
90780 IV INFUS THERAP/DX-BY PHYS/
SUPERVS; TO 1 HR $ 69.77
90782 THERAP/DX INJ; SUBQ/IM $ 6.73
90784 THERAP/DX INJ; IV $ 29.99
94010 SPIROMETRY W/RECRD-TOT & TIMED
VC-EXPIR FLO RATE $ 55.08
</TABLE>
C-14
<PAGE>
<TABLE>
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
95860 NEEDLE EMG; 1 EXTREM & RELATED
PARASPINAL AREAS $ 130.97
95900 NERV CONDUCT VELOCITY/ LATENCY
STDY; MOTR EA NERV $ 66.71
95904 NERV CONDUC VELOCITY/ LATENCY
STDY; SENSRY EA NRV $ 57.53
96545 PROVISION CHEMOTX AGENT $ 46.51
99000 HANDL &/OR CONVEY SPECMN-TRANSF
OFFIC TO LAB $ 20.81
UROLOGICAL SURGERY
50220 NEPHRECTOMY INCL PART URETERECTOMY
W/RIB RESECT $2,193.41
50230 NEPHRECTOMY; RADICAL W/ REGIONAL
LYMPHADENECTOMY $2,913.12
50590 LITH EXTRACORPOREAL SHOCK WAVE $1,418.72
50780 URETERONEOCYSTOSTOMY; ANASTOM SNGL
URETER $2,310.50
51726 COMPLX CYSTOMETROGRAM $ 223.48
51840 ANT VESICOURETHROPEXY/
URETHROPEXY; SIMPL $1,446.56
51845 ABD-VAG VESICAL NECK SUSPEN W/WO
ENDO CONTRL $1,489.40
52000 CYSTOURETHROSCOPY (SEPART PROC) $ 248.47
52005 CYSTOURETHROSCOPY W/ URETERAL CATH
EXCLUS-RAD $ 342.01
52240 CYSTOURETHROSCOPY W/FULG &/OR
RESECT; LG TUMOR $1,528.67
52281 CYSTOURETHROSCOPY W/ CALIBRAT &/OR
DILAT URETHRAL $ 381.28
52310 CYSTOURETHROSCOPY W/ REMOV F B
(SEP PRO); SIMPL $ 435.54
52320 CYSTOURETHROSCOPY; W/ REMOV
URETERAL CALCU $ 716.14
<CAPTION>
CPT-4
CODE DESCRIPTION FEE
- ----------- ---------------------------------- ---------
<C> <S> <C>
52332 CYSTOURETHROSCOPY W/ INSRT
INDWELLING STENT $ 454.10
52335 CYSTOURETHROSCOPY W/ URETEROSCOPY
&/OR PYELOSCOPY $ 785.40
52336 CYSTOURETHROSCOPY W/ URETEROSCOPY;
W/REMOV CALCU $1,190.95
52337 CYSTOURETHROSCOPY W/ URETEROSCOPY;
W/LITH $1,375.16
52601 T U R P INCL CONTRL POSTOP
BLEEDING COMPLT $1,752.16
54161 CIRCUMCISION SURG EXC NOT
CLAMP/SLIT; EX NB $ 401.27
54640 ORCHIOPEXY-ING APPROACH-W/WO
HERNIA REPR $1,090.99
55040 EXC HYDROCELE; UNILAT $ 755.41
55250 VASECTOMY UNILAT/BILAT (SEP PRO)
W/POSTOP SEMEN $ 436.97
55700 BX PROSTATE; NEEDLE/PUNCH SNGL/MX
ANY APPROACH $ 229.91
55845 PROSTATECTOMY RETROPUBIC RAD;
W/BILAT LYMPHADEN $3,874.88
76870 ECHO SCROTUM & CONTENTS $ 154.22
76872 ECHO TRANSRECTAL $ 159.73
81000 UA DIP STICK/TABLET REAGENT;
W/MICRO $ 7.96
84150 PROSTAGLANDIN EA $ 72.22
86316 IMMUNOASSAY TUMOR ANTIG EA $ 39.78
87086 CULTURE BACTERIAL URIN; QUAN
COLONY CT $ 15.30
87088 CULTURE BACTERIAL URIN; IDENT ADD
QUAN/KIT $ 19.58
90782 THERAP/DX INJ; SUBQ/IM $ 6.73
90784 THERAP/DX INJ; IV $ 29.99
90788 IM INJ ANTIBIOTIC $ 7.34
96400 CHEMOTX ADMIN SUBCUT/IM W/WO LOCAL
ANES $ 8.57
96545 PROVISION CHEMOTX AGENT $ 46.51
</TABLE>
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