Filed by RightCHOICE Managed Care, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: RightCHOICE Managed Care, Inc.
Commission File No. 333-34750
The following communications contain forward-looking
statements within the meaning of the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. In
particular, statements regarding the reorganization of
RightCHOICE Managed Care, Inc., a Missouri corporation, are
based on management's current expectations or beliefs and
are subject to a number of factors and uncertainties that
could cause actual results to differ materially from those
described in the forward-looking statements. Careful
consideration should be given to risk factors included in
RightCHOICE's reports filed with the Securities and Exchange
Commission, especially the section entitled "Risk Factors"
in "ITEM 1. BUSINESS" of RightCHOICE's Annual Report on Form
10-K for the year ended December 31, 1999.
For Further Information
Kevin Aandahl 314-923-6268
Deb Wiethop 314-923-4767
RightCHOICE 1st Quarter Profit Increases 60 Percent
Eight Consecutive Comparable Quarters of Improved
Profitability;
Settlement Moving Forward
ST. LOUIS, April 26, 2000 - RightCHOICE Managed Care, Inc.
(NYSE:RIT) today reported a 60 percent increase in first
quarter net income to $7.5 million, or 39 cents diluted
earnings per share, compared with $4.7 million, or 25 cents
diluted earnings per share, for the first quarter 1999.
This is the eighth consecutive comparable quarter of
improved profitability for the company.
"We continue our efforts to meet member needs for broad
networks, simplified products and quality service and to
build on our track record of strong financial performance,"
said John O'Rourke, chairman, president and chief executive
officer of RightCHOICE. "We're demonstrating our ability to
meet or exceed growth targets while keeping overhead down
and sustaining continuous improvement in operations and
client service."
For the three months ended March 31, 2000, RightCHOICE
also reported:
- - Operating income was $9.8 million, compared to $4.6
million for first quarter 1999.
- - Earnings before interest expense, taxes, depreciation
and amortization were
$17.6 million compared with $12.6 million for first
quarter 1999.
- - The medical margin per member per month (PMPM)
increased 16 percent to $27.20 PMPM from $23.41 PMPM for
first quarter 1999.
- - The medical loss ratio (MLR) improved to 80.5 percent,
compared with 81.9 percent, and the general and
administrative (G&A) expense ratio decreased to 19.7 percent
compared with 20.4 percent for first quarter 1999.
- - Cash flow from operations was $2.3 million compared
with a negative $4.5 million for the first quarter of 1999.
- - Total membership increased to 2.4 million members at
March 31, 2000, a 12 percent increase over the first
quarter of 1999, including an increase in underwritten
membership to 475,237 members at March 31, 2000, a 4 percent
increase over the first quarter of 1999.
Strong First Quarter Sales
In the first quarter of 2000, RightCHOICE achieved 45
percent of its annual new business group sales goal. The
company retained nearly 90 percent of its members in both
group and individual programs during first quarter 2000.
"We typically achieve slightly more than a third of our
underwritten enrollment growth in the first quarter of the
year," O'Rourke said. "However, the strong sales efforts
going into the first quarter generated even higher growth.
We also anticipate a solid second quarter and July 1
enrollment, based on our current proposal activity."
These increases in membership are due to RightCHOICE's
improved service levels and ability to offer employers and
their members a wide range of benefit plans, including
access to the BlueCard PPO national network in 48 states.
"The marketplace is recognizing the value of our service
enhancements and new programs we've invested in," O'Rourke
said. "These are paying off through higher retention of
members and new sales growth."
HealthLink, Inc., a wholly owned subsidiary with 1.7
million members at March 31, 2000, achieved self-insured
membership growth of 11 percent over year-end 1999 and 20
percent over the first quarter of 1999. HealthLink's
membership growth in the workers' compensation program
increased 24 percent over year-end 1999 to 639,765 members
and 40 percent over the first quarter of 1999. In addition
to workers' compensation, HealthLink provides administrative
services and other non-underwritten health benefit programs
in Missouri and six neighboring states.
Healthcare Benefit Programs and Service Improvements
Improvements to client service and health care benefit
programs have achieved dual objectives of increasing value
for members while contributing to improved financial
performance.
RightCHOICE believes that quality service and
responsiveness continues to distinguish the company from its
competition in the marketplace. For example, the small
group marketing unit is sustaining its ability to respond
quickly to requests for proposals, with 99.8 percent of
proposals returned to the broker within 24 hours during
first quarter 2000.
To simplify member access to health care, RightCHOICE
has fully implemented plans to eliminate precertification
requirements on hundreds of medical procedures. This was
done after extensive internal study and in consultation with
local physicians. Currently, the 30 procedures that still
require precertification are generally those where
experience suggests, based on recognized standards of care,
that members may be at risk for over- or under-utilization
of such procedures. As a result, member and physician
interface with the health plan for precertification is
focused where necessary, providing the opportunity to reduce
administrative cost and improve satisfaction levels.
The prescription drug benefit is an example of
RightCHOICE's commitment to meet members' needs for choice,
service and appropriate cost. For first quarter 2000, 86
percent of RightCHOICE underwritten members with a drug
benefit were covered under the three-tier pharmacy benefit
program. This benefit offers members the choice of generic,
formulary or brand name pharmaceuticals at different co-
payment levels.
Missouri Consolidated Health Care Plan
RightCHOICE is in its last contract year with the
Missouri Consolidated Health Care Plan (MCHCP), a Missouri
public agency that purchases health care coverage for
employees of the state of Missouri and certain public
entities. In 1997, RightCHOICE took a pre-tax charge of
$29.5 million to account for projected MCHCP losses.
The company's 1999 year-end financial report noted that
a rate increase of approximately 21 percent would be
effective for the contract year beginning January 1, 2000.
In March 2000, MCHCP notified RightCHOICE that a risk
adjustment factor applied to the premiums MCHCP pays
insurance carriers will result in a reduction of that
increase to approximately 12 percent. Although RightCHOICE
is contesting this MCHCP action, it increased its loss
reserve at March 31, 2000, by $1.5 million. This charge is
reflected in healthcare services expense.
Outlook
RightCHOICE's financial performance outlook for the
remainder of 2000:
- - Average annual premium revenue growth rate per member
per month in the 9 percent to 10 percent range.
- - Medical cost per member per month trend increase in the
7 percent to 9 percent range, and an MLR in the low- to mid-
80s for the year.
- - Maintaining the G&A expense ratio close to 20 percent.
Progress Continues toward Implementing Settlement and
Reorganization
The company continues to work toward completing the
proposed settlement with the state of Missouri. The
settlement provides for the reorganization of RightCHOICE,
whereby RightCHOICE will merge with its parent, Blue Cross
and Blue Shield of Missouri, and form a new for-profit
corporation that will be a direct licensee of the Blue Cross
and Blue Shield Association. RightCHOICE shareholders will
receive one share of stock in the new RightCHOICE in
exchange for each share of RightCHOICE common stock they
own. In addition, litigation with the state of Missouri
related to Blue Cross and Blue Shield and its ownership of
RightCHOICE will be settled, and a new public benefit
foundation will result. The foundation will own
approximately 80 percent of RightCHOICE stock after the
reorganization, which is the same amount that currently is
owned by Blue Cross and Blue Shield of Missouri, and will
receive approximately $13 million from Blue Cross and Blue
Shield of Missouri as part of the settlement. The
foundation is expected to serve the health care needs of
underinsured and uninsured Missourians in RightCHOICE's
service area. The foundation will agree that 95 percent of
its stock will be voted as directed by the new RightCHOICE
board of directors on all matters except future changes of
control. The foundation will also agree to sell its
RightCHOICE stock in an orderly manner.
The parties to the settlement have agreed to use their
best efforts to consummate the settlement and the related
reorganization by December 31, 2000. On March 14, the
definitive reorganization agreement was signed and, on April
14, RightCHOICE made a preliminary filing with the
Securities and Exchange Commission (SEC) relating to the
reorganization. Such filing is subject to review by the
SEC. Additional steps that the parties have completed in
connection with the proposed settlement and the
reorganization include: the organization of new RightCHOICE;
the creation of The Missouri Foundation for Health; the
receipt of approvals from the lending banks under
RightCHOICE's credit facility agreement; the full
reinstatement of the current licenses by the Blue Cross and
Blue Shield Association related to RightCHOICE's and its
parent's use of the Blue Cross and Blue Shield names and
service marks; and preliminary approval of the
reorganization by the Association's Board of Directors.
Consummation of the proposed settlement and the
reorganization is still subject to a number of significant
conditions. These include the receipt of shareholder
approval, the receipt of regulatory approvals, and the
receipt of a private letter ruling from the Internal Revenue
Service, or a satisfactory tax opinion, as to the tax-free
nature of the reorganization transaction.
Caution Concerning Forward-Looking Statements
This press release includes certain "forward-looking
statements" within the meaning of the Private Securities
Litigation Reform Act of 1995: These statements are based on
management's current expectations and are naturally subject
to uncertainty and changes in circumstances. Actual results
may vary materially from the expectations contained herein.
The risks and uncertainties that could cause actual results
to differ materially from those described herein include,
but are not limited to: the inability to satisfy or waive
the conditions to the closing of the proposed settlement and
reorganization transaction; an adverse ruling on the
litigation that remains pending or other judicial action;
governmental and regulatory action or legislation; other
pending litigation; actions by the Blue Cross and Blue
Shield Association relating to the license to use the Blue
Cross and Blue Shield names and service marks; and other
risks detailed in the company's filings with the Securities
and Exchange Commission, including its most recent Annual
Report on Form 10-K. RightCHOICE is not under any
obligation, and expressly disclaims any such obligation, to
update or alter its forward-looking statements whether as a
result of new information, future events or otherwise.
Blue Cross and Blue Shield of Missouri and its for-
profit subsidiary, RightCHOICE Managed Care, Inc., are the
largest providers of health care benefits in Missouri in
terms of members. The company's web site addresses are
www.ritusa.com and www.AllianceBlue.com.
Important Information about Proposed Reorganization
RightCHOICE Managed Care, Inc., a Delaware corporation,
referred to above as new RightCHOICE, together with
RightCHOICE Managed Care, Inc., a Missouri corporation,
referred to above as RightCHOICE, filed with the Securities
and Exchange Commission a preliminary proxy
statement/prospectus regarding the proposed settlement and
reorganization transaction described above. In addition,
new RightCHOICE and RightCHOICE will prepare and file with
the SEC a definitive proxy statement/prospectus and other
documents regarding the proposed settlement and
reorganization transaction. You are urged to read the
definitive proxy statement/prospectus, when it becomes
available, because it will contain important information.
The definitive proxy statement/prospectus will be sent to
shareholders of RightCHOICE seeking their approval of the
proposed settlement and reorganization transaction. You may
obtain a free copy of the definitive proxy
statement/prospectus (when it is available) and other
documents filed by new RightCHOICE (as well as by
RightCHOICE) with the SEC at the SEC's web site at
www.sec.gov. The definitive proxy statement/prospectus and
these other documents may also be obtained for free by
RightCHOICE shareholders by directing a request to:
RightCHOICE Managed Care, Inc., 1831 Chestnut Street, St.
Louis, Missouri, 63103, Attn: Investor Relations, telephone
number (314) 923-4831; e-mail: [email protected].
Financial tables follow.
RightCHOICE Managed Care, Inc.
Consolidated Financial and Operating Results
(Unaudited; amounts in thousands except shares, per share and
operating data)
THREE MONTHS ENDED
March 31, 2000 1999
Premium revenues:
Alliance PPO $ 58,163 $ 50,156
AllianceChoice POS 46,486 40,118
HMO (includes other POS) 56,320 53,502
Medicare supplement 22,796 23,588
Managed indemnity 585 951
Other specialty services 14,389 10,903
Total premium revenues 198,739 179,218
Fees and other income 23,903 20,795
Total revenues 222,642 200,013
Operating expenses:
Health care services 160,069 146,748
Commissions 8,945 7,909
General and administrative 39,467 36,560
Depreciation and amortization 4,333 4,194
Total operating expenses 212,814 195,411
Operating income 9,828 4,602
Investment income, net:
Interest and dividends 3,224 3,207
Realized gains, net 139 268
Total investment income, net 3,363 3,475
Interest expense (913) (1,068)
Other income, net 92 308
Income tax expense 4,908 2,640
Net income $ 7,462 $ 4,677
Basic earnings per share $ 0.40 $ 0.25
Diluted earnings per share $ 0.39 $ 0.25
Weighted average common shares 18,673,000 18,673,000
BALANCE SHEET DATA:
Cash and investments $243,856 $235,682
Total assets 528,019 512,033
Medical claims payable 119,572 117,437
Debt 32,063 40,563
Shareholders' equity $165,376 $148,661
Book value per share* $8.86 $7.96
Tangible book value per share* $5.24 $4.02
*Based on weighted average common shares
OPERATING DATA:
Membership at end of period
Underwritten:
Alliance PPO 159,424 143,196
AllianceChoice POS 134,051 124,746
HMO (includes other POS) 128,574 131,470
Medicare supplement 51,863 56,436
Managed indemnity 1,325 2,078
Self-funded:
PPO 44,308 45,951
HMO 7,633 7,519
ASO (includes HealthLink):
Workers' Compensation 639,765 457,000
Other ASO 1,240,477 1,171,898
Total 2,407,420 2,140,294
Medical loss ratio 80.5% 81.9%
G&A ratio 19.7% 20.4%
Adjusted G&A ratio (excluding
depreciation and amortization) 17.7% 18.3%
NOTE: Health care services expense for both three-month
periods includes credit for the beneficial effect of the
premium deficiency that was recorded in 1997.
Teleconference Script
First Quarter 2000
INTRODUCTION BY JOHN O'ROURKE:
Good afternoon, thank you for joining us today. We're
pleased to tell you that we had another very strong quarter.
We continue to build a consistent track record of improved
financial performance.
We have two additional speakers with us today:
Most of you know Sandra Van Trease, she's senior executive
vice president and chief operating officer. Sandra is also
chief financial officer.
I'm also pleased to introduce Michael Fulk, senior vice
president and chief marketing executive. Given our strong
membership growth, we felt you would benefit from hearing
from Mike today to gain some insight into how we are
achieving profitable growth and where we see future
opportunity.
The information that we will share with you this afternoon
includes various "forward-looking" statements within the
meaning of the Private Securities Litigation Reform Act of
1995. These statements are based on our current
expectations and are naturally subject to uncertainty and
changes in circumstances. Actual results may vary
materially from those that we discuss today. Additional
information that could cause actual results to differ
materially from those in the forward-looking statements can
be found under the caption "Risk Factors" in our most recent
Annual Report on Form 10-K on file with the SEC.
RECAP RESULTS:
To briefly recap our results, we've achieved eight
consecutive comparable quarters of improved profitability,
an important milestone for this management team. First
quarter net income increased 60 percent over the first
quarter last year to $7.5 million, or 39 cents per share on
a diluted basis.
Total revenues grew 11 percent over the first quarter last
year, with an 8 percent increase in premium revenue per
member per month. At the same time, we held our total
operating expenses to a 9 percent increase, which included
an increase of just 6 percent per member per month in health
care services.
As a result, our operating ratios and margins were very
strong, with the medical loss ratio coming in at 80.5
percent and the G&A ratio coming in at 19.7 percent. Our
medical margin now stands at $27.20 per member per month, a
16 percent increase over the same period last year, and up
13.5 percent over the last quarter of 1999.
Underwritten membership of 475,237 at March 31, 2000,
increased nearly 4 percent over the same period last year.
Continuous growth in HealthLink, especially in workers'
compensation, boosted RightCHOICE's total membership by 12
percent to 2.4 million at March 31st.
With each quarter of improved financial performance, I
become more convinced that our emphasis on member service
and operating improvements is the right strategy. Sandra
has motivated our operating managers to work toward
continuous improvement. Through their efforts we've
established a reputation for value - excellent networks,
simplified procedures, and more responsive service.
That commitment to service empowers our sales team to move
forward with confidence.to be able to ask for pricing and
terms that are fair to our customers and profitable for our
company. Over the past two years, the sales and marketing
program has undergone a tremendous change under the
leadership of Mike Fulk, who joined RightCHOICE in January
1998.
SETTLEMENT UPDATE
Before I ask Mike and Sandra to elaborate, I'd like to give
you an update on the settlement and reorganization, which
has been moving forward throughout the quarter.
As you know, we and our parent company, Blue Cross and Blue
Shield of Missouri, reached a settlement agreement with the
Missouri Attorney General and the Department of Insurance
that will result in the merger of Blue Cross and Blue Shield
with and into RightCHOICE. RightCHOICE will become a
Delaware for-profit corporation and a direct licensee of the
Blue Cross and Blue Shield Association.
Through this agreement, litigation with the state of
Missouri related to Blue Cross and Blue Shield of Missouri
and its ownership of RightCHOICE will be settled. A new
public benefit foundation will own approximately 80 percent
of RightCHOICE stock and receive approximately $13 million
from the parent company. The foundation is expected to
serve the health care needs of uninsured Missourians in our
service area.
The foundation has agreed that 95 percent of its stock will
be voted as directed by the new RightCHOICE board of
directors on all matters except future changes of control.
The foundation also agreed to sell its RightCHOICE stock in
an orderly manner, under a divestiture plan.
On March 14th, the definitive reorganization agreement was
signed. Since then we have been moving forward to complete
all the steps and to satisfy the various conditions to
closing.
In addition to signing the reorganization agreement, we
filed a preliminary proxy statement with the SEC on April
14th, which is now being reviewed. There are a series of
further steps and conditions that we must complete before
consummating the reorganization.
Steps that the parties have already accomplished include:
the incorporation of new RightCHOICE in Delaware; creation
of The Missouri Foundation for Health; receipt of approvals
from our lending banks under RightCHOICE's credit facility
agreement; full reinstatement of the licenses by the Board
of Directors of the Blue Cross and Blue Shield Association;
and preliminary approval of the reorganization by the
Association's Board of Directors.
While many conditions have been satisfied, a number of
significant conditions still are pending. They include, but
are not limited to, approval by regulators, receipt of a
private letter ruling from the Internal Revenue Service or,
alternatively, a satisfactory tax opinion; receipt of legal
opinions; and shareholder approval.
A number of you have asked whether the reorganization will
settle the litigation once and for all. The closing of the
reorganization will settle the litigation that currently
exists between us and the state of Missouri. It will not,
however, settle all of the litigation that currently is
pending.
Specifically, there remains pending in Cole County Circuit
Court an action in which a certified class of subscribers
asserts that Blue Cross and Blue Shield of Missouri is a
mutual benefit corporation and may not transfer its assets
to a public benefit foundation. The court's order could
take many forms including a declaration that Blue Cross is a
mutual or public benefit corporation as well as ruling on
the effect of such a declaration.
The current status of this litigation is described in our 10-
K Annual Report. The status of this litigation and the
impact of further developments will be described in detail
in the final proxy statement that will be sent to the
shareholders of RightCHOICE in advance of their vote on the
reorganization.
Over the past months, we've moved forward with a great deal
of deliberate care to do everything that we can to make this
settlement and reorganization a reality. We believe that the
interests of our members and shareholders will be well
served by the reorganization, and we do look forward to
completing it. We continue to believe that it is the right
thing to do.
Because there are variables outside our control, we can't
give you a precise timeline, but all parties are committed
- -and very motivated -- to consummate the reorganization
before the end of 2000.
I'd like to point out that our progress on the settlement
continues under the guidance of Angela Braly, our executive
vice president and general counsel, so that our operating
management remains focused on the business while our legal
team moves this process forward.
I'd now like to ask Mike Fulk to spend a few minutes
reviewing our recent achievements
in sales and marketing.
MIKE FULK:
SALES & MARKETING
Thanks, John. I'm very pleased to be with you this afternoon
to share some of the insight and detail behind our very
strong enrollment numbers at quarter end - which reflected
our success in achieving in the first quarter 45 percent of
our goal for new group sales for the entire year.
Typically, 30 to 38 percent of our annual enrollment gains
are realized in the first quarter, with January being an
important month. July and October are also strong enrollment
months relative to the other months of the year. However,
since we are the sole carrier for the vast majority of our
clients in the small-to-midsize market, we aren't as reliant
on those key enrollment dates as pure HMO's or those that
primarily serve large employers with dual option plans. We
have a fairly consistent cycle of renewal and new enrollment
opportunity throughout the year.
I'd also like to note that experiencing particularly strong
first quarter enrollment doesn't mean we've taken business
off the table that we would have expected to gain in future
quarters. Proposal activity is robust, and we have a full
new business pipeline for the second quarter. Also we see
some upward pricing opportunities in certain segments that
will allow us to continue to enhance revenue, based on both
rate increases and sales growth.
There are a number of factors that have contributed to our
improved sales and enrollment growth.
First, we continue to have healthy persistency, averaging
nearly 90 percent in the first quarter, despite rate
increases in the mid-teens.
Contributing to robust sales and healthy persistency rates
is our emphasis on providing quality service. It's also
important to note that service helps us gain new enrollees,
because our brokers in the community who have had a good
experience with RightCHOICE are more enthusiastic about
recommending RightCHOICE to their other clients.
Second, the BlueCard PPO program is another differentiator.
Through BlueCard, we're positioned as the local provider
with a national network. Increased visibility for BlueCard
has definitely contributed to our growth. It's certainly an
important factor among the many benefits of "being Blue."
This growth is the result of some very effective re-
engineering that's taken place here at RightCHOICE over the
past two years. Several strategies have been key to this
effort:
- - We've put more discipline into the sales organization.
Trying to be all things to all people has a way of working
against you, so we've worked hard to standardize the
portfolio to feature preferred products that we can deliver
more cost effectively, and with quality service.
- - We've significantly rationalized our distribution
channels. While we depend on our brokers to bring our
products to their clients, non-productive brokers consumed a
lot of our resources. We went through the process of broker
recontracting and reduced the number of brokers under
contract by more than half. We're focusing on brokers who
are active in the health benefit area, and we look at
commission expense monthly to be sure we're not overpaying
for distribution.
- - Making key new hires to fill out the sales management
team has also been very important. We believe that we have
the best team on the field. On a related note, we've been
emphasizing that a representative of our sales team must
participate in broker presentations to their clients. When
our account executives are active participants in sales
presentations with brokers, our close ratio doubles.
Quality people are helping to reinforce our message and
image that we care about and deliver the best products and
services.
The marketplace has offered us great opportunity,
particularly with about a half dozen carriers leaving the
market. Combining attrition and disruption in the market -
with our ability to take market share from those we continue
competing against head-to-head --- there is room for ample
growth in St. Louis and throughout our service area.
The best part is that we're able to achieve our growth with
reasonable pricing. We've been successful at pricing out
ahead of the medical trend, and we intend to maintain that
discipline.
We want to continue growing quality business at the right
price, and we believe that we're very well positioned to do
that.
JOHN:
TRANSITION:
Thank you Mike. . . Mike is a very positive force in our
organization. That permeates the staff and has contributed
immeasurably to our sales success.
I'd also like to highlight growth we've had at our
HealthLink subsidiary. HealthLink covers markets in 7
states, providing network rental, utilization management and
administrative services to employers and unions with self-
funded health plans and also to insurance carriers. Total
self-insured membership grew to 1.7 million at March 31, a
20 percent increase since the same period last year.
Workers' compensation programs have been a key driver of
that growth, increasing 40 percent in that period.
In addition to providing a very healthy stream of fee
income, there are operating synergies with HealthLink.
We're finding that we can maintain important client
relationships through HealthLink when groups move to self-
funded plans in this environment of rising premiums.
Now, I'd like to ask Sandra to provide you with an update on
our operating performance and outlook for the remainder of
2000.
SANDRA VAN TREASE:
OPERATING PERFORMANCE
I am very proud of the success that Mike's team and our
HealthLink group have had in achieving our sales goals.
As I've mentioned many times, there's interdependency
between profitable membership growth and the quality of our
health plans, our operating processes and client service
performance.
We continue to monitor and work toward continuous
improvement in all of these areas, including timeliness in
the claims area - which is important to our client
satisfaction.
CLAIMS:
Speaking of claims, at year-end we completed upgrades in our
imaging system and consolidated the function of converting
paper claims to electronic images at a single processing
center. The upgrades are designed to increase our efficiency
and processing timeliness, but it did produce an increase in
claims inventory and a decrease in timeliness in the first
quarter. This was a short-term, anticipated increase and
both the claims inventory levels and timeliness are
returning to normal.
SERVICE:
Mike mentioned that one of our keys to success in supporting
our sales effort is customer service. We support BlueCard
PPO with very effective and efficient service levels, and
this program has proven to be a key to our success in the
sales area. BlueCard offers our members national access to
providers with in-network benefits, virtually anywhere they
work or travel. This is unsurpassed in the market. And we
continue to have an extremely responsive sales unit,
especially serving the small group market. In the first
quarter alone, we handled more than 5,600 proposals,
returning about 99.8 percent of them within 24 hours with
the quotes our brokers have requested.
CASH & BALANCE SHEET:
I'll switch gears here and speak to cash flows and balance
sheet items. We continue to generate strong EBITDA and cash
flows. Earnings before interest expense, taxes, depreciation
and amortization was $17.6 million dollars for the first
quarter, compared to $12.6 million dollars for first quarter
of last year. Cash flow from operations was $2.3 million
dollars in the first quarter, compared with a negative $4.5
million dollars in the first quarter last year.
Our cash and investments balance was $243.9 million dollars
and claims payable were $119.6 million dollars with an
average of 68 days to pay. This number is down from 72.6
days to pay in fourth quarter 1999 as we reduced a backlog
in claims due to upgrades to our claims processing systems
that I earlier mentioned. And this number is also lower
than one year ago in the first quarter of 1999, when it was
72 days.
Total long-term debt stands at $32.1 million dollars; and
shareholders' equity at the end of the period was $165.4
million dollars or $8.86 per share.
MCHCP
As a side note, we used our first quarter release to update
information about the Missouri Consolidated Health Care
Plan. MCHCP is the Missouri public agency that purchases
health care coverage for employees of the state of Missouri
and some public entities. You'll recall that, in 1997,
RightCHOICE took a pre-tax charge of $29.5 million dollars
to account for projected MCHCP losses.
Our 1999 10k noted that a rate increase of approximately 21
percent would be effective for our final contract year
beginning January 1, 2000. In March 2000, MCHCP notified us
that a risk adjustment factor they have applied to the
premiums will result in a reduction of that increase to
approximately 12 percent.
Although we're contesting this adjustment, we nevertheless
increased the loss reserve at March 31, 2000, by $1.5
million dollars. That reserve increase is included in the
health services expense line for March 31 and will be
amortized ratably over the remainder of the 2000 contract
year.
I'd like to take a few minutes to talk about how we've
increased the value that we offer our clients and members.
We have a number of enhanced benefit plans and value-added
programs that are making a measurable difference - both for
our network physicians and members, as well as in our bottom
line performance.
PROGRAMS: PGPP/ 3 tier / Precert
Our Physician Group Partners Program now has participation
by 573 physicians, which represents 54 percent of our
BlueCHOICE HMO primary care physicians in St. Louis and
Central Missouri. The program encourages physicians to
focus on improved medical outcomes and patient satisfaction
- - while keeping medical costs within defined parameters. The
program has been in place long enough that we now have
reportable data showing that the aggregate medical cost
trend is approximately 50 percent lower for physicians in
the program as compared with the non-PGPP commercial network
trend.
We've also measured higher patient satisfaction scores among
the PGPP groups, and have documented higher rates for such
preventive procedures as childhood immunization and diabetic
retinal exams.
We continue to roll out the program to primary care doctors.
We're refining the model with input from practicing
physicians and we plan to introduce a program for
specialists in the second half of 2000. Engaging physicians
as we develop the program not only provides valuable
feedback, but also demonstrates the participative nature of
RightCHOICE's relationship with physicians.
The three-tier pharmacy benefit program continues to make a
very positive impact. While it gives members choice in their
drug program, it also helps us reduce the rate of increase
in the medical trend, which improves our performance and
helps us manage total health costs for our clients and
members. As of March 31, 2000, 86 percent of RightCHOICE
members with a drug card were enrolled in the 3-tier
program.
Controlling the rate of increase of drug spend is extremely
important to our management of the overall medical cost
trend, because the drug component of our total healthcare
expense is rapidly increasing. Drug spend now accounts for
over 16 percent of total health care costs, which is a 23
percent increase over just a few years ago.
We continue to roll out new preauthorization programs that
we began in 1999 - reducing the number of procedures
requiring preauthorization from approximately 300 to about
30. As some procedures can be over- or underutilized,
we'll continue to require precertification for those
procedures. But, the vast majority of the others are
routinely approved, so this policy is reducing
administrative costs both for us and our network physicians.
Even better, it removes nearly 300 potential points of
friction between our members and us.
We also continue the implementation of new reimbursement
models for procedures that can be safely performed in a
doctor's office. These are often referred to as tray fees
and cover procedures such as skin lesion removal, which can
cost up to $1,000 when performed in a hospital or surgical
center, but less than $200 if the doctor performs the
removal safely - and conveniently - during an office visit.
We also recently announced our new complementary and
alternative medicine network - which provides our members
with access to alternative health care including
chiropractic, acupuncture, massage therapy and fitness
centers as well as vitamins, mineral and herbal supplements.
The program is administered under the American Specialty
Health Networks. Our members will be able to access this
network of providers credentialed in their fields
nationwide, on a discounted fee basis from the vendors'
standard rates.
According to the American Specialty Health Network, a recent
alternative medicine survey showed that close to 60 percent
of Missourians have either used or considered using
alternative medicine. It's a very fast-growing area of
medicine and our program reflects our focus on providing
members with cost effective ways to take charge of their own
health.
OUTLOOK:
I'd like to close by reviewing our outlook for the remainder
of 2000. Given our strong performance in the first quarter,
and not withstanding the possibility of experiencing
slightly higher costs in the subsequent quarters of the
year, we remain comfortable with our financial targets:
- - Average annual premium rate growth per member per month
in the 9 to 10 percent range;
- - Medical cost trend per member per month in the 7 to 9
percent range, with a medical loss ratio in the low-80s;
- - Maintaining the general and administrative expense
ratio close to 20 percent.
As we look into 2000, we have a number of initiatives that
have the potential to continue making us more important and
valued as a health benefit provider, and which are designed
to increase our position as a leader in this market. These
top-line business objectives for the year include:
- - Completing the reorganization;
- - Achieving superior customer service scores as measured
independently by the Member Touchpoint Survey conducted by
the Blue Cross and Blue Shield Association;
- - Earning the NCQA accreditation of "commendable";
- - And growing our underwritten enrollment by 3 to 5
percent by continuing our successful marketing efforts and
pricing consistent with medical trends.
QUESTIONS
At this point, we'd like to open the call for questions.
JOHN:
AFTER QUESTIONS- WRAP UP:
We appreciate the interest from our current shareholders and
are pleased to see increasing interest among the investment
community as our performance trends continue and we move
closer to completing the settlement and reorganization.
Given our position of market leadership, the strength of our
Blue Cross and Blue Shield brand name, and the terrific
management team that we've assembled, we believe that
RightCHOICE offers tremendous value yet to be realized in
the market.
Thank you for joining us today; please contact us if you
have additional questions.
Operator, please read the replay information and close the
call.
Important Information about Proposed Reorganization
RightCHOICE Managed Care, Inc., a Delaware corporation,
referred to above as new RightCHOICE, together with
RightCHOICE Managed Care, Inc., a Missouri corporation,
referred to above as RightCHOICE, filed with the Securities
and Exchange Commission a preliminary proxy
statement/prospectus regarding the proposed settlement and
reorganization transaction described above. In addition,
new RightCHOICE and RightCHOICE will prepare and file with
the SEC a definitive proxy statement/prospectus and other
documents regarding the proposed settlement and
reorganization transaction. You are urged to read the
definitive proxy statement/prospectus, when it becomes
available, because it will contain important information.
The definitive proxy statement/prospectus will be sent to
shareholders of RightCHOICE seeking their approval of the
proposed settlement and reorganization transaction. You may
obtain a free copy of the definitive proxy
statement/prospectus (when it is available) and other
documents filed by new RightCHOICE (as well as by
RightCHOICE) with the SEC at the SEC's web site at
www.sec.gov. The definitive proxy statement/prospectus and
these other documents may also be obtained for free by
RightCHOICE shareholders by directing a request to:
RightCHOICE Managed Care, Inc., 1831 Chestnut Street, St.
Louis, Missouri, 63103, Attn: Investor Relations, telephone
number (314) 923-4831; e-mail: [email protected].
