- -----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-6639
MAGELLAN HEALTH SERVICES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 58-1076937
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 841-9200
See Table of Additional Registrants below.
---------------------------
Securities registered pursuant to Section 12(b)
of the Act: Name of each exchange
on which registered
Title of each class
Common Stock ($0.25 par value) American Stock Exchange
11 1/4% Series A Senior Subordinated Notes due 2004 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
---------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any mendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at November 30, 1995 was approximately $510 million.
Indicate by check mark whether the Registrant has filed all documents and
eports required to be filed by Section 12, 13 or 15(d) of the Securities
xchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
The number of shares of the Registrant's Common Stock outstanding as of November
30, 1995 was 28,415,081.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's Proxy
Statement for the annual meeting of stockholders (which Proxy Statement will be
filed with the Securities and Exchange Commission on or before January 29, 1996)
are incorporated by reference in Part III hereof.
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PAGE>
<TABLE>
<CAPTION>
ADDITIONAL REGISTRANTS(1)
State or Address including zip code,
Exact name of jurisdiction I.R.S. Employer including area code,
registrant as specified of incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- -----------------------
<S> <C> <C> <C>
Beltway Community Texas 58-1324281 3414 Peachtree Rd., N.E.
Hospital, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
C.A.C.O. Services, Inc. Ohio 58-1751511 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
CCM, Inc. Nevada 58-1662418 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
CMCI, Inc. Nevada 88-0224620 1061 East Flamingo Road
Suite One
Las Vegas, NV 89119
(702) 737-0282
CMFC, Inc. Nevada 88-0215629 1061 East Flamingo Road
Suite One
Las Vegas, NV 89119
(702) 737-0282
CMSF, Inc. Florida 58-1324269 3550 Colonial Boulevard
Fort Myers, FL 33912
(813) 939-0403
CPS Associates, Inc. Virginia 58-1761039 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Alvarado California 58-1394959 7050 Parkway Drive
Behavioral Health La Mesa, CA 91942-2352
System, Inc. 619) 465-4411
Charter Appalachian Hall North Carolina 58-2097827 60 Caledonia Road
Behavioral Health Asheville, NC 28803
System, Inc. (704) 253-3681
Charter Arbor Indy Indiana 35-1916340 11075 N. Pennsylvania
Behavioral Health Indianapolis, IN 46280
System, Inc. (317) 575-1000
Charter Augusta Georgia 58-1615676 3100 Perimeter Parkway
Behavioral Health P.O. Box 14939
System, Inc. Augusta, GA 30909
(404) 868-6625
i
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- -----------------------
Charter Bay Harbor Behavioral Florida 58-1640244 3414 Peachtree Rd., N.E.
Health System, Inc. Suite 1400
Atlanta, Georgia 30326
(404) 841-9200
Charter Beacon Behavioral Indiana 58-1524996 1720 Beacon Street
Health System, Inc. Fort Wayne, IN 46805
(219) 423-3651
Charter Behavioral Health New Jersey 58-2097832 19 Prospect Street
System at Fair Oaks, Inc. Summit, NJ 07901
(908) 277-9102
Charter Behavioral Health Maryland 52-1866212 522 Thomas Run Road
System at Hidden Brook, Inc. Bel Air, MD 21014
(410) 879-1919
Charter Behavioral Health California 33-0606642 3340 Los Coyotes Diagonal
System at Los Altos, Inc. Long Beach, CA 90808
(310) 421-9311
Charter Behavioral Health Florida 65-0519663 1324 37th Avenue, East
System at Manatee Adolescent Bradenton, FL 4208
Treatment Services, Inc. (813) 746-1388
Charter Behavioral Health Maryland 52-1866221 14901 Broschart Road
System at Potomac Ridge, Inc. Rockville, MD 20850
(301) 251-4500
Charter Behavioral Health Georgia 58-1513304 240 Mitchell Bridge Road
System of Athens, Inc. Athens, GA 30606
(404) 546-7277
Charter Behavioral Health Texas 58-1440665 8402 Cross Park Drive
System of Austin, Inc. Austin, TX 78754
(512) 837-1800
Charter Behavioral Health Texas 76-0430571 3414 Peachtree Rd., N.E.
System of Baywood, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health Florida 58-1527678 4480 51st Street, West
System of Bradenton, Inc. Bradenton, FL 34210
(813) 746-1388
Charter Behavioral Health Georgia 58-1408670 3500 Riverside Drive
System of Central Georgia, Inc. Macon, GA 31210
(912) 474-6200
Charter Behavorial Health Virginia 54-1765921 1500 Westbrook Avenue
System of Central Virginia, Inc. Richmond, VA 23227
(804) 266-9671
ii
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- -----------------------
Charter Behavioral Health South Carolina 58-1761157 2777 Speissegger Drive
System of Charleston, Inc. Charleston, SC 29405-8299
(803) 747-5830
Charter Behavioral Health Virginia 58-1616917 2101 Arlington Boulevard
System of Charlottesville, Inc. Charlottesville, VA 22903-1593
(804) 977-1120
Charter Behavioral Health Illinois 58-1315760 4700 North Clarendon Avenue
System of Chicago, Inc. Chicago, IL 60640
(312) 728-7100
Charter Behavioral Health California 58-1473063 3414 Peachtree Rd., N.E.
System of Chula Vista, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health Missouri 61-1009977 200 Portland Street
System of Columbia, Inc. Columbia, MO 65201
(314) 876-8000
Charter Behavioral Health Texas 58-1513305 3126 Rodd Field Road
System of Corpus Christi, Inc. Corpus Christi, TX 78414
(512) 993-8893
Charter Behavioral Health Texas 58-1513306 6800 Preston Road
System of Dallas, Inc. Plano, TX 75024
(214) 964-3939
Charter Behavioral Health Maryland 52-1866214 3680 Warwick Road, Route 1
System of Delmarva, Inc. East New Market, MD 21631
(410) 943-8108
Charter Behavioral Health Indiana 35-1916338 7200 East Indiana
System of Evansville, Inc. Evansville, IN 47715
(812) 476-7200
Charter Behavioral Health Texas 58-1643151 3414 Peachtree Rd., N.E.
System of Fort Worth, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health Mississippi 58-1616919 3531 Lakeland Drive
System of Jackson, Inc. Jackson, MS 39208
(601) 939-9030
Charter Behavioral Health Florida 58-1483015 3947 Salisbury Road
System of Jacksonville, Inc. Jacksonville, FL 32216
(904) 296-2447
Charter Behavioral Health Indiana 35-1916342 2700 River City Park Drive
System of Jefferson, Inc. Jeffersonville, IN 47130
(812) 284-3400
iii
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter Behavioral Health Kansas 58-1603154 8000 West 127th Street
System of Kansas City, Inc. Overland Park, KS 66213
(913) 897-4999
Charter Behavioral Health Louisiana 72-0686492 302 Dulles Drive
System of Lafayette, Inc. Lafayette, LA 70506
(318) 233-9024
Charter Behavioral Health Louisiana 62-1152811 4250 Fifth Avenue, South
System of Lake Charles, Inc. Lake Charles, LA 70605
(318) 474-6133
Charter Behavioral Health Indiana 35-1916343 3714 S. Franklin Street
System of Michigan City, Inc. Michigan City, IN 46360
(219) 872-0531
Charter Behavioral Health Alabama 58-1569921 3414 Peachtree Rd., N.E.
System of Mobile, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health New Hampshire 02-0470752 29 Northwest Boulevard
System of Nashua, Inc. Nashua, NH 03063
(603) 886-5000
Charter Behavioral Health Nevada 58-1321317 7000 West Spring Mountain Rd.
System of Nevada, Inc. Las Vegas, NV 89117
(702) 876-4357
Charter Behavioral Health New Mexico 58-1479480 5901 Zuni Road, SE
System of New Mexico, Inc. Albuquerque, NM 87108
(505) 265-8800
Charter Behavioral Health California 58-1857277 101 Cirby Hills Drive
System of Northern California, Roseville, CA 95678
Inc. (916) 969-4666
Charter Behavioral Health Arkansas 58-1449455 4253 Crossover Road
System of Northwest Arkansas, Fayetteville, AR 72703
Inc. (501) 521-5731
Charter Behavioral Health Indiana 58-1603160 101 West 61st Avenue
System of Northwest Indiana, State Road 51
Inc. Hobart, IN 46342
(219) 947-4464
Charter Behavioral Health Kentucky 61-1006115 435 Berger Road
System of Paducah, Inc. Paducah, KY 42002-7609
(502) 444-0444
Charter Behavioral Health Georgia 66-0523678 Caso Bldg., Suite 1504
of Puerto Rico, Inc. 1225 Ponce de Leon Avenue
Santurce, PR 00907
iv
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter Behavioral Health California 58-1747020 455 Silicon Valley Boulevard
System of San Jose, Inc. San Jose, CA 95138
(408) 224-2020
Charter Behavioral Health Georgia 58-1750583 1150 Cornell Avenue
System of Savannah, Inc. Savannah, GA 31406
(912) 354-3911
Charter Behavioral Health Florida 58-1616916 4004 North Riverside Drive
System of Tampa Bay, Inc. Tampa, FL 33603
(813) 238-8671
Charter Behavioral Health Arkansas 71-0752815 3414 Peachtree Rd., N.E.
System of Texarkana, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health California 95-2685883 2055 Kellogg Drive
System of the Inland Empire, Corona, CA 91719
Inc. (714) 735-2910
Charter Behavioral Health Ohio 58-1731068 1725 Timberline Road
System of Toledo, Inc. Maumee, Ohio 43537
(419) 891-9333
Charter Behavioral Health Arizona 86-0757462 3414 Peachtree Rd., N.E.
System of Tucson, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health California 33-0606644 3414 Peachtree Rd., N.E.
System of Visalia, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Behavioral Health Minnesota 41-1775626 109 North Shore Drive
System of Waverly, Inc. Waverly, MN 55390 (612) 658-4811
Charter Behavioral Health North Carolina 56-1050502 3637 Old Vineyard Road
System of Winston-Salem, Inc. Winston-Salem, NC 27104
(919) 768-7710
Charter Behavioral Health California 33-0606646 16850 Bastanchury Avenue
System of Yorba Linda, Inc. Yorba Linda, CA 92686
(714) 993-3002
Charter Behavioral Health Georgia 58-1900736 811 Juniper St., N.E.
Systems of Atlanta, Inc. Atlanta, GA 30308
(404) 881-5800
v
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- -----------------------
Charter Brawner Behavioral Georgia 58-0979827 3414 Peachtree Rd., N.E.
Health System, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter By-The-Sea Georgia 58-1351301 2927 Demere Road
Behavioral Health System, St. Simons Island, GA 31522
Inc. (912) 638-1999
Charter Canyon Behavioral Utah 58-1557925 3414 Peachtree Rd., N.E.
Health System, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Canyon Springs California 33-0606640 69696 Ramon Road
Behavioral Health System, Cathedral City, CA 92234
Inc. (619) 321-2000
Charter Centennial Peaks Colorado 58-1761037 2255 South 88th Street
Behavioral Health System, Louisville, CO 80027
Inc. (303) 673-9990
Charter Community Hospital, California 58-1398708 21530 South Pioneer Boulevard
Inc Hawaiian Gardens, CA 90716
(310) 860-0401
Charter Contract Services, Georgia 58-2100699 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Cove Forge Behavioral Pennsylvania 25-1730464 New Beginnings Road
Health System, Inc. Williamsburg, PA 16693
(814) 832-2121
Charter Fairbridge Maryland 52-1866218 14907 Broschart Road
Behavioral Health System, Rockville, MD 20850
Inc. (301) 251-4565
Charter Fairmount Behavioral Pennsylvania 58-1616921 561 Fairthorne Avenue
Health System, Inc. Philadelphia, PA 19128
(215) 487-4000
Charter Fenwick Hall South Carolina 57-0995766 3414 Peachtree Rd., N.E.
Behavioral Health System, Suite 1400
Inc. Atlanta, GA 30326
(404) 841-9200
Charter Financial Offices, Georgia 58-1527680 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
vi
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter Forest Behavioral Louisiana 58-1508454 9320 Linwood Avenue
Health System, Inc. Shreveport, LA 71106
(318) 688-3930
Charter Grapevine Behavioral Texas 58-1818492 2300 William D. Tate Ave.
Health System, Inc. Grapevine, TX 76051
(817) 481-1900
Charter Greensboro Behavioral North Carolina 58-1335184 700 Walter Reed Drive
Health System, Inc. Greensboro, NC 27403
(919) 852-4821
Charter Health Management Texas 58-2025056 6800 Park Ten Blvd.
of Texas, Inc. Suite 275-W
San Antonio, TX 78213
(210) 699-8585
Charter Hospital of Ohio 58-1598899 3414 Peachtree Rd., N.E.
Columbus, Inc. Suite 1400
Atlanta, GA 30326
404) 841-9200
Charter Hospital of Denver, Colorado 58-1662413 3414 Peachtree Rd., N.E.
Inc Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Ft. Colorado 58-1768534 3414 Peachtree Rd., N.E.
Collins, Inc Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Laredo, Texas 58-1491620 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of Miami, Florida 61-1061599 11100 N.W. 27th Street
Inc. Miami, FL 33172
(305) 591-3230
Charter Hospital of Mobile, Alabama 58-1318870 5800 Southland Drive
Inc. Mobile, AL 36693
(334) 661-3001
Charter Hospital of Santa New Mexico 58-1584861 3414 Peachtree Rd., N.E.
Teresa, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Hospital of St. Louis, Missouri 58-1583760 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
vii
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter Hospital of Torrance, California 58-1402481 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Indianapolis Indiana 58-1674291 5602 Caito Drive
Behavioral Health System, Indianapolis, IN 46226
Inc. (317) 545-2111
Charter Lafayette Behavioral Indiana 58-1603158 3700 Rome Drive
Health System, Inc. Lafayette, IN 47905
(317) 448-6999
Charter Lakehurst New Jersey 22-3286879 3414 Peachtree Rd., N.E.
Behavioral Health System, Suite 1400
Inc. Atlanta, GA 30326
(404) 841-9200
Charter Lakeside Behavioral Tennessee 62-0892645 2911 Brunswick Road
Health System, Inc. Memphis, TN 38134
(901) 377-4700
Charter Laurel Heights Georgia 58-1558212 3414 Peachtree Rd., N.E.
Behavioral Health System, Suite 1400
Inc. Atlanta, GA 30326
(404) 841-9200
Charter Linden Oaks Illinois 36-3943776 852 West Street
Behavioral Health System, Naperville, IL 60540
Inc. (708) 305-5500
Charter Little Rock Behavioral Arkansas 58-1747019 1601 Murphy Drive
Health System, Inc. Maumelle, AR 72113
(501) 851-8700
Charter Louisville Behavioral Kentucky 58-1517503 1405 Browns Lane
Health System, Inc. Louisville, KY 40207
(502) 896-0495
Charter Meadows Maryland 52-1866216 730 Maryland, Route 3
Behavioral Health System, Gambrills, MD 21054
Inc. (410) 923-6022
Charter Medfield Behavioral Florida 58-1705131 12891 Seminole Blvd.
Health System, Inc. Largo, FL 34648
(813) 581-8757
Charter Medical - California, Georgia 58-1357345 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
viii
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter Medical - Clayton Georgia 58-1579404 3414 Peachtree Rd., N.E.
County, Inc. Suite 1400
Atlant30326
(404) 841-9200
Charter Medical - Cleveland, Texas 58-1448733 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlant30326
(404) 841-9200
Charter Medical - Dallas, Texas 58-1379846 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlant30326
(404) 841-9200
Charter Medical - Long California 58-1366604 3414 Peachtree Rd., N.E.
Beach, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical - New York, New York 58-1761153 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlant30326
(404) 841-9200
Charter Medical (Cayman Cayman Islands, BWI 58-1841857 Caledonian Bank & Trust
Islands) Ltd. Swiss Bank Building
Caledonian House
Georgetown-Grand Cayman
Cayman Islands
(809) 949-0050
Charter Medical Executive Georgia 58-1538092 3414 Peachtree Rd., N.E.
Corporation Suite 1400
Atlanta, Ga 30326
(404) 841-9200
Charter Medical Information Georgia 58-1530236 3414 Peachtree Rd., N.E.
Services, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical International, Cayman Islands, BWI N/A Caledonian Bank & Trust
Inc Swiss Bank Building
Caledonian House
Georgetown-Grand Cayman
Cayman Islands
(809) 949-0050
Charter Medical International, Nevada 58-1605110 3414 Peachtree Rd., N.E.
S.A., Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
ix
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter Medical Management Georgia 58-1195352 3414 Peachtree Rd., N.E.
Company Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical of East Arizona 58-1643158 2190 N. Grace Boulevard
Valley, Inc. Chandler, AZ 85224
(602) 899-8989
Charter Medical of England, United Kingdom N/A 111 Kings Road
Ltd. Box 323
London SW3 4PB
London, England
44-71-351-1272
Charter Medical of Florida, Florida 58-2100703 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Medical of North Arizona 58-1643154 6015 W. Peoria Avenue
Phoenix, Inc. Glendale, AZ 85302
(602) 878-7878
Charter Medical of Puerto Commonwealth of 58-1208667 Caso Building, Suite 1504
Rico, Inc. Puerto Rico 1225 Ponce De Leon Avenue
Santurce, P.R. 00907
(809) 723-8666
Charter Mental Health Florida 58-2100704 3414 Peachtree Rd., N.E.
Options, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Milwaukee Behavioral Wisconsin 58-1790135 11101 West Lincoln Avenue
Health System, Inc. West Allis, WI 53227
(414) 327-3000
Charter Mission Viejo California 58-1761156 23228 Madero
Behavioral Health System, Mission Viejo, CA 92691
Inc. (714) 830-4800
Charter MOB of Virginia 58-1761158 1023 Millmont Avenue
Charlottesville, Inc. Charlottesville, VA 22901
(804) 977-1120
Charter North Behavioral Alaska 58-1474550 2530 DeBarr Road
Health System, Inc. Anchorage, AK 99508-2996
(907) 258-7575
Charter Northbrooke Wisconsin 39-1784461 46000 W. Shroeder Drive
Behavioral Health System, Brown Deer, WI 53223
Inc. (414) 355-2273
x
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter North Counseling Alaska 58-2067832 2530 DeBarr Road
Center, Inc. Anchorage, AL 99508-2996
(907) 258-7575
Charter Northridge Behavioral North Carolina 58-1463919 400 Newton Road
Health System, Inc. Raleigh, NC 27615
(919) 847-0008
Charter Oak Behavioral California 58-1334120 1161 East Covina Boulevard
Health System, Inc. Covina, CA 91724
(818) 966-1632
Charter of Alabama, Inc. Alabama 63-0649546 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Palms Behavioral Texas 58-1416537 1421 E. Jackson Avenue
Health System, Inc. McAllen, TX 78502
(512) 631-5421
Charter Peachford Behavioral Georgia 58-1086165 2151 Peachford Road
Health System, Inc. Atlanta, GA 30338
(404) 455-3200
Charter Petersburg Behavioral Virginia 58-1761160 3414 Peachtree Rd., N.E.
Health System, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Pines Behavioral North Carolina 58-1462214 3621 Randolph Road
Health System, Inc. Charlotte, NC 28211
(704) 365-5368
Charter Plains Behavioral Texas 58-1462211 801 N. Quaker Avenue
Health System, Inc. Lubbock, TX 79408
(806) 744-5505
Charter-Provo School, Inc. Utah 58-1647690 4501 North University Ave.
Provo, UT 84604
(801) 227-2000
Charter Real Behavioral Texas 58-1485897 8550 Huebner Road
Health System, Inc. San Antonio, TX 78240
(512) 699-8585
Charter Regional Medical Texas 74-1299623 3414 Peachtree Rd., N.E.
Center, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Ridge Behavioral Kentucky 58-1393063 3050 Rio Dosa Drive
Health System, Inc. Lexington, KY 40509
(606) 269-2325
xi
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter Rivers Behavioral South Carolina 58-1408623 2900 Sunset Boulevard
Health System, Inc. West Columbia, SC 29169
(803) 796-9911
Charter San Diego Behavioral California 58-1669160 11878 Avenue of Industry
Health System, Inc. San Diego, CA 92128
(619) 487-3200
Charter Sioux Falls Behavioral South Dakota 58-1674278 2812 South Louise Avenue
Health System, Inc. Sioux Falls, SD 57106
(605) 361-8111
Charter South Bend Behavioral Indiana 58-1674287 6704 N. Gumwood Drive
Health System, Inc. Granger, IN 46530
(219) 272-9799
Charter Springs Behavioral Florida 58-1517461 3130 S.W. 27th Avenue
Health System, Inc. Ocala, FL 32674
(904) 237-7293
Charter Springwood Virginia 58-2097829 Route 4, Box 50
Behavioral Health System, Leesburg, VA 22075
Inc. (703) 777-0800
Charter Suburban Hospital Texas 75-1161721 3414 Peachtree Rd., N.E.
of Mesquite, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Terre Haute Behavioral Indiana 58-1674293 1400 Crossing Boulevard
Health System, Inc. Terre Haute, IN 47802
(812) 299-4196
Charter Thousand Oaks California 58-1731069 150 Via Merida
Behavioral Health System, Thousand Oaks, CA 91361
Inc. (805) 495-3292
Charter Treatment Center of Michigan 58-2025057 3414 Peachtree Rd., N.E.
Michigan, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Charter Westbrook Behavioral Virginia 54-0858777 1500 Westbrook Avenue
Health System, Inc. Richmond, VA 23227
(804) 266-9671
Charter White Oak Maryland 52-1866223 1441 Taylors Island Road
Behavioral Health System, Woolford, MD 21677
Inc. (410) 228-7000
Charter Wichita Behavioral Kansas 58-1634296 8901 East Orme
Health System, Inc. Wichita, KS 67207
(316) 686-5000
xii
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
Charter Woods Behavioral Alabama 58-1330526 700 Cottonwood Road
Health System, Inc. Dothan, AL 36301
(205) 794-4357
Desert Springs Hospital, Inc. Nevada 88-0117696 414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Employee Assistance Services, Georgia 58-1501282 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Florida Health Facilities, Florida 58-1860493 21808 State Road 54
Inc. Lutz, FL 33549
(813) 948-2441
Gulf Coast EAP Services, Alabama 58-2101394 3414 Peachtree Rd., N.E.
Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Hospital Investors, Inc. Georgia 58-1182191 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, Ga 30326
(404) 841-9200
Illinois Mentor, Inc. Illinois 36-3643670 45 Milk Street
Boston, MA 02109
(617) 654-0500
Magellan Public Solutions, Delaware 04-3250732 45 Milk Street
Inc. Boston, MA 02109
(617) 654-0500
Mandarin Meadows, Inc. Florida 58-1761155 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
Massachusetts Mentor, Inc. Massachusetts 04-2799071 45 Milk Street
Boston, MA 02109
(617) 654-0500
National Mentor, Inc. Delaware 04-2794857 45 Milk Street
Boston, MA 02109
(617) 654-0500
National Mentor Healthcare, Massachusetts 04-2893910 45 Milk Street
Inc. Boston, MA 02109
(617) 654-0500
xiii
<PAGE>
ADDITIONAL REGISTRANTS(1)
Address including zip code,
State or other and telephone number
Exact name of jurisdiction of I.R.S. Employer including area code,
registrant as specified incorporation Identification of registrant's principal
in its charter or organization Number executive offices
- -------------------- -------------- -------------- ------------------------
NEPA - Massachusetts, Inc. Massachusetts 58-2116751 #6 Courthouse Lane
Chelmsford, MA 01863
(508) 441-2332
NEPA - New Hampshire, Inc. New Hampshire 58-2116398 29 Northwest Boulevard
Nashua, NH 03063
(603) 886-5000
Ohio Mentor, Inc. Ohio 31-1098345 45 Milk Street
Boston, MA 02109
(617) 654-0500
Pacific-Charter Medical, Inc. California 58-1336537 3414 Peachtree Rd., N.E.
Suite 1400
Atlanta, GA 30326
(404) 841-9200
South Carolina Mentor, Inc. South Carolina 57-0782160 45 Milk Street
Boston, MA 02109
(617) 654-0500
Southeast Behavioral Systems, Georgia 58-2100700 3414 Peachtree Rd., N.E.
Inc Suite 1400
Atlanta, GA 30326
(404) 841-9200
Schizophrenia Treatment and Georgia 58-1672912 209 Church Street
Rehabilitation, Inc. Decatur, GA 30030
(404) 377-1986
Sistemas De Terapia Georgia 58-1181077 3414 Peachtree Rd., N.E.
Respiratoria, S.A., Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
Western Behavioral California 58-1662416 3414 Peachtree Rd., N.E.
Systems, Inc. Suite 1400
Atlanta, GA 30326
(404) 841-9200
</TABLE>
(1) The Additional Registrants listed are wholly-owned subsidiaries of the
Registrant and are guarantors of the Registrant's 11 1/4% Series A
Senior Subordinated Notes due 2004. The Additional Registrants have
been conditionally exempted, pursuant to Section 12(h) of the
Securities Exchange Act of 1934, from filing reports under Section 13
of the Securities Exchange Act of 1934.
xiv
<PAGE>
<TABLE>
<CAPTION>
MAGELLAN HEALTH SERVICES, INC.
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended September 30, 1995
Table of Contents
Page
PART I
<S> <C> <C> <C> <C>
Item 1. Business 1
Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market Price for Registrant's Common Equity and Related 13
Stockholder Matters 13
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 23
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 23
PART III
Item 10. Directors and Executive Officers of the Registrant 24
Item 11. Executive Compensation 24
Item 12. Security Ownership of Certain Beneficial Owners and Management 24
Item 13. Certain Relationships and Related Transactions 24
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K 25
</TABLE>
<PAGE>
PART I
Item 1. Business
General
Magellan Health Services, Inc. (the "Company") (formerly Charter
Medical Corporation) , which was incorporated in 1969, is a behavioral
healthcare company. As of September 30, 1995, the Company operated 98 acute
care psychiatric hospitals and four residential treatment centers with an
aggregate capacity of 8,939 licensed beds. Ninety-three of the Company's
hospitals operate partial hospitalization programs, and the Company operates
144 outpatient centers, staffed by mental health professionals. In this report,
the Company uses the term "psychiatric hospitals" or "hospitals" to refer
to the 98 facilities licensed as acute care psychiatric hospitals and the four
facilities licensed as residential treatment centers. A residential
treatment center offers less intensive and longer stay services than acute
care psychiatric hospitals.
The Company's business strategy is to develop and operate fully
integrated behavioral healthcare delivery systems in certain markets in which it
presently operates one or more hospitals and in selected other markets in which
the Company does not presently operate a hospital. The fully integrated delivery
systems that the Company is developing offer a comprehensive range of behavioral
healthcare services including inpatient treatment, day and partial
hospitalization services, group and individual outpatient treatment, residential
treatment programs and other less intensive behavioral healthcare services. The
Company is establishing such systems by using its hospitals as a base and by
arranging for other services through acquisitions, contracts or affiliations
with physicians, psychologists and other mental health professionals and, in
some markets, with general acute care hospitals and other institutional
healthcare providers.
Recent Developments
Green Spring Health Services Acquisition
On December 13, 1995, the Company acquired a 51% ownership interest in
Green Spring Health Services, Inc. ("Green Spring") for approximately $73.2
million in cash and Common Stock and the contribution of Group Practice
Affiliates ("GPA"), a wholly-owned Magellan subsidiary, which became a
wholly-owned subsidiary of Green Spring. GPA was organized by the Company for
the purpose of acquiring and managing professional group practices and has
acquired five group practices through September 30, 1995. Green Spring is a
leading provider of managed behavioral healthcare services, which includes
utilization management, care management and employee assistance programs through
a 50-state provider network for approximately 12 million people nationwide.
The Green Spring acquisition creates the first fully integrated
national behavioral healthcare system and gives the Company the capability to
provide case management and delivery services to large private organizations and
a public sector marketplace seeking increased privatization of services. The
Company changed its name to Magellan Health Services, Inc. on December 21, 1995
to reflect the broader range of services it expects to provide as a result of
the Green Spring acquisition.
The Company will operate its integrated national behavioral healthcare
system through three principal subsidiaries beginning in fiscal 1996 engaging in
(i) the provider business, (ii) the managed care business and (iii) the
public sector business. Each principal subsidiary will operate autonomously and
enter into contractual arrangements with the other subsidiaries as necessary.
The minority shareholders of Green Spring consist of four Blue
Cross/Blue Shield organizations (the "Blues") that are key customers of Green
Spring. In addition, two other Blues organizations that formerly owned a portion
of Green Spring will continue as customers of Green Spring. The minority
shareholders of Green Spring will have the option, under certain circumstances,
to exchange their ownership interests ("exchange option") in Green Spring for
<PAGE>
approximately 3.6 million shares of Magellan Common Stock or $81.8 million in
subordinated notes. The Company may elect to pay cash in lieu of issuing the
subordinated notes. The exchange option expires December 13, 1998.
On December 20, 1995, the Company acquired an additional 10% ownership
interest in Green Spring for approximately $16.7 million in cash as a result of
an exchange option exercised by certain of the minority shareholders of Green
Spring. The Company has a 61% ownership interest in Green Spring subsequent to
the exercise of the aforementioned exchange option.
Fiscal 1994 and Prior Developments
NME Acquisition
During fiscal 1994, the Company agreed to acquire 40 psychiatric
hospitals (the "Acquired Hospitals") from National Medical Enterprises, Inc.
("NME"). The purchase price for the Acquired Hospitals was approximately $120.4
million in cash plus an additional cash amount of approximately $51 million,
subject to adjustment, for the net working capital of the Acquired Hospitals
(the "Hospital Acquisition".) The Acquired Hospitals had an aggregate capacity
of 2,873 licensed beds when acquired and were located in 19 states. For their
fiscal year ended May 31, 1994, the Acquired Hospitals had net revenue of
approximately $315.1 million.
On June 30, 1994, the Company completed the purchase of 27 of the
Acquired Hospitals for a cash purchase price of approximately $129.6 million,
which included approximately $39.3 million, subject to adjustment, for the net
working capital of the facilities. On October 31, 1994, the Company completed
the purchase of three additional Acquired Hospitals for a cash purchase price of
approximately $5 million, which included approximately $2.2 million related to
the net working capital of the facilities. On November 30, 1994, the Company
completed the purchase of the remaining ten Acquired Hospitals for a cash
purchase price of approximately $36.8 million, including approximately $9.5
million related to the net working capital of the ten Acquired Hospitals. During
the year ended September 30, 1995, the Company received approximately $3.5
million from NME as a partial payment related to the settlement of the
working capital portion of the purchase price. The Company accounted for the
Hospital Acquisition using the purchase method of accounting.
Debt Refinancing
In order to finance the Hospital Acquisition and to refinance
substantially all of the Company's outstanding long-term debt, on May 2, 1994,
the Company entered into a Second Amended and Restated Credit Agreement with
certain financial institutions for a five-year reducing, revolving credit
facility in an aggregate committed amount of $300 million (the "Revolving Credit
Agreement") and issued $375 million of 11 1/4% Series A Senior Subordinated
Notes which mature on April 15, 2004 (the "Notes") and are general unsecured
obligations of the Company. (See Note 6 of the Company's Consolidated Financial
Statements.)
Sale of General Hospitals
On September 30, 1993, the Company sold its general hospitals and
related assets to Quorum, Inc. for approximately $338 million. The Company
retained the assets and liabilities relating to these hospitals for professional
liability claims incurred and cost report settlements for periods prior to
September 30, 1993.
For fiscal 1993, the general hospitals had net revenue of approximately
$347 million, a net loss of approximately $15 million, and admissions and
patient days of 39,669 and 205,843, respectively. In 1993, the Company restated
its consolidated financial statements to reflect the sales of the general
hospitals and its interest in a non-hospital subsidiary as discontinued
operations.
<PAGE>
Financial Restructuring
In its 1992 fiscal year, the Company completed a restructuring of its
debt and equity capitalization (the "Restructuring") pursuant to a prepackaged
plan of reorganization filed under Chapter 11 of the United States Bankruptcy
Code (the "Plan"), which became effective on July 21, 1992. As a result of the
Restructuring, the Company's long-term debt was reduced by approximately $700
million and its redeemable preferred stock of $233 million was eliminated. The
holders of the debt and preferred stock that were reduced or eliminated received
approximately 97% of the Company's common stock outstanding on July 21, 1992.
Psychiatric Hospital Operations
The Company's psychiatric hospitals in operation on September 30, 1995
are located in well-populated urban and suburban locations in 32 states and two
foreign countries. Five of the Company's hospitals are affiliated with medical
schools for residency and other post-graduate teaching programs.
Most of the Company's hospitals offer a full continuum of behavioral
care in their service area. The continuum includes inpatient hospitalization,
partial hospitalization, intensive outpatient services and, in some markets,
residential treatment services.
The Company's hospitals provide structured and intensive treatment
programs for mental health and alcohol and drug dependency disorders in
children, adolescents and adults. The specialization of programs enables the
clinical staff to provide care that is specific to the patient's needs and
facilitates monitoring the patient's progress. A typical treatment program of
the Company integrates physicians and other patient-care professionals with
structured activities, providing patients with testing, adjunctive therapies
(occupational, recreational and other), group therapy, individual therapy and
educational programs. A treatment program includes one or more of the types of
treatment settings provided by the Company's continuum of care. For those
patients who do not have a personal psychiatrist or other specialist, the
hospital refers the patient to a member of its medical staff.
A significant portion of hospital admissions are provided by referrals
from former patients, local marketplace advertising, managed care organizations
and physician referrals. Professional relationships are an important aspect of
the Company's ongoing business. Management believes the quality of the Company's
treatment programs, staff employees and physical facilities are important
factors in maintaining good professional relationships.
The Company's hospitals work closely with mental health professionals,
non-psychiatric physicians, emergency rooms and community agencies that come in
contact with individuals who may need treatment for mental illness or substance
abuse. A portion of the Company's marketing efforts is directed at increasing
general awareness of mental health and addictive disease and the services
offered by the Company's hospitals.
Seasonality
The Company's business is seasonal in nature, with a reduced demand for
certain services generally occurring in the first fiscal quarter around major
holidays, such as Thanksgiving and Christmas, and during the summer months
comprising the fourth fiscal quarter.
Related Businesses
As part of the Company's business strategy during the past three fiscal
years, the Company (i) acquired a company that develops information systems
relating to the financing and delivery of behavioral healthcare services, (ii)
acquired a company that provides outpatient treatment for schizophrenia
patients, and (iii) acquired a company that provides specialized health services
in mentor homes. To date, the activities of these subsidiaries have not been
material to the Company.
<PAGE>
Hospital Properties
The following table provides information relating to the 102 hospitals
operated by the Company as of September 30, 1995.
<TABLE>
<CAPTION>
State/Country Number of Hospitals Number of Licensed Beds
------------- ------------------- -----------------------
<S> <C> <C>
Alabama 2 169
Alaska 1 74
Arizona 2 170
Arkansas 2 125
California 11 889
Colorado 1 72
England 2 123
Florida 10 833
Georgia 8 840
Illinois 2 215
Indiana 10 746
Kansas 2 160
Kentucky 3 256
Louisiana 3 259
Maryland 6 350
Massachusetts 2 215
Minnesota 1 40
Mississippi 1 111
Missouri 1 96
Nevada 1 84
New Hampshire 1 100
New Jersey 1 150
New Mexico 2 172
North Carolina 4 398
Ohio 1 38
Pennsylvania 2 265
South Carolina 3 260
South Dakota 1 60
Switzerland 1 69
Tennessee 1 204
Texas 8 662
Utah 1 212
Virginia 3 362
Wisconsin 2 160
----- -----
Total 102 8,939
===== =====
</TABLE>
All of the Company's hospitals located in the United States have been
accredited by the Joint Commission on Accreditation of Healthcare Organizations
(the "Joint Commission"). The Joint Commission is a national commission which
establishes standards relating to the physical plant, administration, quality of
patient care, governing body and medical staffs of hospitals.
<PAGE>
The Company operates 13 leased hospitals, including one 150-bed general
hospital, not listed above, which is managed by an unaffiliated third party. The
leases for such hospitals have terms expiring between 1996 and 2069. The leases
for two hospitals contain options to purchase these hospitals for nominal
consideration at the end of their respective lease terms.
Sixty-two of the Company's hospitals listed above are subject to
mortgages. The stock of substantially all of the domestic subsidiaries of the
Company has been pledged as collateral for the Company's secured bank financing.
The Company owns 16 medical office buildings and leases an additional
19 such buildings. Five of the Company's medical office buildings are subject to
mortgages.
The Company leases office space for its outpatient centers. The leases
generally have terms of less than five years.
Divestitures
During fiscal 1995, the Company sold the following facilities:
<TABLE>
<CAPTION>
Location Size/Type of Facility Date
-------- --------------------- ----
<S> <C> <C>
Chesapeake, VA Outpatient psychiatric hospital December 1994
Norfolk, VA 65-bed psychiatric hospital December 1994
Virginia Beach, VA 61-bed psychiatric hospital December 1994
</TABLE>
In addition, the Company leases, with options to purchase by the
lessees, three facilities which it previously operated prior to fiscal 1991. The
Company is also attempting to sell or lease 11 other previously operated
hospitals and related medical office buildings and certain unimproved real
estate.
Competition
Each of the Company's hospitals competes with other hospitals, some of
which are larger and have greater financial resources. Some competing hospitals
are owned and operated by governmental agencies, others by nonprofit
organizations supported by endowments and charitable contributions and others by
proprietary hospital corporations. The hospitals frequently draw patients from
areas outside their immediate locale and, therefore, the Company's hospitals
may, in certain markets, compete with both local and distant hospitals. In
addition, the Company's hospitals compete not only with other psychiatric
hospitals, but also with psychiatric units in general hospitals, and outpatient
services provided by the Company may compete with private practicing mental
health professionals. The competitive position of a hospital is, to a
significant degree, dependent upon the number and quality of physicians who
practice at the hospital and who are members of its medical staff. The Company
has entered into joint venture arrangements with other healthcare providers in
certain markets to promote more efficiency in the local delivery system.
In recent years, the competitive position of hospitals has been
affected by the ability of such hospitals to obtain contracts with Preferred
Provider Organizations ("PPO's"), Health Maintenance Organizations ("HMO's") and
other managed care programs to provide inpatient and other services. Such
contracts normally involve a discount from the hospital's established charges,
but provide a base of patient referrals. These contracts also frequently provide
for pre-admission certification and for concurrent length of stay reviews. The
importance of obtaining contracts with HMO's, PPO's and other managed care
companies varies from market to market, depending on the individual market
strength of the managed care companies. The Company's acquisition of Green
Spring creates opportunities to increase its revenues through managed
care contracts utilizing the continuum of care described above, information
systems that support care management and at-risk pricing mechanisms.
State certificate of need laws place limitations on the Company's and
its competitors' ability to build new hospitals and to expand existing
hospitals. Protection from new competition is reduced in those states where
there is no certificate of need law. The Company operates 44 hospitals in 12
states (Arizona, Arkansas, California, Colorado, Indiana, Kansas, Louisiana,
Nevada, New Mexico, South Dakota, Texas and Utah) which do not have certificate
of need
<PAGE>
laws applicable to hospitals. In most cases, these state laws do not restrict
the ability of the Company or its competitors to offer new outpatient services.
Industry Trends
The Company's hospitals have been adversely affected by factors
influencing the entire psychiatric hospital industry. Factors which affect the
Company include (i) the imposition of more stringent length of stay and
admission criteria by payors; (ii) the failure of reimbursement rate increases
from certain payors that reimburse on a per diem or other discounted basis to
offset increases in the cost of providing services; (iii) an increase in the
percentage of its business that the Company derives from payors that reimburse
on a per diem or other discounted basis; (iv) a trend toward higher deductible
and co-insurance for individual patients; and (v) a trend toward limiting
employee health benefits, such as reductions in annual and lifetime limits on
mental health coverage. In response to these conditions, the Company has (i)
strengthened controls to reduce costs and capital expenditures, (ii) reviewed
its portfolio of hospitals and sold, closed or leased hospitals or consolidated
operations in certain locations, (iii) developed strategies to increase
outpatient services and partial hospitalization programs to meet the demands of
the marketplace, and (iv) created a national, fully integrated behavioral
healthcare system upon acquiring Green Spring in December 1995, thereby
improving the Company's ability to obtain contracts with large private and
public payors.
Governmental Budgetary Constraints and Healthcare Reform
In the 1995 session of the United States Congress, the focus of
healthcare legislation has been on budgetary and related funding mechanism
issues. A number of reports, including the 1995 Annual Report of the Board of
Trustees of the Federal Hospital Insurance Program (Medicare) have projected
that the Medicare "trust fund" is likely to become insolvent by the year 2002 if
the current growth rate of approximately 10% per annum in Medicare expenditures
continues. Similarly, federal and state expenditures under the Medicaid program
are projected to increase significantly during the same seven-year period. In
response to these projected expenditure increases, and as part of an effort to
balance the federal budget, both the Congress and the Clinton Administration
have made proposals to reduce the rate of increase in projected Medicare and
Medicaid expenditures and to change funding mechanisms and other aspects of both
programs. Congress has passed legislation that would reduce projected
expenditure increases substantially and would make significant changes in the
Medicare and the Medicaid programs. The Clinton Administration has
proposed alternate measures to reduce, to a lesser extent, projected
increases in Medicare and Medicaid expenditures. As of the date of this
filing, neither proposal has become law.
The Medicare legislation that has been adopted by Congress
would, with some differences, reduce projected expenditure increases by a
variety of means, including reduced payments to providers (including the
Company), increased beneficiary premiums for physician and certain other
services, and creation of incentives for Medicare beneficiaries to
enroll in managed care plans or to accept Medicare coverage with a
substantially increased deductible, with the savings being available to the
beneficiaries to pay non-covered expenses. Changes in the Medicaid program
would reduce the number and extent of federal mandates concerning how state
Medicaid programs operate (including levels of benefits provided and levels of
payments to providers) and would change the funding mechanism from a sharing
formula between the federal government and a state to "block grant" funding. The
Company cannot predict the effect of any such legislation, if adopted, on its
operations; but the Company anticipates that, although overall Medicare and
Medicaid funding may be reduced from projected levels, the changes in such
programs may provide opportunities to the Company to obtain increased Medicare
and Medicaid business through risk-sharing or partial risk-sharing contracts
with managed care plans and state Medicaid programs.
Although the United States Congress, in 1995, has not considered
healthcare reform proposals, the Company anticipates that numerous healthcare
reform proposals will continue to be introduced in future sessions of Congress.
The Company cannot predict whether any such proposal will be adopted or the
effect on the Company of any proposal that does become law.
<PAGE>
