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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: November 11, 1998
Date of earliest event reported: October 31, 1998
SIERRA HEALTH SERVICES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Nevada
(State or Other Jurisdiction of Incorporation)
1-8865 88-0200415
(Commission File Number) (IRS Employer Identification No.)
2724 North Tenaya Way 89128
Las Vegas, Nevada (Zip Code)
(Address of principal executive offices)
(702) 242-7000
Registrant's Telephone Number, Including Area Code
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<PAGE>
Item 2. Acquisition of Assets
On October 31, 1998, a subsidiary of Sierra Health Services, Inc. ("Sierra" or
"the Company"), Texas Health Choice, L.C. (formerly HMO Texas, L.C.), completed
the acquisition of certain assets of Kaiser Foundation Health Plan of Texas
("Kaiser-Texas"), a health plan operating in Dallas-Forth Worth with
approximately 109,000 members and Permanente Medical Association of Texas
("Permanente"), a 150 physician medical group operating in that area. The
acquisition was effected pursuant to a definitive agreement dated as of June 5,
1998. The purchase price was $124 million, which is net of $20 million in
operating cost support to be paid to Sierra by Kaiser Foundation Hospitals in
five quarterly installments following the closing of the transaction. The
purchase price includes amounts for real estate and eight medical and office
facilities encompassing more than 500,000 square feet. The Company intends to
use the property and equipment in the same manner as Kaiser did. The purchase
price may increase by $30 million over three years if certain growth, member
retention and accreditation goals are met by the health plan.
Sierra is assuming no prior liabilities for malpractice or other litigation, or
for any unanticipated future adjustments to claims expenses for periods prior to
closing. The transaction has been financed with a five-year revolving credit
facility. Bank of America NT & SA is the administrative agent and NationsBanc
Montgomery Securities LLC is the lead arranger for the credit facility. The
transaction had been previously approved by the Boards of Directors of Kaiser
and the Company.
2
<PAGE>
Item 7. Financial Statements and Exhibits
Pro Forma Financial Information (giving effect to the acquisition of
Kaiser-Texas by Sierra)
1. Unaudited pro forma condensed combined balance sheet as of June 30,
1998 and unaudited pro forma condensed combined statements of
operations for the six months ended June 30, 1998 and for the year
ended December 31, 1997.
Financial Statements of Business Acquired:
1. Unaudited financial statements of Kaiser Foundation Health Plan of
Texas for the six months ended June 30, 1998.
2. Audited financial statements of Kaiser Foundation Health Plan of Texas
for the years ended December 31, 1997 and 1996.
Exhibits
Exhibit 10.1 Master Purchase and Sale Agreement between Kaiser
Foundation Health Plan of Texas (as Seller) and HMO Texas,
L.C. (as Buyer), dated June 5, 1998, incorporated by reference
to Exhibit 10.1 to the Registrant's Form 10-Q for the quarter
ended June 30, 1998.
Exhibit 10.2 Asset Sale and Purchase Agreement between Kaiser
Foundation Health Plan of Texas, A Texas Non-Profit
Corporation and HMO Texas, L.C., a Texas Limited Liability
Company, dated June 5, 1998, incorporated by reference to
Exhibit 10.2 to the Registrant's Form 10-Q for the quarter
ended June 30, 1998.
Exhibit 10.3 Asset Sale and Purchase Agreement between Permanente
Medical Association of Texas, a Texas Professional Association
and HMO Texas, L.C., a Texas Limited Liability Company, dated
June 5, 1998, incorporated by reference to Exhibit 10.2 to the
Registrant's Form 10-Q for the quarter ended June 30, 1998.
Exhibit 23.1 Consent of Deloitte & Touche LLP.
3
<PAGE>
SIERRA HEALTH SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The accompanying unaudited pro forma financial statements ("The Pro Forma
Financial Statements") gives effect to the consummation of the acquisition of
Kaiser-Texas as described in Item 2, as if the acquisition occurred as of
December 31, 1996 for the purposes of the unaudited pro forma condensed combined
statements of operations and as of June 30, 1998 for purposes of the unaudited
pro forma condensed combined balance sheet. The unaudited pro forma condensed
combined financial statements are based on the historical audited financial
statements for the year ended December 31, 1997 and the unaudited financial
statements as of and for the six months ended June 30, 1998.
Pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions and adjustments described in the notes to
the unaudited pro forma condensed combined financial statements. The unaudited
pro forma financial information presented herein is not necessarily indicative
of the results of operations or financial position that Sierra would have
obtained had such events occurred at the beginning of the period, as assumed, or
of the future results of Sierra. The unaudited pro forma financial statements
should be read in conjunction with the separate audited financial statements and
the notes thereto for the year ended December 31, 1997 included in the Company's
Form 10-K and the unaudited financial statements for the six months ended June
30, 1998 included in the Company's Form 10-Q. The historical financial
statements of Kaiser-Texas are included in this Form 8-K (see the column titled
"Health Plan" in the "Additional Divisional Information" included in the
historical financial statements of Kaiser Foundation Health Plan of Texas) and
should also be read in conjunction with the unaudited pro forma financial
statements.
The Kaiser-Texas historical statements of operations included in the Pro Forma
Financial Statements include certain expenses which will not be incurred in the
future by the combined companies, such as certain allocated costs from
Kaiser-Texas' corporate office, malpractice costs in excess of malpractice
insurance costs obtained by Sierra and salary expense for physicians and staff
of Kaiser-Texas that will not be retained by Sierra beginning on the acquisition
date. The Pro Forma Financial Statements do not give effect to any synergies or
other cost savings that may be realized in the future as a result of the
acquisition. The Pro Forma Financial Statements do not include the effects of
any costs that will be necessary to convert Kaiser-Texas to Sierra's computer
systems or to become Year 2000 compliant.
Certain reclassifications have been made to the historical financial data of
Kaiser-Texas to conform to Sierra's presentation.
The unaudited pro forma financial information included in this Form 8-K contains
certain forward-looking statements that are subject to risk and uncertainty.
There can be no assurance that these future results will be achieved. Any
forward-looking information contained in this 8-K should be considered in
connection with certain cautionary statements contained in the Company's Current
Report on Form 8-K dated March 19, 1998 incorporated herein by reference. Such
cautionary statements are made pursuant to the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 and identify important risk
factors that could cause the Company's actual results to differ from those
expressed in any projected, estimated or forward-looking statements relating to
the Company.
4
<PAGE>
Sierra Health Services, Inc.
Pro Forma Condensed Combined Balance Sheet As of June 30, 1998
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Historical
Non-Acquired Pro Pro
Kaiser- Assets and Forma Forma
Sierra Texas Liabilities Adjustments Combined
CURRENT ASSETS:
<S> <C> <C> <C> <C> <C>
Cash and Cash Equivalents .............. $ 73,273 $ 1,445 $ 0 $ 2,408(A) $ 77,126
Short-term investments.................. 120,676 120,676
Accounts Receivable Net of Allowance.... 87,048 11,993 20,000(A) 119,041
Prepaid Expenses and Other Assets....... 45,516 8,846 (8,846) 45,516
-------- -------- ------- ---------- ---------
Total Current Assets................ 326,513 22,284 (8,846) 22,408 362,359
-------- -------- ------- -------- --------
LAND, BUILDINGS AND EQUIPMENT - NET ...... 161,953 56,054 12,000(A) 230,007
LONG-TERM INVESTMENTS..................... 168,504 168,504
RESTRICTED CASH AND INVESTMENTS........... 17,174 17,174
INTANGIBLE ASSETS......................... 41,870 90,699(A) 132,569
REINSURANCE RECOVERABLE & OTHER........... 67,274 2,196 (2,196) 67,274
-------- --------- ----- ------------ ---------
TOTAL ASSETS.............................. $783,288 $ 80,534 $(11,042) $125,107 $977,887
======== ======== ========= ======== ========
CURRENT LIABILITIES:
Accounts Payable and Other Accrued
Liabilities......................... $ 63,496 $ 19,332 $(16,689) $ 9,000(A) $ 75,139
Medical Claims Payable.................. 75,426 15,589 (5,029) 25,000(A) 110,986
Current Portion of Reserves for
Losses and Loss Adjustment Expense... 71,399 71,399
Unearned Premium Revenue................ 20,750 2,442 23,192
Current Portion of Long-Term Debt....... 6,079 201 6,280
--------- -------- ---------- ---------- ---------
Total Current Liabilities............ 237,150 37,564 (21,718) 34,000 286,996
RESERVES FOR LOSSES AND LOSS
ADJUSTMENT EXPENSE
(Less Current Portion).................. 132,844 132,844
LONG-TERM DEBT (Less Current Portion)..... 95,330 4,253 (3,700) 144,200(A) 240,083
OTHER LIABILITIES......................... 21,825 215,534 (215,534) 21,825
-------- --------- --------- ----------- ----------
TOTAL LIABILITIES......................... 487,149 257,351 (240,952) 178,200 681,748
------- --------- ------- -------- ---------
STOCKHOLDERS' EQUITY:
Common Stock............................ 140 140
Additional Paid-In Capital.............. 169,774 169,774
Treasury Stock.......................... (5,601) (5,601)
Unrealized Holding Gain (Loss).......... 846 846
Retained Earnings....................... 130,980 (176,817) 229,910 (53,093)(A) 130,980
--------- --------- ------- ------ ---------
TOTAL STOCKHOLDERS' EQUITY................ 296,139 (176,817) 229,910 (53,093) 296,139
-------- -------- ------- ------ ---------
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY.................................. $783,288 $ 80,534 $(11,042) $125,107 $977,887
======== ======== ========= ======== ========
</TABLE>
See notes to Unaudited Pro Forma Condensed Combined Financial Statements.
5
<PAGE>
Sierra Health Services, Inc.
Pro Forma Condensed Combined Statement of Operations
For the Six Months Ended June 30, 1998
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Historical Pro Pro
Kaiser- Forma Forma
Sierra Texas Adjustments Combined
OPERATING REVENUES:
<S> <C> <C> <C> <C>
Medical Premiums................................. $281,039 $102,644 $ 0 $383,683
Specialty Product Revenues....................... 76,882 76,882
Military Contract Revenues....................... 60,388 60,388
Professional Fees................................ 22,094 22,094
Investment Income and Other Revenues............. 14,551 740 15,291
--------- -------- ------- -------
Total ......................................... 454,954 103,384 558,338
-------- ------- ------- -------
OPERATING EXPENSES:
Medical Expenses................................. 233,798 118,642 352,440
Specialty Product Expenses....................... 75,759 75,759
Military Contract Expenses....................... 57,019 57,019
General, Administrative and Marketing Expenses... 52,165 5,492 1,134 (B) 59,991
1,200 (C)
Total ......................................... 418,741 124,134 2,334 545,209
-------- --------- ----- ---------
OPERATING (LOSS) INCOME............................ 36,213 (20,750) (2,334) 13,129
INTEREST EXPENSE AND OTHER, NET .................. (2,900) (200) (5,216)(D) (8,316)
--------- -------- ------ ----------
INCOME BEFORE INCOME TAXES ........................ 33,313 (20,950) (7,550) 4,813
(PROVISION) BENEFIT FOR INCOME TAXES............... (8,575) 9,975 (E) 1,400
---------- ------- ------- --------
NET INCOME ........................................ $ 24,738 $ (20,950) $2,425 $ 6,213
========= ========= ====== =========
NET INCOME PER COMMON SHARE........................ $.90 $.23
==== ====
NET INCOME PER COMMON SHARE
ASSUMING DILUTION................................ $.89 $.22
==== ====
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING....................................... 27,476 27,476
========= ======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ASSUMING DILUTION.................... 27,939 27,939
========= ======
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
6
<PAGE>
Sierra Health Services, Inc.
Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 1997
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Historical Pro Pro
Kaiser Forma Forma
Sierra Texas Adjustments Combined
OPERATING REVENUES:
<S> <C> <C> <C> <C>
Medical Premiums.................................. $513,857 $196,725 $ 0 $710,582
Specialty Product Revenues........................ 146,211 146,211
Military Contract Revenues........................ 4,346 4,346
Professional Fees................................. 31,238 31,238
Investment Income and Other Revenues.............. 26,072 5,348 31,420
--------- -------- -------
Total .......................................... 721,724 202,073 923,797
-------- -------- -------
OPERATING EXPENSES:
Medical Expenses.................................. 419,272 242,855 662,127
Specialty Product Expenses........................ 143,082 143,082
Military Contract Expenses........................ 4,193 4,193
General, Administrative and Marketing Expenses.... 93,919 12,150 2,267 (B) 110,736
2,400 (C)
Merger, Restructuring and Start-Up Expenses....... 29,350 29,350
--------- ------- ------- --------
Total ......................................... 689,816 255,005 4,667 949,488
-------- -------- ------- ---------
OPERATING (LOSS) INCOME............................. 31,908 (52,932) (4,667) (25,691)
INTEREST EXPENSE AND OTHER, NET ................... (4,433) (841) (9,991)(D) (15,265)
--------- -------- ------- ---------
INCOME BEFORE INCOME TAXES ......................... 27,475 (53,773) (14,658) (40,956)
(PROVISION) BENEFIT FOR INCOME TAXES................ (3,234) 23,951 (E) 20,717
---------- -------- --------- ---------
NET INCOME (LOSS)................................... $ 24,241 $(53,773) $ 9,293 $(20,239)
======== ======== ======== =========
NET INCOME (LOSS) PER COMMON SHARE.................. $.90 $(.75)
==== =====
NET INCOME (LOSS) PER COMMON SHARE
ASSUMING DILUTION.................................. $.88 $(.75)
==== ======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING........................................ 27,012 27,012
========= =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ASSUMING DILUTION..................... 27,426 27,426
========= =========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
7
<PAGE>
SIERRA HEALTH SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
(in thousands)
Note 1 - Basis of Presentation
The accompanying unaudited pro forma financial statements give effect to the
consummation of the acquisition of Kaiser-Texas as described in Item 2, as if
the acquisition occurred as of December 31, 1996 for the purposes of the
unaudited pro forma condensed combined statements of operations and as of June
30, 1998 for purposes of the unaudited pro forma condensed combined balance
sheet. The unaudited pro forma condensed combined financial statements are based
on historical audited financial statements for the year ended December 31, 1997
and the unaudited financial statements as of and for the six months ended June
30, 1998.
For purposes of preparing the Pro Forma Financial Statements, the carrying
values of Kaiser-Texas' assets and liabilities were assumed to approximate their
fair values at the date of acquisition. Accordingly, the purchase price and
estimated acquisition costs in excess of the net assets acquired have been
preliminarily allocated to goodwill. Goodwill is being amortized in the Pro
Forma Financial Statements on a straight line basis over 40 years which is
deemed appropriate by Sierra's management based on their best current judgment.
The purchase price allocation and the amortization period for goodwill may be
adjusted upon completion of the final valuations of Kaiser-Texas' assets and
liabilities and the effect of any such adjustment could be significant.
Note 2 - Pro Forma Adjustments
The adjustments to arrive at the Unaudited Pro Forma Combined Financial
Statements are as follows:
A. To reflect the estimated costs in excess of net assets acquired
resulting from the acquisition:
The purchase price consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Cash paid at closing from revolving credit facility............................ $109,000
1998-2001 contingent consideration............................................. 0 (a)
Seller mortgage note........................................................... 35,200
-----------
Purchase Price............................................................. 144,200
Kaiser-Texas' historical net assets acquired
less historical non-acquired net assets...................................... (53,093) (b)
Cash received as an adjustment to the purchase price........................... (2,408) (c)
Amounts due from Kaiser Foundation Hospitals................................... (20,000) (d)
Liability for estimated premium deficiency..................................... 25,000 (e)
Fixed assets acquired from Kaiser Foundation Hospitals......................... (12,000) (f)
Estimated acquisition costs.................................................... 9,000 (g)
-----------
Estimated purchase price in excess of the fair value
of net assets acquired..................................................... $ 90,699
========
</TABLE>
(a) The pro forma financial statements do not reflect a
potential additional $30 million earn-out payment over
three years if certain growth, member retention and
accreditation goals are met.
(b) Represents Kaiser Texas' historical net assets
acquired less historical non-acquired net assets.
(c) Cash received as an adjustment to the purchase price so
that current acquired assets equal current acquired
liabilities.
8
<PAGE>
SIERRA HEALTH SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
(in thousands)
Note 2 - Pro Forma Adjustments (continued)
(d) To reflect a $20 million receivable for a subsidy
payment from Kaiser Foundation Hospitals which will be
paid over five quarters subsequent to the acquisition
date. This payment is intended to subsidize the
Kaiser-Texas operations for operating losses while
Sierra implements cost reduction plans.
(e) To reflect reserves for estimated premium deficiencies
related to the Kaiser-Texas Health Plan.
(f) To reflect the acquisition of fixed assets from Kaiser
Foundation Health Plan, the parent company of Kaiser
Foundation Health Plan of Texas.
(g) To reflect estimated costs related to the acquisition,
consisting of direct transaction costs, severance and
other exit costs.
B. To reflect amortization of costs in excess of net assets
acquired resulting from the acquisition, using an estimated
useful life of 40 years.
C. To reflect estimated depreciation expense on the fixed
assets that were acquired from Kaiser Foundation Health
Plan.
D. To reflect interest expense of an estimated 8% per year on
the revolving credit facility and 6% per year on the
mortgage note due to the seller, less historical interest
recorded by Kaiser-Texas. The effective interest rate on the
revolving credit facility will be based on a multiple of
LIBOR, and is thus subject to variation. If the estimated
interest rate on the revolving credit facility was to vary
by 1/8 percent, the effect on income would be approximately
$140,000 per year.
E. To reflect the estimated tax effects on Kaiser-Texas' net losses
and the pro forma adjustments.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SIERRA HEALTH SERVICES, INC.
(Registrant)
Date: November 11, 1998 Paul H. Palmer
--------------------------------
Paul H. Palmer
Acting Chief Financial Officer
(Principal Financial and
Accounting Officer)
10
<PAGE>
KAISER FOUNDATION HEALTH PLAN OF TEXAS
FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND ADDITIONAL INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998
STATEMENTS OF OPERATIONS AND CHANGES IN NET DEFICIENCY
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998
( Unaudited)
Revenues:
<S> <C>
Members' dues $ 86,775
Supplemental charges 6,899
Medicare 6,718
Other 7,174
--------
Total Revenues 107,566
Expenses:
Medical services 75,934
Hospital services 23,032
Outpatient pharmacy 14,441
Other benefit costs 5,235
------------
Total Medical and Hospital Services 118,642
Health Plan administration 9,728
Total Expenses 128,370
Net Loss (20,804)
Donated capital --
Net deficiency at beginning of year (161,483)
Net Deficiency at End of Year $(182,287)
=========
</TABLE>
See notes to financial statements
1
<PAGE>
KAISER FOUNDATION HEALTH PLAN OF TEXAS
BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
June 30, 1998
(Unaudited)
ASSETS
Current Assets:
<S> <C>
Cash and equivalents $ 1,454
Accounts receivables 12,009
Other 5,221
Due from affiliated organizations 5,688
----------
Total Current Assets 24,372
Land, Buildings, and Equipment 59,534
Other Assets 1,742
-----------
Total Assets $ 85,648
===========
LIABILITIES AND NET DEFICIENCY
Current Liabilities:
Accounts payable and accrued expenses $ 24,824
Payroll and related charges 2,722
Due to affiliated organizations 2,198
Due to associated medical group 5,029
Other 2,442
Current installments on long-term debt 201
------------
Total Current Liabilities 37,416
Long-Term Debt 4,253
Other Long-Term Liabilities 226,266
----------
Total Liabilities 267,935
Net Deficiency (182,287)
------------
Total Liabilities and Net Deficiency $ 85,648
==========
</TABLE>
See notes to financial statements
2
<PAGE>
KAISER FOUNDATION HEALTH PLAN OF TEXAS
STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998
( Unaudited)
Cash Flows from Operating Activities
<S> <C>
Net Loss $(20,804)
Adjustments to reconcile net loss to net cash provided from operating
activities:
Depreciation and amortization 3,989
Write-down of land, buildings, and equipment 1,110
Provision of self-insured risks 7,469
Amounts paid for self-insured risks (8,830)
Interest on borrowings from affiliated organizations 149
Changes in assets and liabilities:
Accounts receivable 270
Other current assets 238
Other assets (1,500)
Due from affiliated organizations 3,618
Accounts payable and accrued expenses 260
Payroll and related charges (611)
Due to affiliated organizations 664
Due to associated medical group 884
Other liabilities (45)
--------
Net Cash Used in Operating Activities (13,139)
------
Cash Flows from Investing Activities:
Additions to land, buildings, and equipment (1,068)
--------
Net Cash Provided from (Used in) Investing Activities (1,068)
--------
Cash Flows from Financing Activities:
Capital lease obligation (4)
Payments on long-term debt (69)
Net borrowings from affiliated organizations 13,291
--------
Net Cash Provided from Financing Activities 13,218
--------
Net Change in Cash and Equivalents (989)
Cash and Equivalents at Beginning of Year 2,443
--------
Cash and Equivalents at End of Year $ 1,454
========
</TABLE>
See notes to financial statements
3
<PAGE>
KAISER FOUNDATION HEALTH PLAN OF TEXAS
NOTES TO FINANCIAL STATEMENTS
Six Months ended June 30, 1998 (Unaudited)
General
Kaiser Foundation Health Plan of Texas (Health Plan) is a nonprofit corporation,
exempt from federal and state income taxes. Health Plan is a subsidiary of
Kaiser Foundation Health Plan, Inc. (KFHP), and the accompanying financial
statements have been prepared from the separate records maintained by Health
Plan. Such financial statements may not necessarily be indicative of the
conditions that would have existed or the results of operations if Health Plan
had been operated as an unaffiliated company. Health Plan contracts with Kaiser
Foundation Hospitals (Hospitals) and Permanente Medical Association of Texas
(Medical Group) to provide or arrange hospital and medical services to members.
Contract payments to the Medical Group and Hospitals represent a substantial
portion of the expenses for medical and hospital services reported in the
statements of operations and changes in net deficiency.
KFHP and Hospitals have committed to fund operating and capital expenditures of
Health Plan, as necessary.
All material intercompany balances and transactions have been eliminated. These
statements have been prepared in conformity with the generally accepted
accounting principles used in preparing the company's annual audited financial
statements but do not contain all of the information and disclosures that would
be required in a complete set of audited financial statements. They should,
therefore, be read in conjunction with the company's annual audited financial
statements and related notes thereto for the years ended December 31, 1997 and
1996. In the opinion of management, the accompanying unaudited financial
statements reflect all adjustments, consisting only of normal and recurring
adjustments, necessary for a fair presentation of the financial results for the
interim periods presented.
The preparation of financial statements requires management to make estimates
and assumptions that affect the amounts reported. Incurred but not reported
claims, self-insured risks, pension benefits, and certain revenue subject to
retroactive adjustment represent significant estimates. Actual results could
differ materially from these estimates.
4
<PAGE>
KAISER FOUNDATION HEALTH PLAN OF TEXAS
ADDITIONAL DIVISIONAL INFORMATION--OPERATIONS AND CHANGES IN NET DEFICIENCY As
of June 30, 1998 (Unaudited) (in thousands) <TABLE> <CAPTION>
Health Plan CSC Eliminations Totals
Revenues:
<S> <C> <C> <C> <C>
Members' dues $ 86,775 $ 0 $ 0 $ 86,775
Supplemental charges 6,899 6,899
Medicare 6,718 6,718
Other 2,992 $ 4,959 $(777) 7,174
------------ -------- ----- ------------
Total Revenues 103,384 4,959 (777) 107,566
Expenses:
Medical services 75,934 75,934
Hospital services 23,032 23,032
Outpatient pharmacy 14,441 14,441
Other benefit costs 5,235 5,235
------------ ---------- ---------- ------------
Total Medical and Hospital Services 118,642 118,642
Health Plan administration 5,692 4,813 (777) 9,728
------------ ---------- --------- ------------
Total Expenses 124,334 4,813 (777) 128,370
------------ ---------- --------- ------------
Net Loss (20,950) 146 (20,804)
Capital contributions - -
Net deficiency at beginning of year (155,868) (5,615) (161,483)
------------ ---------- ---------- ------------
Net Deficiency at End of Year $(176,818) $(5,469) $ $(182,287)
========= ========== =========== =========
</TABLE>
See notes to financial statements
5
<PAGE>
KAISER FOUNDATION HEALTH PLAN OF TEXAS
ADDITIONAL DIVISIONAL INFORMATION--BALANCE SHEET As of June 30, 1998 (Unaudited)
(in thousands) <TABLE> <CAPTION>
Health Plan CSC Eliminations Totals
ASSETS
Current Assets:
<S> <C> <C> <C> <C>
Cash $ 1,445 $ 9 $ 0 $ 1,454
Accounts receivable 11,993 16 12,009
Other 5,146 75 5,221
Due from affiliated organizations 3,700 3,745 $(1,757) 5,688
--------------- ------- ------- --------
Total Current Assets 22,284 3,845 (1,757) 24,372
Land, Buildings, and Equipment 56,054 3,480 59,534
Other Assets 2,196 116 (570) 1,742
--------------- ---------- ------- --------
Total Assets $ 80,534 $7,441 $(2,327) $ 85,648
=============== ====== ======= ========
LIABILITIES AND NET DEFICIENCY
Current Liabilities:
Accounts payable and accrued expenses $ 23,924 $ 900 $ 24,824
Payroll and related charges 2,315 407 2,722
Due to affiliated organizations 3,653 302 $(1,757) 2,198
Due to associated medical group 5,029 5,029
Other 2,442 2,442
Current installments on long-term debt 201 201
--------------- ------ ------ -------------
Total Current Liabilities 37,564 1,609 (1,757) 37,416
Long-Term Debt 4,253 4,253
Other Long-Term Liabilities 215,534 11,302 (570) 226,266
--------------- ------- ------- -------
Total Liabilities 257,351 12,911 (2,327) 267,935
Net Deficiency (176,817) (5,470) (182,287)
--------------- ------ ------ --------
Total Liabilities and Net Deficiency $ 80,534 $ 7,441 $(2,327) $ 85,648
=============== ======= ======= =========
</TABLE>
See notes to financial statements
6
<PAGE>
KAISER FOUNDATION HEALTH PLAN OF TEXAS
KAISER FOUNDATION HEALTH PLAN OF TEXAS
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996,
ADDITIONAL INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1997,
AND INDEPENDENT AUDITORS' REPORT
1
<PAGE>
KAISER FOUNDATION HEALTH PLAN OF TEXAS
Independent Auditors' Report
Board of Directors
Kaiser Foundation Health Plan of Texas
Dallas, Texas
We have audited the accompanying balance sheets of Kaiser Foundation Health Plan
of Texas as of December 31, 1997 and 1996, and the related statements of
operations and changes in net deficiency and of cash flows for the years then
ended. These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Kaiser Foundation Health Plan of Texas as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
As discussed in the Summary of Significant Accounting Policies to Financial
Statements, Health Plan is a subsidiary of Kaiser Foundation Health Plan, Inc.,
and the accompanying financial statements have been prepared from the separate
records maintained by Health Plan. Such financial statements may not necessarily
be indicative of the conditions that would have existed or the results of
operations if Health Plan had been operated as an unaffiliated company.
Additionally as discussed in the Subsequent Event note to Financial Statements,
in February 1998, Health Plan signed a non-binding letter of intent to sell
Health Plan's assets to a third party.
/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
March 5, 1998
2
<PAGE>
KAISER FOUNDATION HEALTH PLAN OF TEXAS
STATEMENTS OF OPERATIONS AND CHANGES IN NET DEFICIENCY
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996
----------------------------------------
Revenues:
<S> <C> <C> <C> <C>
Members' dues $ 168,337 80.7 % $ 158,354 80.4 %
Supplemental charges 13,442 6.5 12,298 6.2
Medicare 10,269 4.9 10,202 5.2
Other 16,488 7.9 16,163 8.2
------------ ------ ------------ -------
Total Revenues 208,536 100.0 197,017 100.0
Expenses:
Medical services 167,558 80.4 155,255 78.8
Hospital services 38,599 18.5 38,580 19.6
Outpatient pharmacy 27,252 13.1 26,530 13.5
Other benefit costs 9,446 4.5 9,712 4.9
------------ ------ ------------ -------
Total Medical and Hospital Services 242,855 116.5 230,077 116.8
Health Plan administration 24,802 11.9 21,866 11.1
------------ ------ ------------ -------
Total Expenses 267,657 128.4 251,943 127.9
------------ ----- ------------ -----
Net Loss (59,121) (28.4)% (54,926) (27.9)%
===== =====
Donated capital 40,000 --
Net deficiency at beginning of year (142,362) (87,436)
------------ ------------
Net Deficiency at End of Year $(161,483) $(142,362)
========= =========
</TABLE>
See notes to financial statements
3
<PAGE>
KAISER FOUNDATION HEALTH PLAN OF TEXAS
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31
1997 1996
-----------------------
ASSETS
Current Assets:
<S> <C> <C>
Cash and equivalents $ 2,443 $ 2,698
Accounts receivable 12,279 7,851
Other 5,447 5,680
Due from affiliated organizations 9,306 6,333
--------- ---------
Total Current Assets 29,475 22,562
Land, Buildings, and Equipment 61,981 70,855
Other Assets 1,828 3,920
-------------------------------------------------------------------------------- ---------
Total Assets $ 93,284 $ 97,337
========= =========
LIABILITIES AND NET DEFICIENCY
Current Liabilities:
Accounts payable and accrued expenses $ 24,564 $ 22,356
Payroll and related charges 3,333 3,353
Due to affiliated organizations 1,534 2,186
Due to associated medical group 4,145 2,533
Other 2,487 2,451
Current installments on long-term debt 197 524
--------- ---------
Total Current Liabilities 36,260 33,403
Long-Term Debt 4,322 4,447
Other Long-Term Liabilities 214,185 201,849
--------- ---------
Total Liabilities 254,767 239,699
Net Deficiency (161,483) (142,362)
--------- --------
Total Liabilities and Net Deficiency $ 93,284 $ 97,337
========= ==========
</TABLE>
See notes to financial statements
4
<PAGE>
KAISER FOUNDATION HEALTH PLAN OF TEXAS
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996
----------------------------
Increase (Decrease) in Cash and Equivalents
Cash Flows from Operating Activities:
<S> <C> <C>
Net loss $(59,121) $(54,926)
Adjustments to reconcile net loss to net cash provided from operating
activities:
Depreciation and amortization 9,089 8,508
Write-down of land, buildings, and equipment 1,876 --
Provision for self-insured risks 14,099 15,018
Amounts paid for self-insured risks (9,689) (10,209)
Interest on borrowings from affiliated organizations 1,152 14,134
Changes in assets and liabilities:
Accounts receivable (4,428) 8,984
Other current assets 233 (3,278)
Other assets -- 5,116
Due from affiliated organizations (2,972) (4,147)
Accounts payable and accrued expenses 2,209 (7,172)
Payroll and related charges (20) 1,607
Due to affiliated organizations (652) (5,077)
Due to associated medical group 1,612 556
Other liabilities (3,385) 1,465
------ --------
Net Cash Used in Operating Activities (49,997) (29,421)
------- -------
Cash Flows from Investing Activities:
Additions to land, buildings, and equipment -- (11,129)
Net Cash Provided from (Used in) Investing Activities -- (11,129)
Cash Flows from Financing Activities:
Payments for bond redemption -- (555)
Capital lease obligation (126) 284
Payments on long-term debt (328) (658)
Capital contributions 40,000 --
Net borrowings from affiliated organizations 10,196 43,372
--------- --------
Net Cash Provided from Financing Activities 49,742 42,443
--------- --------
Net Change in Cash and Equivalents (255) 1,893
Cash and Equivalents at Beginning of Year 2,698 805
--------- ---------
Cash and Equivalents at End of Year $ 2,443 $ 2,698
======== ========
</TABLE>
See notes to financial statements
5
<PAGE>
KAISER FOUNDATION HEALTH PLAN OF TEXAS
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1997 and 1996
Summary of Significant Accounting Policies
General
Kaiser Foundation Health Plan of Texas (Health Plan) is a nonprofit corporation,
exempt from federal and state income taxes. Health Plan is a subsidiary of
Kaiser Foundation Health Plan, Inc. (KFHP), and the accompanying financial
statements have been prepared from the separate records maintained by Health
Plan. Such financial statements may not necessarily be indicative of the
conditions that would have existed or the results of operations if Health Plan
had been operated as an unaffiliated company. Health Plan contracts with Kaiser
Foundation Hospitals (Hospitals) and Permanente Medical Association of Texas
(Medical Group) to provide or arrange hospital and medical services to members.
Contract payments to the Medical Group and Hospitals represent a substantial
portion of the expenses for medical and hospital services reported in the
statements of operations and changes in net deficiency.
KFHP and Hospitals have committed to fund operating and capital expenditures of
Health Plan, as necessary.
The preparation of financial statements requires management to make estimates
and assumptions that affect the amounts reported. Incurred but not reported
claims, self-insured risks, pension benefits, and certain revenue subject to
retroactive adjustment represent significant estimates. Actual results could
differ materially from these estimates.
Revenue and Expense Recognition
Members' dues are recorded as revenue in the month that members are entitled to
service. Dues collected in advance are deferred.
A portion of Medicare revenue is subject to audit and possible retroactive
adjustment. Provision has been made for estimated retroactive adjustments.
Differences between the provision and final settlement are recorded in the year
of settlement.
Revenue derived under contract with the United States Office of Personnel
Management in 1997 and 1996 was approximately 10.3% and 13.2% of total revenue
in each year.
Expenses for medical and hospital services are recorded as incurred. Costs
incurred but not reported are estimated based on historical data, current
membership statistics, and other information.
Land, Buildings, and Equipment
Land, buildings, leasehold improvements, and equipment are stated at cost.
Buildings, leasehold improvements, and equipment are depreciated over estimated
useful lives on a straight-line basis.
Other Assets
Included in other assets are deposits, prepaid pension expense, deferred
debt-issuance, capitalized common systems costs and start-up costs which are
deferred and amortized over estimated useful lives on a straight-line basis.
6
<PAGE>
KAISER FOUNDATION HEALTH PLAN OF TEXAS
Self-Insured Risks
Annual costs associated with self-insured risks, primarily for professional
liability, are charged to operations based upon actual and estimated claims and
are classified as other long-term liabilities. The portion estimated to be paid
during the next year is included in current liabilities.
Consolidated Service Center (CSC)
In 1995 the CSC was created to provide certain administrative services for
Health Plan and other subsidiaries of KFHP. The CSC balance sheet as of December
31, 1997, and the related statements of operations and cash flows for the year
then ended are included in the financial statements of Health Plan.
Reclassifications
Certain reclassifications have been made in the 1996 financial statements to
conform with 1997 classifications.
Selected Balance Sheet Accounts
Detail of selected balance sheet accounts at December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------ --------
Accounts Receivable
<S> <C> <C>
Members' dues $ 8,980 $ 5,451
Patient services 4,774 4,820
---------- ----------
13,754 10,271
Less allowance for uncollectible accounts 1,475 2,420
---------- ----------
$ 12,279 $ 7,851
========== ==========
Land, Buildings, and Equipment
Land $ 12,044 $ 13,086
Buildings and improvements 40,870 39,672
Leasehold improvements 4,436 3,988
Equipment 46,477 47,626
Construction in progress 3
------------------ --------
103,827 104,375
Less accumulated depreciation 41,846 33,520
----------- -----------
61,981 $ 70,855
=========== ===========
Net Deficiency
Donated capital $ 43,202 $ 3,202
Accumulated net deficiency (204,685) (145,564)
------------ ------------
$(161,483) $(142,362)
</TABLE>
7
<PAGE>
KAISER FOUNDATION HEALTH PLAN OF TEXAS
Long-Term Debt and Other Long-Term Liabilities
Long-term debt and other long-term liabilities at December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------ --------
Long-Term Debt:
Health facilities revenue bonds:
<S> <C> <C> <C> <C>
1995 variable rate bonds, due 2016 $3,700 $3,700
1987 variable rate bonds, due 1996 to 1997 -- 524
Capital lease obligation 819 747
-------- ---------
4,519 4,971
Less current installments on long-term debt 197 524
-------- ---------
$4,322 $4,447
====== ======
Other Long-Term Liabilities:
Due to affiliated organizations:
Subordinated borrowings $183,847 $156,202
Advances 10,490 30,697
Self-insured risks 19,848 9,235
Other -- 5,715
------ ---------
$214,185 $201,849
-------- ==------
</TABLE>
The 1995 variable rate bonds are guaranteed by KFHP and Hospitals. During 1997
and 1996, the required principal payments were financed by an affiliated
organization for Health Plan. Interest on the bonds is paid monthly. Interest
rates vary weekly and are determined based on market rates for similar
obligations. At December 31, 1997, the interest rate was 4.6%.
The 1987 variable rate bonds were funded through the North Texas Pooled Health
Care Loan Program with proceeds from bonds issued by Texas Health Facilities
Development Corporation. Interest rates were determined based on market rates
for similar obligations. The bonds matured in May 1997.
Borrowings due to affiliated organizations are not negotiated at arm's length
and are subject to the provisions of the Texas Department of Insurance Consent
Order discussed in the Commitments of the Notes to Financial Statements.
Principal payments for each of the next five years and thereafter (in
thousands):
<TABLE>
<S> <C> <C>
1998 $ 188
1999 188
2000 188
2001 188
2002 188
Thereafter 3,768
-------
4,708
Less interest on capital lease obligation (189)
-------
$4,519
</TABLE>
8
<PAGE>
KAISER FOUNDATION HEALTH PLAN OF TEXAS
Interest cost incurred during 1997 and 1996 was $1.3 million and $14.8 million,
of which $1.1 million and $14.5 million is due to affiliated organizations.
Interest paid to non-affiliated organizations was $0.2 million in 1997 and $0.3
million in 1996.
Pension Plans
Defined Benefit Plans
Health Plan participates with affiliated organizations in defined benefit
pension plans covering substantially all its employees. Benefits are based on
age at retirement, years of credited service, and average compensation for a
specified period prior to retirement.
For financial reporting, the projected unit credit method is used to compute
pension cost; for funding purposes, the entry-age normal method is used.
Substantially all pension fund assets are invested in fixed-income and equity
securities. The projected benefit obligation (PBO) and plan assets are not
determined on a separate basis for Health Plan. Pension expense for the defined
benefit plans for 1997 and 1996 was $0.6 million and $0.4 million.
The weighted average discount rate at January 1 used for calculating pension
expenses was 7.5% in 1997 and 1996. The rate of salary progression used to
calculate pension expense was 4.0% in 1997 and 1996. The rate of salary
progression used in determining the December 31 PBO was 4.0% in 1997 and 1996.
The expected long-term rate of return on plan assets was 9.5% in 1997 and 1996.
The weighted average discount rate used for calculating the December 31 PBO was
7.25% in 1997 and 7.5% in 1996.
Commitments
In fulfilling its contractual obligation to Health Plan, Hospitals has contracts
with local hospitals, generally on a per diem or capitated basis, to provide the
major portion of inpatient hospital care and certain outpatient care for Health
Plan members.
In April 1997, Health Plan agreed to a consent order of the Texas Department of
Insurance (the "Consent Order"). The Consent Order, amongst other service
related matters, required the following: a) a $20 million Capital Contribution;
b) a $20 million forgiveness of Health Plan debt; c) the restructuring of Health
Plan debt, eliminating interest charges effective December 31, 1996; d) the
deferral of principal and interest payments on Health Plan's subordinated
borrowings until a date when Health Plan has a net worth in excess of $20
million; e) prior notice to the Insurance Commissioner of intent to repay
subordinated debt; f) the contribution of approximately $20.5 million in capital
assets by Hospitals for Health Plan use at no cost to Health Plan; g) additional
capital contributions as necessary to Health Plan to cover any net loss from
operations and maintain a minimum regulatory net worth of $20 million. The terms
of this Consent Order have been ratified by the Board of Directors of Kaiser
Foundation Hospitals. Health Plan believes it has complied with the Consent
Order and related transactions have been reflected in the 1997 financial
statements as appropriate, including a $40 million capital donation resulting
from a) and b) above.
Health Plan leases office space, medical facilities, and equipment under
operating leases that expire through 2002, with certain leases containing
provisions for renewal for additional periods ranging from one to eight years.
Total rent expense was $1.1 million in 1997 and $1.2 million in 1996.
9
<PAGE>
KAISER FOUNDATION HEALTH PLAN OF TEXAS
Minimum rental commitments under operating leases extending beyond one year
at December 31, 1997 (in thousands):
<TABLE>
<S> <C> <C>
1998 $1,227
1999 1,272
2000 1,004
2001 636
2002 612
------
$4,751
</TABLE>
Litigation
There are pending claims for professional liability against Health Plan which
are substantially self-insured. Management believes, after consultation with
counsel, it is probable that disposition of these claims will not have a
material effect on the financial statements of Health Plan.
Subsequent Event
In February 1998, Health Plan signed a non-binding letter of intent to sell
Health Plan's assets to a third party. While no specific date of sale has been
determined, it is anticipated that the sale will occur before the end of 1998.
The accompanying financial statements do not include any adjustments that might
result from the sale of Health Plan's assets.
10
<PAGE>
ADDITIONAL INFORMATION
11
<PAGE>
KAISER FOUNDATION HEALTH PLAN OF TEXAS
Independent Auditors' Report on Additional Divisional Information
Board of Directors
Kaiser Foundation Health Plan of Texas
Dallas, Texas
Our audit was conducted for the purpose of forming an opinion on the 1997
financial statements taken as a whole. The additional divisional information on
pages 12 and 13 is presented for purposes of additional analysis of the basic
financial statements rather than to present the financial position and results
of operations of the individual divisions and is not a required part of the
basic financial statements. This additional information is the responsibility of
management. Such information has been subjected to the procedures applied in the
audit of the basic financial statements and, in our opinion, is fairly stated,
in all material respects, when considered in relation to the basic 1997
financial statements taken as a whole.
As discussed in the Summary of Significant Accounting Policies to Financial
Statements, Health Plan is a subsidiary of Kaiser Foundation Health Plan, Inc.,
and the accompanying financial statements have been prepared from the separate
records maintained by Health Plan. Such financial statements may not necessarily
be indicative of the conditions that would have existed or the results of
operations if Health Plan had been operated as an unaffiliated company.
Additionally as discussed in the Subsequent Event note to Financial Statements,
in February 1998, Health Plan signed a non-binding letter of intent to sell
Health Plan's assets to a third party.
/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
March 5, 1998
12
<PAGE>
KAISER FOUNDATION HEALTH PLAN OF TEXAS
ADDITIONAL DIVISIONAL INFORMATION--OPERATIONS AND CHANGES IN NET DEFICIENCY Year
Ended December 31, 1997 (in thousands) <TABLE>
<CAPTION>
Health Plan CSC Eliminations Totals
Revenues:
<S> <C> <C> <C> <C>
Members' dues $ 168,337 $ 0 $ 0 $ 168,337
Supplemental charges 13,442 13,442
Medicare 10,269 10,269
Other 10,025 $ 7,647 $(1,184) 16,488
------------ ---------- ------- ------------
Total Revenues 202,073 7,647 (1,184) 208,536
Expenses:
Medical services 167,558 167,558
Hospital services 38,599 38,599
Outpatient pharmacy 27,252 27,252
Other benefit costs 9,446 9,446
------------ ---------- ---------- ------------
Total Medical and Hospital Services 242,855 242,855
Health Plan administration 12,991 12,995 (1,184) 24,802
------------ ---------- --------- ------------
Total Expenses 255,846 12,995 (1,184) 267,657
------------ ---------- --------- ------------
Net Loss (53,773) (5,348) (59,121)
Capital contributions 40,000 40,000
Net deficiency at beginning of year (142,095) (267) (142,362)
------------ ---------- ---------- ------------
Net Deficiency at End of Year $(155,868) $(5,615) $ -- $(161,483)
========= ========== ============ =========
</TABLE>
See independent auditors' report on additional information and notes to
financial statements
13
<PAGE>
KAISER FOUNDATION HEALTH PLAN OF TEXAS
ADDITIONAL DIVISIONAL INFORMATION--BALANCE SHEET
As of December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Health Plan CSC Eliminations Totals
ASSETS
Current Assets:
<S> <C> <C> <C> <C>
Cash $ 2,438 $ 5 $ 0 $ 2,443
Accounts receivable 12,263 16 12,279
Other 5,388 59 5,447
Due from affiliated organizations 6,115 4,555 $(1,364) 9,306
------------ -------- ------- ------------
Total Current Assets 26,204 4,635 (1,364) 29,475
Land, Buildings, and Equipment 59,268 2,713 61,981
Other Assets 990 1,409 (571) 1,828
------------ -------- --------- ------------
Total Assets $ 86,462 $8,757 $(1,935) $ 93,284
============ ====== ======= ============
LIABILITIES AND NET DEFICIENCY
Current Liabilities:
Accounts payable and accrued expenses $ 24,008 $ 556 $ 24,564
Payroll and related charges 2,987 346 3,333
Due to affiliated organizations 486 2,412 $(1,364)1,534
Due to associated medical group 4,145 4,145
Other 2,487 2,487
Current installments on long-term debt 197 197
------------ ---------- ---------- --------------
Total Current Liabilities 34,310 3,314 (1,364) 36,260
Long-Term Debt 4,322 4,322
Other Long-Term Liabilities 203,698 11,058 (571) 214,185
------------ ---------- --------- ----------------
Total Liabilities 242,330 14,372 (1,935) 254,767
Net Deficiency (155,868) (5,615) (161,483)
------------ ---------- ---------- --------------
Total Liabilities and Net Deficiency $ 86,462 $ 8,757 $(1,935) $ 93,284
============ ========== ======= ============
</TABLE>
See independent auditors' report on additional information and notes to
financial statements
14
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-42222, 33-41542, 33-41543, 33-59187, 33-60901, 33-60591, and 33-82474 of
Sierra Health Services, Inc. on Form S-8 of our report related to the financial
statements of Kaiser Foundation Health Plan of Texas dated March 5, 1998,
appearing in this Form 8-K of Sierra Health Services, Inc., for the year ended
December 31, 1997.
DELOITTE & TOUCHE llp
Dallas, Texas
November 10, 1998
<PAGE>
