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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 (Date of earliest event reported): October 27, 1998
PHP HEALTHCARE CORPORATION
(Exact name of Registrant as specified in its charter)
State or other jurisdiction of incorporation: Delaware
Commission File No.: 0-16235
I.R.S. Employer Identification No.: 54-1023168
Address of principal executive offices: 11440 Commerce Park Drive
Reston, VA 22091
Registrant's telephone number, including area code: (703) 758-3600
Former name or former address, if changed since last report: Not applicable
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ITEM 5. OTHER EVENTS.
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On October 27, 1998, the Commissioners of the Department of Banking and
Insurance and the Department of Health and Senior Services for the State of New
Jersey instituted legal proceedings in the Superior Court of New Jersey,
Middlesex County, against PHP, its subsidiary Pinnacle Health Enterprises,
L.L.C. ("PHE") and HIP of New Jersey, Inc. ("HIP").
The Commissioners have requested a court order placing HIP in
rehabilitation proceedings and naming Commissioner Jaynee LaVecchia as
rehabilitator, with authority to take control of HIP's finances and
organization. The relief sought by the Commissioners also includes, among other
things, a declaration that all contractual arrangements between HIP and PHP/PHE
be terminated, without allowing any period to cure any breaches. A hearing will
be held before the court on November 9, 1998 with respect to the Commissioner's
request.
Copies of the Order to Show Cause with Temporary Restraints issued by the
Superior Court of New Jersey, Chancery Division - Middlesex County, and the
press release issued by PHP Healthcare Corporation are filed as exhibits to this
report.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
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The following exhibits are furnished as part of this report:
Exhibit Description
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99.1 Order to Show Cause with Temporary Restraints,
issued by the Superior Court of New Jersey, Chancery
Division - Middlesex County, Docket No. C-275-98.
99.2 Press Release, dated October 28, 1998, issued by PHP
Healthcare Corporation.
FORWARD LOOKING STATEMENTS
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This Report contains forward-looking statements. The words "believe,"
"expect" and "anticipate" and similar expressions identify such forward-looking
statements. These forward-looking statements reflect the Company's views with
respect to future events and financial performance. Such statements are subject
to risks and uncertainties that could cause the Company's actual results and
financial position to differ materially from those
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projected in the forward-looking statements. Risks associated with the Company's
forward-looking statements include, but are not limited to, those risk factors
described in the Company's Form 10-K under the caption "Business -- Risk
Factors." Readers are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of their dates. The Company undertakes
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
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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.
PHP HEALTHCARE CORPORATION
By: /s/ Kenneth H. Weixel
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Name: Kenneth H. Weixel
Title: Executive Vice President
and Chief Financial Officer
Dated: October 28, 1998
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EXHIBIT INDEX
Exhibit Description
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99.1 Order to Show Cause with Temporary Restraints,
issued by the Superior Court of New Jersey, Chancery
Division - Middlesex County, Docket No. C-275-98.
99.2 Press Release, dated October 28, 1998, issued by PHP
Healthcare Corporation.
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PETER VERNIERO
Attorney General of New Jersey
R. J. Hughes Justice Complex
P.O. Box 117
Trenton, New Jersey 06625
Attorney for Plaintiffs Commissioner
of the Department of Banking and
Insurance and Commissioner of the
Department of Health and Senior Services
By: Josh Lichtblau
Deputy Attorney General
(609) 633-9847
SUPERIOR COURT OF NEW JERSEY -
CHANCERY DIVISION - MIDDLESEX COUNTY
DOCKET NO. C-275-98
JAYNEE LaVECCHIA, )
Commissioner of the )
Department of Banking and )
Insurance, and LEN FISHMAN, )
Commissioner of the )
Department of Health and )
Senior Services, )
) ORDER TO SHOW CAUSE
Plaintiffs, ) WITH TEMPORARY RESTRAINTS
)
v. )
)
HIP OF NEW JERSEY, INC., )
d/b/a HIP HEALTH PLAN OF NEW )
JERSEY, PHP HEALTHCARE )
CORPORATION, and PINNACLE )
HEALTH ENTERPRISES, L.L.C. )
)
Defendants. )
This matter having been opened to the Court by Peter Verniero,
Attorney General of the State of New Jersey, by Josh Lichtblau, Deputy Attorney
General, attorney for plaintiffs Jaynee LaVecchia, Commissioner of the
Department of Banking and Insurance of the State of New Jersey (hereinafter the
"Commissioner"), and Len Fishman, Commissioner of the Department of Health and
Senior Services (hereinafter "Commissioner of Health"), upon a Verified
Complaint for an Order appointing on an emergent basis plaintiff, Commissioner
of the
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Department of Banking and Insurance, as Rehabilitator of HIP of New Jersey, Inc.
d/b/a HIP Health Plan of New Jersey, (hereinafter "HIP"), a health maintenance
organization of New Jersey as defined in N.J.S.A. 26:2J-2 and its implementing
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regulations, for the purpose of rehabilitating HIP pursuant to N.J.S.A. 17B:32-
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31 et seq., and imposing certain temporary restraints; and
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IT APPEARING that HIP is insolvent and that the further transaction of
business by HIP in its present financial condition will be hazardous to the
members, subscribers, enrollees, health care providers and creditors of HIP, and
to the general public;
IT FURTHER APPEARING that pursuant to a contractual agreement between
HIP and Pinnacle Health enterprises ("PHE"), the subsidiary of PHP Healthcare
Corporation ("PHP"), entered on July 24, 1997 and effective November 1, 1997 for
a twenty year duration (hereafter referred to as the Health Services
Agreement"), PHE provides all health care services and supplies to HIP members,
performs all quality improvement, utilization management and provider
credentialing functions, processes and pays claims and contracts with providers
on behalf of HIP;
IT FURTHER APPEARING that pursuant to the Health Services Agreement,
in return for the services and supplies set forth above, HIP pays to PHE on a
semi-monthly basis capitation payments, which initially were set at 91.5% of
premiums received and decline to 86.5% of such premiums over time;
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IT FURTHER APPEARING that pursuant to the terms of the Health Services
Agreement, the Health Services Agreement may be terminated immediately without
notice or period to cure in the event that a Rehabilitator is appointed or
either party is unable to pay debts as they are due;
IT FURTHER APPEARING that pursuant to the Health Services Agreement,
PHE is obligated to continue to fulfill its obligations under the Health
Services Agreement, including but not limited to, continuing to provide services
and supplies for HIP covered persons for up to twelve (12) months after the date
of termination of the Health Services Agreement;
IT FURTHER APPEARING that PHP/PHE have contracted with the vast
majority of providers who provide services and supplies to HIP members on a
network basis both in the Health Centers and through HIP's network;
IT FURTHER APPEARING that approximately 130,000 HIP members utilize
the Health Centers to access primary care, including post-operative follow up
care and third trimester obstetric care, and obtain referrals from primary care
physicians located in the Health Centers to network specialists, as well as
critical ancillary services, including lab testing, pharmacy services, and
mental health care, and the medical records for all of these persons are
maintained at the Health Centers;
IT FURTHER APPEARING that in order to provide the uninterrupted
medical and health care services and supplies described above for HIP members,
it is imperative that the Health Centers remain open and fully staffed and
operational;
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IT FURTHER APPEARING that the appointment of the Commissioner of the
Department of Banking and Insurance as Rehabilitator of HIP is grounds for
immediate termination of the Health Services Agreement without requiring for
notice or a period to cure;
IT FURTHER APPEARING that PHE has failed to satisfy the terms of the
Health Services Agreement by significantly reducing staffing at the Health
Centers without obtaining proper authorization for such action from the
Department of Health and Senior Services and by failing to pay HIP network
providers for undisputed claims in a timely manner; and
IT FURTHER APPEARING that the immediate appointment of the
Commissioner as Rehabilitator of HIP and the cessation of the business of HIP in
its current form and immediate possession and conduct of said business by the
Commissioner is necessary to remove the cause and conditions which have made
rehabilitation necessary;
IT IS on this 27th day of October, 1998;
Pursuant to N.J.S.A. 17B:32-39 which provides for EX PARTE
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Applications, ORDERED that:
(1) Defendants appear and show cause before the Honorable Jack L.
Lintner, J.S.C. Superior Court of New Jersey, Chancery Division, 1 JFK Square,
New Brunswick, New Jersey on Nov. 9th, 1998, at 9:00 a.m. or as soon thereafter
as counsel may be heard, why an Order should not be entered
(a) Declaring HIP insolvent;
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(b) Appointing the Commissioner as Rehabilitator of HIP, with all the
powers and authority expressed or implied by N.J.S.A. 17B:32-31, et seq., and
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N.J.S.A. 26:2J-1, et seq., and the implementing regulations for these statutes,
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and vesting her with immediate and exclusive possession and control of and title
to the business of HIP and all books, records, files, equipment, computer
hardware and software, assets and property of any nature of or relating to HIP's
members and operations in New Jersey, whether real or personal, wherever such
materials may be located, including but not limited to bank accounts,
certificates of deposit, bonds, securities or other financial instruments of
HIP, wherever located or situated;
(c) Directing the Commissioner to take immediate and exclusive
possession of the business and property of HIP and to exercise full and
exclusive authority over the business and affairs thereof, and to take the steps
necessary to remove the causes and conditions which have made rehabilitation
necessary;
(d) Declaring that all contractual agreements between HIP and
defendants PHP Healthcare Corporation ("PHP") and/or Pinnacle Health
Enterprises, L.L.C. ("PHE"), including but not limited to the Health Services
Agreement entered between HIP and PHE on July 24, 1997 and effective November 1,
1997, be terminated immediately upon entry of this Order, without allowing for a
period to cure any breaches;
(e) Requiring PHP, PHE, all network providers and any lease holder or
lien holder of property on which HIP members receive services and supplies on a
network basis to keep open and provide uninterrupted medical and health care
services and supplies and allow full access to all records, as required by the
Health Services Agreement, so HIP members may
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continue to receive such services and supplies at all HIP/PHE Health Centers for
a period of time to be determined by the Rehabilitator;
(f) Requiring PHP, PHE, all network providers and any lease holder or
lien holder of property on which HIP members receive services on a network basis
to keep open and provide services and supplies and allow full access to all
medical records for a period of time to be determined by the Rehabilitator in
order to avert the potential health care crises that would arise in the event
that the Health Centers were closed or access thereto were limited in any way;
(g) Requiring any provider who provides services or supplies to HIP
members on a network basis to continue to do so without seeking payment for such
services or supplies from HIP members that is in addition to the amount of
copayment, coinsurance or deductible specified in the contract for services and
supplies provided by the network provider, as required by law;
(h) Granting the Commissioner as Rehabilitator the authority, pursuant
to N.J.A.C. B:38-12, to order, in consultation with the Commissioner of Health,
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other carriers and HMOs to offer to HIP's members an opportunity to become
insured or to enroll with carriers or other HMOs, during an open enrollment
period that shall last for no less than thirty (30) days;
(i) Requiring PHP/PHE to provide the Rehabilitator with immediate
custody of and access to all non-proprietary medical information to enable the
Rehabilitator to prioritize patient care needs; and
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(j) Granting the Commissioner such other injunctive and equitable
relief as may be necessary to protect the employees, members, subscribers,
providers and creditors of HIP as well as the general public from the effects of
the insolvency of HIP. A copy of the proposed form of Order Appointing
Rehabilitator to be entered is annexed hereto.
(2) Effective immediately upon entry of the within Order to Show
Cause, all persons, corporations, partnerships, associations, governmental
entities, and all other entities of any nature wherever situated, including but
not limited to HIP network providers under contract with HIP, PHE or PHP and
creditors thereof, and HIP, its directors, officers, trustees, subscribers,
members, agents, employees, representatives and claimants, are hereby enjoined
and restrained from:
a. Commencing, maintaining and further prosecuting any action at law
or equity, or any special proceeding or any other proceeding of
any nature against HIP, without leave of Court;
b. Obtaining any preferences of any judgment, attachment,
garnishment or lien against HIP, and against any bank accounts,
funds, property or assets, or any part thereof, of or on behalf
HIP, wherever located or from levying or executing against HIP or
its property assets or any part thereof, wherever located, or
from repossessing the property or assets of HIP or any part
thereof, wherever located, and from commencing, prosecuting or
further prosecuting any suit, action or proceeding having any
such purpose or effect;
c. Taking any action that would close or threaten to close the
Health Centers or limit, in any way, the uninterrupted provision
of medical and health care services and supplies at the Health
Centers or through the network of providers who provide services
and supplies to HIP members outside the Health Centers;
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d. Selling, transferring, wasting, dissipating, disbursing or
reducing the funds, bank accounts, or any of the property or
assets of HIP, and from removing, withholding, destroying or
otherwise disposing of any files, books, funds, bank accounts,
documents or other records of HIP or relating to the business of
HIP; except that HIP is not restricted from the disbursement of
such funds as are necessary and proper to its normal course of
business in providing medical and health care services, including
the payment of claims and ordinary and necessary medical and
health care services, provided such disbursements are approved in
writing by the Commissioner or her designee prior to their
issuance;
e. Making any sale or deed for nonpayment of taxes or assessments
that would lessen the value of the assets of HIP;
f. Undertaking any other threatened or contemplated action that
might lessen the value of HIP's assets, or prejudice the rights
of the members, subscribers, enrollees, obligees, providers,
creditors, shareholders, agents, brokers, intermediaries or
reinsurers in this proceeding under N.J.S.A. 17B:32-35 or other
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applicable law, including the disbursement of such funds as are
necessary and proper to its normal course of business in
providing medical and health care services, including the payment
of claims and ordinary and necessary medical and health care
services, provided such disbursements are approved in writing by
the Commissioner or her designee prior to their issuance;
g. Commencing, maintaining or further prosecuting any action at law
or in equity, or any special proceeding or any other proceeding
of any nature against the enrollees, subscribers, members and
policyholders of HIP resulting from the insolvency of HIP or the
failure of HIP, PHP, PHE or any party contracted by such entities
to pay any of HIP's contractual obligations; and
h. Except as otherwise provided herein, terminating or canceling
without leave of Court, any lease, contract, license or other
arrangement with HIP for the provision or supply of any office
space supplies, or equipment, including but not limited to,
computer hardware and/or software or any other services or
materials or equipment of
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any nature that are required to operate the business of HIP; and
i. Writing any new business or enrolling and renewing the membership
of any members and entering or renewing any individual or group
contract of insurance, or endorsement thereof without approval of
the Rehabilitator or her designee.
(3) All secured creditors or parties, pledgees, lien holders,
collateral holders or other persons claiming a secured, priority or preferred
interest in any property or assets of HIP are hereby enjoined and restrained
from taking any steps whatsoever to transfer, sell, encumber, attach, dispose
of, or exercise purported rights in or against, any property or assets of HIP.
(4) Effective immediately upon execution of this Order and until
further Order of this Court, HIP, its directors, trustees, officers, employees,
and agents or representatives, are hereby enjoined, restrained and prohibited
from paying any claims or any obligations of HIP of any nature without the
express prior written approval of the Commissioner or her designee. The
restraints of this paragraph shall operate to prohibit the further issuance of
any drafts or checks of or on behalf of HIP, as well as the payment of any
presently outstanding drafts or checks that may be presented for payment in the
future without the Commissioner's prior written approval or that of her
designee.
(5) Effective immediately upon execution of this Order to Show Cause,
no bank, savings and loan association or other financial institution, or any
other entity of any nature holding property, assets, funds or accounts of, for,
or on behalf of, HIP, including any member, provider, subscriber, or creditor of
HIP, shall exercise any form of set-off, alleged set-off lien, or
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any form of self-help whatsoever with respect to said property, assets, funds or
accounts without the prior approval of the Court.
(6) Effective immediately upon execution of this Order to Show Cause,
the officers, directors, trustees, agents, representatives and employees of HIP,
PHP and PHE, and, if appropriate, any entity that contracts with such party,
shall permit the Commissioner, her staff or designees, as well as any staff and
designees of the Commissioner of Health to have access to any and all premises,
and if requested, copies of all or parts of any and all accounts, records and
files, including but not limited to all medical records, all diagnostic and
procedure code information for each member and any other information relating to
the provision of health care services and supplies or operations of HIP pursuant
to N.J.S.A. 26:2J-1 et seq., its implementing regulations, and N.J.S.A. 17B:32-
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32 et seq.
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(7) Effective immediately pending the return date of this Order to
Show Cause, in return for the capitation payment from HIP, PHE shall continue to
fully operate and staff the Health Centers and shall continue to provide all
services and supplies to HIP members and to pay all claims relating to the
provision of such services and supplies on a timely basis.
(8) Effective immediately pending the return date of this Order to
Show Cause, PHE shall continue to fulfill all of its contractual obligations to
HIP, including but not limited to, fully staffing and properly operating the
Health Centers in order to properly provide all services and supplies to HIP
members, and paying all claims relating to the provision of such services and
supplies on a timely basis.
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(9) Effective immediately pending the return date of this Order to
Show Cause, PHP/PHE shall deposit all semi-monthly capitation payments from HIP
into a trust account or some other form of account in which the funds in such
account are solely dedicated to paying claims for providers for services and
supplies provided to HIP members, with the Commissioner given sole authority to
approve the disbursement of funds from such account.
(10) If the defendants intend to file answering affidavits or briefs
or seek other relief in the present matter, such papers shall be filed with the
Court and served upon Deputy Attorney General Josh Lichtblau, attorney for
plaintiffs Commissioner of Banking and Insurance and Commissioner of Health and
Senior Services, at least 5 days before the return date of this Order To Show
Cause and plaintiffs may file reply papers, at least 2 day(s) before the return
date of this Order to Show Cause.
/s/ J.L. Lintner
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Hon. Jack L. Lintner, J.S.C.
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It is further ORDERED that defendants may move by telephone before
this Court for the dissolution or modification of any restraints against them,
contained in this Order To Show Cause, upon two (2) days' notice to plaintiff
and other parties herein; and it is further
ORDERED that a copy of this Order to Show Cause, the verified
complaint, supporting certifications, and memorandum of law be served upon the
defendants within 1 day(s) of the date hereof, said service to be made by
certified mail, return receipt requested, and by regular mail, or by personal
service, either of which means of service shall be deemed sufficient service of
process upon the defendants.
/s/ J.L. Lintner
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Hon. Jack L. Lintner, J.S.C.
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[LETTERHEAD OF PHP HEALTHCARE CORPORATION]
FOR IMMEDIATE RELEASE
Contacts:
Jack M. Mazur, President and CEO
Kenneth H. Weixel, Executive VP and CFO
(703) 758-3600
PHP HEALTHCARE RESPONDS TO ACTION OF NJ COMMISSIONERS
RESTON, Virginia, October 28, 1998 -- PHP Healthcare Corporation (NYSE:PPH)
announced today that the Commissioners of the Department of Banking and
Insurance and the Department of Health and Senior Services for the State of New
Jersey have instituted legal proceedings in the Superior Court of New Jersey,
Middlesex County, against PHP, its subsidiary, Pinnacle Health Enterprises, LLC,
and HIP of New Jersey, Inc.
The Commissioners have requested a court order placing HIP in rehabilitation
proceedings and naming Commissioner Jaynee LaVecchia as rehabilitator with
authority to take control of HIP's finances and organization. The relief
sought by the Commissioners also includes, among other things, a declaration
that all contractual arrangements between HIP and PHP/PHE be terminated. A
hearing will be held before the court on November 9, 1998, with respect to the
commissioners' request.
The court directed that HIP continue to provide medical and health care
services and supplies at its health centers and through the HIP network of
medical providers and, in general, preserve the status quo pending the court
hearing on November 9.
Jack M. Mazur, PHP President and CEO, stated: "While we will be responding
in court to the action filed by the Commissioners, we will continue to work
with the State of New Jersey to provide health care services to HIP's 194,000
members around the state. We also will continue to evaluate all options
available to PHP, including the steps necessary to restore HIP to financial
stability."
A medical management company, PHP Healthcare Corporation manages medical
risk through the acceptance of global capitation arrangements with HMOs and
other health care payors. The Company also offers a full range of management
services to the physician groups and hospitals that participate in provider-
based networks developed by PHP. Because health care is a local service,
PHP's managed delivery systems are tailored to the needs of individual
communities and patient populations. PHP has more than 7,500 physicians
employed or under contract, and responsibility for approximately 300,000
covered lives.
Except for historical information, the statements preceding are forward-
looking statements that involve risks and uncertainties. Investors are
cautioned that such statements are only predictions and the actual events or
results may differ materially. These forward-looking statements speak only as
of this date. The Company undertakes no obligation to publicly release the
results of any revisions to the forward-looking statements made today to
reflect events or circumstances after today, or to reflect the occurrence of
unanticipated events.
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