<PAGE>
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): September 21, 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 September 21, 1998, the Acting Commissioner of the New Jersey Department
of Banking and Insurance published an order placing HIP of New Jersey, Inc.
under administrative supervision.
On September 22, 1998, Pinnacle Health Enterprises, L.L.C., a subsidiary of
the registrant, issued a press release in response to the action taken by the
New Jersey Department of Banking and Insurance.
Copies of the press release and order issued by the New Jersey Department
of Banking and Insurance and the press release issued by Pinnacle Health
Enterprises 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:
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<CAPTION>
Exhibit Description
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<S> <C>
99.1 News Release, dated September 21, 1998, issued by the Acting
Commissioner of the New Jersey Department of Banking and
Insurance.
99.2 Order No. A98-135, dated September 21, 1998, issued by the
Acting Commissioner of the New Jersey Department of Banking and
Insurance.
99.3 Press Release, dated September 22, 1998, issued by Pinnacle
Health Enterprises, L.L.C.
</TABLE>
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 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
2
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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.
3
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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:
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Name: Anthony P. Picini
Title: Executive Vice President and
Chief Financial Officer
Dated: September 25, 1998
4
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EXHIBIT INDEX
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<CAPTION>
Exhibit Description
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<S> <C>
99.1 News Release, dated September 21, 1998, issued by the
Acting Commissioner of the New Jersey Department of
Banking and Insurance.
99.2 Order No. A98-135, dated September 21, 1998, issued by
the Acting Commissioner of the New Jersey Department of
Banking and Insurance.
99.3 Press Release, dated September 22, 1998, issued by
Pinnacle Health Enterprises, L.L.C.
</TABLE>
<PAGE>
EXHIBIT 99.1
FOR IMMEDIATE RELEASE: FOR FURTHER INFORMATION:
Sept. 21, 1998 Winnie Comfort 609-292-5064
Department of Banking and Insurance
Rita Manno 609-984-7160
Department of Health and Senior Services
Banking and Insurance Acting Commissioner Jaynee LaVecchia today announced
that she recently issued an order of administrative supervision to step up
monitoring of the delivery of services to subscribers and the appropriate
payment of claims to providers of HIP of New Jersey, Inc.
"I am making the order, along with the company's most recent financial
report, public today to assure members of HIP and their providers that we are
taking vigorous and prudent action to protect them. I am pleased that HIP is
cooperating fully with our efforts," said Acting Commissioner La Vecchia.
"Our goal is to assist the company through these financial difficulties so
that HIP may continue as a viable company providing services in New Jersey," she
added.
According to the acting commissioner, department regulators have been
monitoring the financial condition of HIP since November 1997, when the company
signed a contract with a subsidiary of PHP Heatlhcare Corporation, a Reston,
Virginia, company. HIP contracted with Pinnacle Health Enterprises (PHE), a
Delaware subsidiary of PHP, for PHE to provide all health care services to HIP
members and to perform most administrative functions. Under the contract, HIP
continues the development of products and pricing, marketing, processing
enrollment applications and collecting premiums from HIP enrollees.
Based on HIP financial reports showing a statutory negative net worth of
minus $9.5 million as of June 30, 1998, the acting commissioner signed the order
on Sept. 8, 1998 and made the administrative supervision public today.
Subsequent to the signing of the order, PHP filed negative financial reports
with the SEC; and Standard & Poor's lowered the rating of PHP.
With the administrative supervision order, Acting Commissioner LaVecchia
had directed the department to become more actively involved with HIP and PHP in
addressing HIP's net worth situation, as well as in definitively assessing and
addressing any claims backlog in order to properly protect subscribers and
providers.
Highlights of the banking and insurance department's ongoing monitoring
process include the following steps:
. The acting commissioner has held a series of meetings to discuss HIP's
financial report and HIP's and PHP's financial condition, including the
preparation of a responsible plan to address payments to providers.
. The department has representatives on-site at HIP to assist the company and
to evaluate their operations.
. The department will examine every aspect of the company's financial condition
and oversee how the money paid by subscribers for premiums is spent by HIP
and by its contractors responsible for the delivery of services to
subscribers and providers.
. The acting commissioner will be meeting with HIP and PHP this week to asses
and address any claims backlog and to discuss the net worth of both
companies.
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In addition to the efforts by the insurance department to monitor the
company's financial situation, the Department of Health and Senior Services is
monitoring the delivery of service to HIP members.
Officials of the health and senior services department met last week with
HIP/PHP to review detailed information about recent layoffs and the adequacy of
the care being delivered. The department is concerned about specific cutbacks
in obstetrics and gynecology services at the centers because patients in need of
these medical services need assurance their care will not be interrupted. In
monitoring services at the centers, department staff observed unacceptable
delays in getting appointments with physicians and staff shortages in labs and
medical records.
In response to these concerns, HIP/PHP agreed to report weekly on specific
steps taken to ensure adequacy of care. The company also agreed to develop a
member communications plan to make sure that aggressive action is taken to keep
members apprised of the situation.
The Department of Health and Senior Services continues to monitor the
quality of care provided at the centers and members' access to medical service.
Department staff has observed services at ten centers, which account for 80
percent of the membership in HIP/PHP. Beginning today, the Peer Review
Organization of New Jersey will assist the department in maintaining a field
presence in the centers for as long as is necessary.
Licensed in New Jersey since 1980, HIP is the state's fourth largest health
maintenance organization with 190,342 members as of June, 1998.
Members include state and local (26,500) and federal government (14,400)
employees; individual subscribers and their families (11,800; large company
employees and their families (90,910); employees of small businesses and their
families (10,800); and Medicare (11,466) and Medicaid (24,466) beneficiaries.
There are more than 3,000 medical providers eligible to receive payment for
services provided to HIP members.
The New Brunswick-based company is a non-profit organization and is
authorized to operate in 17 counties: Its authority excludes Warren, Sussex,
Cape May and Cumberland Counties. For Medicaid beneficiaries, residents of
Atlantic, Monmouth and Bergen Counties also are excluded from HIP membership.
HIP members who have questions may call Member Services at XXX. Consumers
who still have questions may call the Department of Banking and Insurance at
609-292-5317 or the Department of Health and Senior Services HMO Hotline at 1-
888-393-1062.
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A copy of the order of administrative supervision is attached.
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EXHIBIT 99.2
Order No. A98-135
STATE OF NEW JERSEY
DEPARTMENT OF BANKING AND INSURANCE
IN THE MATTER OF HIP OF ) ORDER AMENDING
NEW JERSEY, INC. ) CONFIDENTIAL ORDER A98-134
This matters comes before the Commissioner of the New Jersey Department of
Banking and Insurance ("Department") pursuant to N.J.S.A. 17:51A-1, et seq.
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IT APPEARING that HIP of New Jersey, Inc. ("HIP"), doing business as HIP
Health Plan of New Jersey, is a not-for-profit New Jersey domiciled health
maintenance organization ("HMO") which was issued a certificate of authority and
became authorized to transact business in New Jersey as an HMO on January 25,
1980 in accordance with the requirements of N.J.S.A. 26:2J-4; and
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IT FURTHER APPEARING that for the reasons set forth below, the Department
is, pursuant to N.J.S.A. 17:51A-1 et seq., placing HIP under administrative
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supervision because it is in a hazardous financial condition; and
IT FURTHER APPEARING that as of December 31, 1997 HIP was authorized to do
business only in the State of New Jersey and, specifically, was authorized to do
business only in the following counties: Atlantic, Bergen, Burlington, Camden,
Essex, Gloucester, Hudson, Hunterdon, Mercer, Middlesex, Monmouth, Morris,
Ocean, Passaic, Salem, Somerset, and Union; and
IT FURTHER APPEARING that HIP's contract holders are either individual
members or legal entities who, on behalf of their individual members, pay
monthly premiums to HIP in exchange for medical services and supplies; and
IT FURTHER APPEARING that HIP has contracted with the Department of Human
Services to provide medical services and supplies to Medicaid recipients and
participates in the New Jersey KidCare Program in 13 counties; and
IT FURTHER APPEARING that as of December 31, 1997 HIP had 195,216 members,
comprised of 9,574 Medicare enrollees, 25,161 Medicaid recipients and 160,481
members other than Medicare or Medicaid recipients (hereinafter referred to as
"commercial members"); and
IT FURTHER APPEARING that Pinnacle Health Enterprises, L.L.C. ("PHE"), a
subsidiary of PHP Healthcare Corporation ("PHP"), is a Delaware domiciled
limited liability company; and
<PAGE>
IT FURTHER APPEARING that pursuant to a contractual agreement entered
between HIP and PHE on July 24, 1997 and effective November 1, 1997 (hereinafter
referred to as "the Contract"), PHE provides health care services and supplies
to HIP members, performs quality improvement, utilization management and
provider credentialing functions, processes and pays claims and contracts with
providers; and
IT FURTHER APPEARING that pursuant to the Contract, HIP is, among other
things, obligated to continue the development of products and pricing and is
responsible for the collection of premium from HIP contract holders, marketing
and processing of enrollment applications; and
IT FURTHER APPEARING that pursuant to the Contract, HIP is obligated to pay
to PHE on a semi-monthly basis a percentage of the premium received by HIP from
its contract holders, which percentage fluctuates annually pursuant to the terms
of the Contract; and
IT FURTHER APPEARING that as of December 31, 1997 there were 3,264 medical
providers (hereinafter referred to as "HIP/PHP providers") eligible to receive
payment for services provided to HIP members; and
IT FURTHER APPEARING that pursuant to N.J.A.C. 8:38-11.1(b), HIP shall
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maintain at all times a minimum net worth, determined on a statutory accounting
practices ("SAP") basis, equal to $15,358,830 as of December 31, 1997 in order
to maintain its certificate of authority to do business in the State of New
Jersey; and
IT FURTHER APPEARING that according to the December 31, 1997 annual
financial statement filed with the Department by HIP pursuant to N.J.S.A. 26:2J-
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9 and N.J.A.C. 8:38-11.6(a), HIP's net worth as of December 31, 1997 was
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$15,414,915; and
IT FURTHER APPEARING that according to the March 31, 1998 First Quarter
Financial Statement filed by HIP pursuant to N.J.A.C. 8:38-11.6(d) and received
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by the Department on May 28, 1998, HIP's net worth as of March 31, 1998 was
$2,325,253, according, HIP failed to meet the minimum net worth requirements as
outlined in N.J.A.C. 8:38-11.1(b); and
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IT FURTHER APPEARING that, according to HIP's Second Quarter Financial
Statement, received following an extension by the Department, shows that as of
June 30, 1998 HIP's net worth dropped further below the statutory requirement;
and
IT FURTHER APPEARING that HIP was instructed to formulate and submit a
business plan to the Department which would enable HIP to meet its minimum net
worth requirements; this business plan was submitted on September 17, 1998; and
IT FURTHER APPEARING that N.J.S.A. 17:51A-1, et seq., the Administrative
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Supervision Act (the "Act"), sets forth the authority of the Commissioner to
subject an insurer to administrative supervision; and
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IT FURTHER APPEARING that the Act applies to HIP which is an authorized,
New Jersey domiciled HMO and is subject to rehabilitation and liquidation in
accordance with N.J.S.A. 17B:32-31 et seq. See N.J.S.A. 17:51A-2, N.J.S.A.
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17B:32-32,-33; and
IT FURTHER APPEARING that pursuant to N.J.S.A. 17:51A-3(a) an insurer may
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be subject to administrative supervision if it appears in the Commissioner's
discretion that the insurer's condition renders the unsupervised continuation of
its business hazardous to the public or to its insureds; and
IT FURTHER APPEARING that the Commissioner, in determining whether an
insurer is in a hazardous financial condition, must consider factors listed in
N.J.A.C. 11:2-27.3 either singly or in a combination of two or more and that
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such factors may be applied to HIP since HIP is subject to administrative
supervision, rehabilitation and liquidation, pursuant to N.J.S.A. 17:51A-1 et
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seq. and N.J.S.A. 17B:32-31 et seq. respectively; and
- --- -------- ------
IT FURTHER APPEARING that, at a minimum, the following factors listed in
N.J.A.C. 11:2-27.3 are applicable to HIP:
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1. HIP's net asset portfolio, when viewed in light of current economic
conditions, is not of sufficient liquidity or diversity to assure HIP's ability
to meet its outstanding obligations as they mature. N.J.A.C. 11:2-27.3(a)(4);
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and
2. HIP has experienced or will experience in the foreseeable future
cash flow and/or liquidity problems. N.J.A.C. 11:2-27.3(a)(15); and
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3. HIP does not possess the minimum capital and surplus required by
statute. N.J.A.C. 11:2-27.3(a)(18); and
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IT FURTHER APPEARING that HIP is currently in a hazardous financial
condition since several of the factors listed at N.J.A.C. 11:2-27.3, including,
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but not limited to, N.J.A.C. 11:2-27.3a(4), (15) and (18) are applicable to HIP;
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and
IT FURTHER APPEARING that since HIP is in a hazardous financial condition,
it was placed under administrative supervision September 8, 1998 by Confidential
Order A98-134, which Order provided, among other things, that HIP provide the
Commissioner with a business plan to remedy its hazardous financial condition;
this business plan was submitted on September 17, 1998; and
IT FURTHER APPEARING that the Division of Medical Assistance and Health
Services ("DMAHS") in the Department of Health and Human Services has
represented to the Department that upon issuance of Order A98-134, DMAHS will no
longer assign new Medicaid recipients to HIP or permit new Medicaid recipients
to be randomly assigned to HIP, until further order of the Commissioner, and
that this is consistent with DMAHS' contract with HIP since HIP has fallen below
the minimal contractual net worth requirement of $3,680,157; and
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<PAGE>
IT FURTHER APPEARING that it is in the public interest that the contents of
this Amended Order shall be made public and HIP having cooperated with
administrative supervision and its public dissemination;
NOW, THEREFORE,
IT IS on this 21st day of September, 1998;
ORDERED that:
1. HIP shall remain under administrative supervision pursuant to N.J.S.A.
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17:51A-1, et seq.; and
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2. HIP shall, as directed by the Commissioner, submit a long term business
plan to address its ongoing financial obligations; and
3. Unless the prior approval of the Commissioner or her designee is
authorized, HIP shall cease enrollment of new commercial members and Medicare
and Medicaid recipients, except for (a) the addition of family members of
current members/recipients and (b) new employees and their families under
existing contracts; and
4. HIP shall not accept new members pursuant to any open enrollment
without prior authorization from the Commissioner or administrative supervisor;
and
5. Pursuant to N.J.S.A 17:51A-5, an administrative supervisor compensated
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by HIP, as determined by the Commissioner, has been appointed by the
Commissioner to, inter alia, supervise the day-to-day operations of HIP, perform
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an audit of HIP's operations, mandate such changes as are necessary to comply
with statute or regulation, ensure compliance with the terms of this Order
and/or perform other acts as the Commissioner deems necessary to protect the
interests of HIP members and/or the public; and
6. All documents and records in the possession of HIP, its agents and
representatives shall not be removed, transferred, altered or disposed of, and
7. HIP shall provide to the Commissioner or administrative supervisor
ready access to any and all records, documents and information relating to HIP,
shall fully and completely cooperate with all requests of the Commissioner
and/or administrative supervisor for such records, documents and/or information
and must comply with time frames established by the Commissioner and/or
administrative supervisor for the provision of any requested records, documents
or information; and
8. HIP shall immediately provide the Commissioner or administrative
supervisor with the location and description of and access to all assets of any
kind of HIP; and
9. HIP shall not make any disbursements of funds to any entity, including
but not limited to the payment of claims, without the prior authorization of the
Commissioner or administrative supervisor; and
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<PAGE>
10. HIP, in accordance with the provisions of N.J.S.A. 17:51A-5, cannot,
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without the prior approval of the Commissioner or administrative supervisor.
a. Dispose of, convey or encumber any of its assets or its business
in force;
b. Withdraw funds or securities from any of its banking and/or other
financial accounts;
c. Lend or use as collateral or otherwise encumber any of its funds;
d. Invest any of its funds;
e. Transfer any of its property;
f. Incur any debt, obligation or liability or enter into any new
contract or renew existing contracts or obligations;
g. Merge or consolidate with another company;
h. Approve renewal premiums for commercial members;
i. Enter into any reinsurance contractor treaty;
j. Terminate, surrender, forfeit, convert or lapse any insurance
policy, certificate or contract, except for nonpayment of premiums;
k. Release, pay or refund premium deposits, accrued cash or loan
values, unearned premiums, or other reserves on any insurance policy,
certificate or contract;
l. Make any material change in management or staffing;
m. Increase salaries and benefits of officers, directors, or
employees, or pay bonuses, dividends or make other payments; and
11. HIP shall take such other actions or refrain from taking such other
actions as the Commissioner and/or administrative supervisor deem necessary to
protect the interests of HIP's members and/or the public; and
12. HIP shall submit a report of Modified Advance Prepayment System
("MAPs") payments (which are accounted for by HIP as "prepaid expenses") to the
Department, which lists each HIP provider and hospital by name and the amount
advanced to that provider or hospital. HIP's report shall be submitted no later
than 45 days after the close of each month, starting with HIP's report of its
status as of July 31, 1998. HIP shall secure written confirmation from an
officer of each hospital or provider as to the amount of the advance that is due
as a refund to HIP by contract. Copies of the executed confirmations shall be
timely submitted to the Department.
13. HIP shall amend and submit its insolvency plan to the Commissioner.
HIP's insolvency plan shall outline how HIP plans to assure continuation of
services and benefits to members in case HIP becomes or is determined to be
insolvent and shall include all the requirements of N.J.A.C. 8:38-11.5(a). HIP
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has filed this report; and
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<PAGE>
14. HIP shall remain under administrative supervision until such time as
the Commissioner determines that the conditions giving rise to this supervision
have been sufficiently remedied or additional action is warranted; and
15. If any provision of this Amended order or the application thereof is
for any reason held to be invalid, the remainder of this Amended order and the
applications thereof to other persons or circumstances shall not be affected
thereby; and
16. The Commissioner may at any time issue additional orders or make
applications for additional and different relief; and
17. HIP shall provide a copy of this Amended Order to all directors and
officers of HIP within twenty-four (24) hours of the date of this Amended order;
and
18. HIP shall comply with all terms of this Amended Order immediately,
unless otherwise specified; and
19. To the extent that the terms of this Amended Order conflict with or
differ from the terms of Order A98-134, this Amended order shall and hereby does
supersede the terms of Order A98-134.
If HIP objects to the actions ordered to be taken as set forth herein, it
may request a hearing before the Department within 10 days from the date of
receipt of this order. The request for hearing shall be in writing and shall
include:
a. The name, address and daytime telephone number of a contact person
familiar with this matter;
b. A copy of the Order involved;
c. A statement requesting the hearing; and
d. A concise statement specifying the manner wherein the actions ordered
by the Commissioner would not result in improving the condition of the insurer.
September 21, 1998 /s/ Jaynee LaVecchia
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DATE Jaynee LaVecchia
Acting Commissioner
New Jersey Department of Banking and
Insurance
-6-
<PAGE>
EXHIBIT 99.3
FOR IMMEDIATE RELEASE: Contact:
Paul Frankel, MD, PHD
President, Pinnacle Health Enterprises
(732) 937-7803
PINNACLE HEALTH ENTERPRISES RESPONDS TO ORDER
BY NEW JERSEY DEPARTMENT OF BANKING AND INSURANCE
New Brunswick, New Jersey, September 22, 1998 - Pinnacle Health Enterprises was
notified today of an order by Jaynee LaVecchia, Acting Commissioner of the New
Jersey Department of Banking and Insurance, placing HIP of New Jersey, Inc.,
under public administrative supervision. Ms. LaVecchia explained that this
action was necessary due to the June 30, 1998, filing by HIP-NJ reflecting a
statutory negative net worth of minus $9.5 million.
"We view Acting Commissioner LaVecchia's actions in a positive light," stated
Dr. Paul Frankel, President of Pinnacle. "Pinnacle is now the largest provider-
based delivery system in New Jersey and is comprised of pediatric, internal
medicine, family medicine, OB/GYN, and specialty physicians operating in 24
family practice centers staffed by hundreds of nurses, technicians and
administrative support personnel. In addition, Pinnacle has created a network
of more than 7,000 health care providers in New Jersey to offer optimal choice
to our patients. We are responsible for the health care for over 160,000 New
Jersey citizens in our health centers and another 70,000 people under
relationships with other HMOs an insurers throughout the State. Our primary
concern is that our patients continue receiving high quality and uninterrupted
health care."
More than 130,000 NIP-NJ members have chosen to receive their health care from
physicians working in Pinnacle health centers. Many have relationships of
several years with these physicians and a significant number have medical
conditions requiring frequent monitoring and treatment. "We want to be assured
that our patients will continue to have access to their Pinnacle physicians and
we have expressed to the Department of Health and Human Services our concerns
regarding continuity of care," stated Dr. Frankel.
HIP-NJ has experienced financial difficulties over the last several months and
it owes approximately $20 million to Pinnacle under the 20-year health services
agreement executed in November 1997. This has impacted Pinnacle's ability to
pay providers on a timely basis. Dr. Frankel added, "We have been working
closely with both HIP-NJ and the regulators at the Departments of Banking and
Insurance and Health and Human Services to assist HIP-NJ in overcoming its
present financial challenges. It is important to us that HIP-NJ maintain a
significant position in the New Jersey payor marketplace. We welcome this
cooperative effort between HIP-NJ, the Commissioners and Pinnacle. It is our
sincere hope that HIP-NJ emerges from administrative supervision a stronger
entity.
With our 7,000 doctors, more than 60 affiliated hospitals and 24 comprehensive
medical offices, Pinnacle offers the largest health care network in New Jersey.
The Company's unique, patient-focused delivery system is the heart of health
plans throughout the State that strive to provide their members with a higher
level of personalized health care.
