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FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-22011-A
ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.
(Name of small business issuer in its charter)
FLORIDA 59-2858209
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(State or other jurisdic- (IRS Employer Identi-
tion of incorporation) fication No.)
4900 North Habana Ave., Tampa, Florida 33614
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (813) 870-4230
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $178,809
State the aggregate market value of the voting stock held by
non-affiliates of the registrant.
Approximately $1,315,793 as of February 29, 1996 (estimate
based on book value due to lack of trading market).
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
Common Stock, par value $1.00 per share -- 427 shares as of March 31, 1996
Documents incorporated by reference: None
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ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.
ANNUAL REPORT ON FORM 10-KSB
for the
YEAR ENDED DECEMBER 31, 1995
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . 28
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION. 32
ITEM 7. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
ITEM 10. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 50
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
</TABLE>
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PART I
ITEM 1. BUSINESS.
BACKGROUND
General
St. Joseph's Physician Associates, Inc. ("SJPA" or the "Company") is a
Florida corporation organized on November 20, 1987 to establish, organize, and
operate as an association of qualified physicians, for the purpose of engaging
directly or indirectly in health care related businesses, including in
particular the acquisition of one-half of the voting common stock of St.
Joseph's Physicians - Healthcenter Organization, Inc. (the "PHO") and one-half
of the outstanding common stock of Hospitals' Home Health Care of Hillsborough
County, Inc., d/b/a St. Joseph's Home Health Services ("SJHHS"). The PHO is a
Florida corporation organized in 1987 to engage in health care related
businesses, and was originally wholly owned by St. Joseph's Enterprises, Inc.
("Enterprises"), a Florida not-for-profit corporation affiliated with St.
Joseph's Hospital, Inc. (the "Hospital Corporation"), which operates St.
Joseph's Hospital (the "Hospital") located in Hillsborough County, Florida.
SJHHS provides home health services, including nursing and certain other health
care services in the homes of home-bound patients.
In February 1989, the Company acquired 2,500 shares of the common stock
of the PHO. With the acquisition of such stock by the Company, Enterprises and
the Company became equal owners of the voting common stock of the PHO.
However, Enterprises owns all of the nonvoting preferred stock of the PHO. In
June 1989, the Company purchased 50% of the outstanding common stock of SJHHS.
The PHO is principally a vehicle through which the Company and
Enterprises together indirectly operate certain businesses. The PHO owns 100%
of St. Joseph's Preferred, Inc. ("SJP") and St. Joseph's Health Network, Inc.
("SJHN"). SJP, a Florida corporation, was organized March 13, 1991 to provide
health care services as a "preferred provider" network. SJHN, also a Florida
corporation, was organized May 26, 1995 to develop a network of hospitals and
physicians and to negotiate at-risk contracts with managed care organizations
on behalf of its hospital and physician network. The PHO also is currently the
managing general partner of St. Joseph's Same-Day Surgery Center, Ltd. (the
"Same-Day Surgery Center Partnership"), a Florida limited partnership which
operates an ambulatory care center.
An important facet of ownership of stock in the Company is that only
stockholders in the Company are permitted to participate in SJP's preferred
provider network, to invest in the Same Day Surgery Center Partnership or to
participate in SJHN's provider network (although, if a need is identified for
an additional physician-provider that cannot be filled by an SJPA stockholder,
then SJHN has the discretion to allow a non-stockholder physician to
participate in its network).
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Organization and Operations -- General
As currently operated, the primary function of the Company is to
provide a vehicle whereby stockholders of the Company can, as a group, (1)
indirectly participate (along with Enterprises) in the decision making
processes affecting SJP, SJHN, the Same-Day Surgery Center Partnership, SJHHS,
and other ventures in which the Company may have a direct or indirect interest,
(2) realize economic benefits from the operations of such ventures; and (3)
consider and evaluate the feasibility of other ventures relating to the
provision of health care services and of matters affecting the medical
community as a whole and the Company and its stockholders in particular.
However, as to the PHO and ventures in which only an indirect interest is held
through the PHO, the stockholders of the Company have only limited managerial
control because, as a group, they can affect only the selection of one half of
the directors of the PHO, SJHHS, SJP and SJHN. The Company's stockholders
cannot directly participate in the management of the PHO, SJP, SJHN, the Same
Day Surgery Center Partnership, or SJHHS, nor can they substantially
participate in the decision making process affecting the PHO, SJP, SJHN, the
Same Day Surgery Center Partnership, or SJHHS.
In addition to its investment in the PHO, the Company has two other
investments. It owns five, of a total of 40, limited partner units in the
Same-Day Surgery Center Partnership. Seven such units were purchased on
January 1, 1991 for $4,000 in cash plus $10,000 in contingent promissory notes
per unit, for a total of $28,000 in cash and $70,000 in contingent promissory
notes. The Company sold two of such units in March 1991 for $22,000 in cash
with the release of $10,000 in contingent promissory notes per unit, for a
total of $44,000 in cash and the release of $20,000 in contingent promissory
notes. (The contingent promissory notes were payable by their terms in full on
September 30, 1992, unless the Managing General Partner, in its discretion,
chose to waive such obligation. On September 9, 1992, the Board of Directors
of the PHO, as Managing General Partner of the Same Day Surgery Center
Partnership, decided to waive the obligations because funds were not needed).
The Company also owns 50% of the outstanding common stock of SJHHS, purchased
for $40,000 in June 1989.
The PHO, SJP, SJHN, the Same Day Surgery Center Partnership, and SJHHS
are collectively referred to herein as the "Partially Owned Operations." The
diagram below illustrates the structural relationship between the Company and
the Partially Owned Operations.
[Flow chart diagram showing the ownership affiliations
of the Company, the PHO, SJP, SJHN, the Same Day
Surgery Center Partnership, and SJHHS]
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The Company's Principal Ventures -- the PHO and SJHHS
Ownership Interest in the PHO. The authorized capital stock of the PHO
consists of 5,000 shares of voting common stock, par value $1.00 per share, and
6,250 shares of nonvoting (except as required by law) preferred stock, par
value $20.00 per share. The Company and Enterprises each own 2,500 shares of
the common stock of the PHO constituting all of the outstanding common stock of
the PHO, and Enterprises owns all 6,250 shares of the preferred stock of the
PHO. The PHO preferred stock provides a preferred cumulative dividend of 6%
per annum ($1.20 per share, or $7,500 in the aggregate for all outstanding
shares of preferred stock) and also participates on a per share basis in
dividends declared with respect to the common stock. The PHO preferred stock
has a preference on liquidation of the PHO. Enterprises has the right to
require the PHO to redeem its preferred stock at any time after July 31, 1992
upon 30 days notice, at par plus dividends owing with respect thereto, on the
sole condition that funds be legally available therefor. Should such
redemption occur, the Company and Enterprises each would then own a 50%
interest in the PHO.
PHO's Ownership Interest in SJP. The PHO owns 100% of St. Joseph's
Preferred, Inc., a Florida corporation ("SJP"), organized to provide health
care services through a "preferred provider" network.
SJP has signed contracts with the Hospital Corporation, the Same-Day
Surgery Center Partnership, the Diagnostic Center Partnership, SJHHS, and
approximately 400 SJPA physician stockholders (collectively referred to as the
"PPO Providers"). These PPO Providers agree to accept discounted fees as
payment in full for services provided to any patient covered under a contract
between SJP and an employer, employer group, insurance carrier or other payor
pursuant to which such payors engage the services of SJP's preferred provider
network (each a "PPO Contract"). These PPO Contracts require that the health
care benefit plan of the contracting entity have a design feature which
provides some economic incentive to the patient to use a PPO Provider (versus a
non-PPO Provider).
SJP has signed a Network Linking Agreement ("Network Linking
Agreement") with BayCare Health Network, Inc. (formerly known as CareFirst
Health Network, Inc. and, before that, as SunHealth Care Plans - Gulf Coast,
Inc.) ("BayCare"), which allows SJP to exclusively offer its services to
clients of BayCare requiring access to health care providers in Hillsborough
County, Florida. SJP has no staff and relies on BayCare to perform all
operational and marketing functions for SJP. BayCare currently is owned by
Enterprises and by University Community Hospital, Inc. and South Florida
Baptist Hospital, two not-for-profit hospitals located in Hillsborough County,
Florida, and by St. Anthony's Hospital, Inc., Morton F. Plant Hospital
Association, Inc., Bayfront Medical Center, Inc. and The Trustees of Mease
Hospital, Inc., d/b/a Mease Health Care, four not-for-profit hospitals located
in Pinellas County, Florida.
All current PPO Contracts are held by BayCare, and access to the PPO
Providers is through the Network Linking Agreement. Currently BayCare has 70
contracts covering approximately 37,200 enrolled employees, to provide standard
preferred provider, primary care preferred provider (a "gatekeeper") and
various insured health care products. These include contracts with the
Hospital Corporation and the Same-Day Surgery Center Partnership covering
approximately 3,600 employees.
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In addition, BayCare has contracts with other managed care entities
through which the PPO Providers are made available to provide services to the
approximately 29,000 enrolled employees of these other entities (21,250 of such
employees being under hospital services only contracts).
The bylaws of BayCare provide that each hospital-stockholder is
entitled to appoint two physicians to seats on the Board of Directors of
BayCare (along with two administrators of the hospital-stockholder). Prior to
February 1995, the bylaws of BayCare also had included director quorum and
voting requirements which effectively provided that certain actions could not
be taken by BayCare without the affirmative vote of the directors of BayCare
that were designated by SJPA. However, the bylaws of BayCare were modified by
the Board of Directors of BayCare in February 1995 so as to retain the director
quorum requirements, but to replace the director voting requirements with
provisions that require simply a two-thirds majority vote of the directors
present at the meeting, thus eliminating the requirement that certain actions
could not be taken by BayCare without the affirmative vote of the directors of
BayCare that are designated by SJPA. There can be no assurance that there will
be no additional changes to the bylaws of BayCare that would operate to further
limit the impact that the directors of BayCare that are designated by SJPA
would have on the BayCare Board of Directors.
PHO's Ownership Interest in SJHN. The PHO also owns 100% of
St. Joseph's Health Network, Inc., a Florida corporation ("SJHN"). SJHN, a
physician-hospital organization, was incorporated on May 26, 1995 for the
purposes of developing a network of hospitals and physicians (collectively
referred to as the "SJHN Providers") and negotiating at-risk (i.e., capitation)
contracts with managed care organizations on behalf of the SJHN Providers to
provide high quality, competitively priced health care services for persons
residing or employed in the Hillsborough County, Florida area. The network of
providers comprising the SJHN Providers will be separate and distinct from
SJP's network comprising the PPO Providers (although many of the SJHN Providers
also are PPO Providers). Because SJHN will concentrate its efforts on
negotiating at-risk contracts (as opposed to the discounted fee-for-service
contracts under which the PPO Providers provide services, without assuming
direct risk), there will be fewer physicians in SJHN's network, and the ratio
of primary care (i.e., pediatrics, family and general internal medicine and
OB-Gyn) physicians to specialist physicians will be more strictly controlled.
To date, SJHN has been engaged in the process of laying the
administrative groundwork to enable it to proceed with its purpose and thus has
not negotiated any such at-risk contracts. It is anticipated that before the
end of 1996, SJHN will be able to complete these administrative matters,
including the credentialling process with regard to the physicians who will be
SJHN Providers, and SJHN then will commence negotiation of capitated contracts.
The PHO provided the initial funding for the development of SJHN.
However, SJHN may require additional capital and it is anticipated that the
PHO, as well as the Company, may be called upon to provide a portion of the
funding for the balance of SJHN's initial capitalization.
PHO's Ownership Interest in the Same-Day Surgery Center
Partnership. The PHO also owns a four percent (4%) partnership interest in the
Same-Day Surgery Center Partnership, and serves as managing general partner of
the Same-Day Surgery Center Partnership. Accordingly, the Company, through its
ownership of the PHO, beneficially owns an eighty-eight one-hundredths
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percent (0.88%) interest in the Same-Day Surgery Center Partnership. However,
the Company's participation in the net income of the PHO is determined after
deduction for accumulated PHO preferred stock dividends, and, thus, any cash
distributed by the Same-Day Surgery Center Partnership to the PHO is applied
first to accumulated unpaid dividends on the PHO preferred stock.
As managing general partner of the Same-Day Surgery Center Partnership,
the PHO is not guaranteed any management fees or other compensation for its
services (although it is entitled to reimbursement for its out-of-pocket
expenses). The PHO is entitled to enter into contracts with, and to
compensate, anyone, including itself or its affiliates, for services rendered
to the Same-Day Surgery Center Partnership. Thus, there is no guarantee to the
PHO of any economic benefits other than the benefits of being a four percent
(4%) partner in the Same-Day Surgery Center Partnership.
Ownership Interest in SJHHS. SJPA owns 50% (4,000 shares) of the
common stock of Hospitals' Home Health Care of Hillsborough County, Inc.
("SJHHS"). SJHHS primarily provides medical services in the homes of patients.
These services include nursing services by registered nurses ("RNs") and
licensed practical nurses ("LPNs"), personal care services, custodial and
companion services by home health aides, and other ancillary services, such as
infusion therapy.
Future Ventures
The Company, along with the PHO and, at times, affiliates of
Enterprises, continually investigates other health care related ventures.
Pursuant to an agreement among the Company, Enterprises and the PHO
(the "PHO Agreement," as described below), the Company cannot undertake or
participate in certain specified health care related ventures without first
offering to the PHO the right to form, organize and develop the venture. If
the PHO fails to accept the offer or to proceed with respect to the venture in
the manner and within the time required by the PHO Agreement, then the PHO will
lose all rights with respect to the venture, and the Company will be free to
proceed with respect to the venture described in the offer. Thus, there is no
assurance that any venture will be undertaken even if believed to be feasible;
and, if undertaken, there is no assurance that any such venture will provide
any economic benefit to the Company. See "ST. JOSEPH'S
PHYSICIANS-HEALTHCENTER ORGANIZATION, INC. - The PHO Agreement, Right of First
Refusal" in this Item 1 for further discussion.
Government Regulation
The activities of the Partially Owned Operations are subject to strict
government regulation which may indirectly impact the Company and the
stockholders of the Company.
Certain of the Partially Owned Operations currently are subject to
state licensure requirements. While such entities have at all relevant times
satisfied such requirements, a failure to do so for any reason would preclude
such entities from operating and therefore would have a material adverse effect
upon the Company. The Company is not aware of any facts or circumstances which
would prevent such entities from complying with all licensure and other
requirements currently in effect.
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Some or all of the Partially Owned Operations are subject to the rules
and regulations of the federal Medicare and Medicaid Program, including the
applicable fraud and abuse rules, and the rules prohibiting a physician from
referring a Medicare or Medicaid patient for certain designated health services
to an entity in which the physician is an investor or has a financial interest.
In 1992, the Florida Legislature passed legislation (known as the
"Patient Self-Referral Act of 1992"), which became effective on October 1,
1994, that directly affects some of the Partially Owned Operations and the
Company. On April 2, 1993, the Florida Legislature passed comprehensive health
care reform legislation that has impacted and could continue to substantially
affect the Partially Owned Operations and the Company.
Also, several bills currently are pending in the Florida legislature
and in United States Congress that could change or expand the prohibitions on
physicians' ability to refer patients to entities in which they are investors.
If implemented, one or all of these legislative proposals could substantially
affect some or all of the Partially Owned Operations and the Company. There is
no assurance that these and additional future legislation or regulations also
will not have a materially adverse effect upon the Company.
For a more complete discussion of the regulatory environment, see the
discussion under the heading "Special Considerations" in Item 6 of this Annual
Report on Form 10-KSB (this "Report"), which provisions are hereby incorporated
by reference into the discussion under this Item 1.
Third Party Reimbursement
Certain of the Partially Owned Operations are subject to accreditation
requirements in order to facilitate reimbursement from third party payors,
including Medicare and Medicaid. To date, such entities have met all such
requirements as are material, and the Company is not aware of any facts or
circumstances which would prevent such entities from complying with such
requirements. However, failure to so comply would adversely affect the ability
of such entities to be reimbursed for services provided, and therefore, would
adversely affect the Company.
It can be anticipated that federal and state governmental agencies, as
well as insurance companies and other third party payors, will continue their
efforts to contain the cost of medical care. There can be no assurance that
such efforts will not substantially curtail the revenues of the Partially Owned
Operations, and therefore, of the Company.
Competition
While the Company does not directly compete with any business, the
Partially Owned Operations are subject to competition which may impact upon the
Company.
The health care industry operates in a competitive environment.
In order to maintain market share and replace decreasing revenue sources,
health care institutions and physicians have engaged in various means to
diversify their services.
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Three areas believed by the Company to be major targets of such
diversification are the areas of managed care operations, ambulatory care and
home health care, the respective businesses of SJP, SJHN, the Same-Day Surgery
Center Partnership and SJHHS. Public and private efforts to shift care to less
costly alternatives, as well as growing consumerism and competition, have
dictated a need to provide efficiency and comfort to patients usually not
available within the traditional hospital. In addition, the Medicare program's
prospective payment system and reduced inpatient stays are causing intense
competition to offer outpatient services at alternative sites.
SJP competes and SJHN will compete with a myriad of managed care
businesses, including health maintenance organizations (HMOs) and "independent
practice associations" that market their provider services to HMOs or
independently as "preferred provider organizations" (PPOs) or "exclusive
provider organizations" (EPOs) to insurance carriers or directly to employers
and other payors.
The Same-Day Surgery Center Partnership competes with three similar
facilities in Hillsborough County. One such facility is within a short
distance of the partnership's site and offers most of the same services. That
center is currently owned by a group of physicians. The other similar
facilities are located more than ten miles away. Also, the Same-Day Surgery
Center Partnership competes with a nearby outpatient ophthalmic surgery
facility. In addition to competition from other existing and future free
standing centers, the Same-Day Surgery Center Partnership faces competition
from hospital-based programs, including programs at the Hospital, one of which
is connected to the space occupied by the Same-Day Surgery Center Facility, and
programs at St. Joseph's Women's Hospital. Also, other area hospitals have
constructed or may construct separate outpatient surgery facilities to take
advantage of the growing ambulatory surgery market.
Another area of the expanding ambulatory care market is the delivery of
outpatient services in physicians' offices. Thus, the Same-Day Surgery Center
Partnership also competes with physicians' offices located in the service area
for the Same-Day Surgery Center Partnership.
SJHHS competes with a variety of home health care providers. In recent
years, some large nationwide providers of such services have come to the
forefront, some of which compete strongly on the basis of price.
Conflicts of Interest
The stockholders of the Company, health care related businesses engaged
directly or indirectly by the Company, and employees of such health care
related businesses are subject to potential conflicts of interests as a result
of associations with and/or ownership interests in other facilities that may be
considered to be in competition with the health care related businesses engaged
in directly or indirectly by the Company.
Employees
On October 1, 1991, the Company engaged Charles E. Cernuda, M.D., also
a director of the Company, as a part-time Executive Director to handle various
administrative matters for the Company. The Executive Director position is not
an officer position with the Company. Dr. Cernuda
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is paid $40,000 annually for his services in such capacity. In an agreement
between the Company, the PHO and Enterprises, the PHO had agreed to reimburse
SJPA for all compensation paid to SJPA's Executive Director. However,
effective January 1, 1996, the funding agreement has been terminated and, as a
result, the Company will need to fund the Executive Director's compensation
from other revenue sources.
ST. JOSEPH'S PHYSICIANS - HEALTHCENTER ORGANIZATION, INC.
Nature of SJPA Interest
The Company owns 50% (2,500 shares) of the common stock of St. Joseph's
Physicians - Healthcenter Organization, Inc. (the "PHO"). The remaining 50%
(2,500 shares) of the common stock is held by St. Joseph's Enterprises, Inc.
("Enterprises"), which also owns 100% of the PHO's preferred stock (6,250
shares). The preferred stock has a par value of $20 per share and carries the
right to receive annual dividends amounting to six percent (6%) of the par
value of such shares, accumulating from year to year until paid in full, prior
to the payment of any dividends with respect to the common stock. After the
cumulative preferred dividends have been paid, the PHO may pay dividends to be
shared equally, on a per share basis, by all shares of capital stock regardless
of class. Thus, after preferred dividends have been paid, the Company receives
22.22% of any further dividends. However, no dividends have been paid by the
PHO since the Company became a stockholder in the PHO.
At any time after July 31, 1992, Enterprises has the right to demand
that the preferred stock be redeemed by the PHO for par value plus cumulative
unpaid dividends. As of March 31, 1996, no demand for such redemption has been
made, and the Company is not aware of any intent on the part of Enterprises to
make such a demand at any time in the near future. However, should such
redemption ever occur, the Company and Enterprises each would then own a 50%
interest in the PHO.
Business
The PHO was organized for the purpose of engaging directly or
indirectly in various health care related businesses. The PHO is the
vehicle through which the Company and Enterprises together indirectly own and
operate certain businesses. The PHO owns 100% of SJP, a Florida corporation
organized on March 13, 1991 to provide health care services through a
"preferred provider" network. The PHO also owns 100% of SJHN, a Florida
corporation organized on May 26, 1995 to contract with managed care entities on
a risk bearing basis. The PHO is currently the managing general partner of,
and in that respect owns a four percent (4%) interest in the Same-Day Surgery
Center Partnership, a Florida limited partnership involving an ambulatory care
center. In addition, the PHO owns one limited partnership unit (out of a total
of 40 units) in the Same-Day Surgery Center Partnership, but may resell that
unit to a qualified limited partner.
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The PHO Agreement
General. On February 24, 1988, the Company, Enterprises and the PHO
entered into a written agreement setting forth various aspects of the
organization and operation of the PHO (the "PHO Agreement"). It was pursuant
to the PHO Agreement that the Company acquired one-half of the authorized
capital common stock of the PHO for $50,000. Enterprises paid $50,000 for its
common stock in the PHO and $125,000 for its preferred stock.
Management. The PHO Agreement prescribes a Board of Directors for the
PHO composed of ten (10) persons, five (5) of whom are selected by the
Company's Board of Directors and five (5) of whom are selected by Enterprises.
Current members of the Board of Directors of the PHO are:
<TABLE>
<CAPTION>
Company's Representatives(1) Enterprises' Representatives
------------------------- ----------------------------
<S> <C>
Thomas Mawn, M.D. John Biebel
Dennis Agliano, M.D. Isaac Mallah
Charles Cernuda, M.D. Gary Chawk
Andrew G. Boyer, M.D. Gilbert Pitisci, M.D.
Norman Castellano, M.D. Charles Scott
</TABLE>
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(1) See the discussion under Item 9 of this Report for information
regarding the Company's representatives, which discussion is hereby
incorporated by reference into the discussion under this Item 1. It
should be noted that certain of the Company's representatives may
change as a result of elections scheduled to be held in April 1996.
John Biebel, age 52, has been the President and Chief Executive Officer
of St. Joseph's/St. Anthony's Health System since 1994 and of St. Joseph's
Health Care Center, Inc. since 1993 and was the Executive Vice President of St.
Joseph's Health Care Center, Inc. from 1983 to 1993, President of the Hospital
Corporation from 1990 to 1994, President of Enterprises since 1993, Executive
Vice President of Enterprises from 1986 to 1993, a Director of the PHO since
1986, President of SJHHS from 1992 to 1994 and Chairman from 1994 to 1995,
President of SJP from 1991 to 1994 and a Director of BayCare since 1991.
Isaac Mallah, age 47, has been Executive Vice President of St.
Joseph's/St. Anthony's Health System since 1994 and Executive Vice President
since 1993, Vice President from 1983 to 1993, and Chief Operating Officer from
1989 to 1993 of St. Joseph's Health Care Center, Inc., Executive Vice President
since 1993 and a Director since 1986 of Enterprises, Secretary/Treasurer and
Director of the PHO since 1986, Secretary/Treasurer and Director of SJHHS and
SJP since 1991, Vice Chairman and Director of BayCare since 1991 and Treasurer
and Director of SJHN since 1995.
Gary Chawk, age 38, has been Senior Vice President of St. Joseph's/St.
Anthony's Health System since 1994 and of St. Joseph's Health Care Center, Inc.
since 1993, Chief Financial Officer and Treasurer of St. Joseph's Health Care
Center, Inc. and St. Joseph's Hospital, Inc. since 1986, Treasurer and a
Director of Enterprises since 1988, a Director of the PHO since 1993 and a
director of SJHN since 1995.
9
<PAGE> 12
Gilbert Pitisci, M.D., age 52, has been Senior Vice President since
1993 and was the Vice President of Medical Staff Affairs of the Hospital
Corporation from 1987 to 1993, President of the PHO from 1994 to 1995 and
Chairman since 1995, a Director of the PHO since 1989, a Director of SJP since
1994, Chairman from 1994 to 1995 and President since 1995, Secretary and
Director of Enterprises since 1993, and a Director and Vice Chairman of SJHN
since 1995. Prior to his position at St. Joseph's Hospital, Dr. Pitisci was
engaged in the private practice of medicine in Tampa, Florida, specializing in
pediatrics, since 1974.
Charles Scott, age 45, is President of the Hospital Corporation, was
Executive Vice President of Hospital Operations from 1993 to 1994, Chief
Operating Officer/Administrator from 1988 to 1993, and Vice President from 1984
to 1988, Executive Vice President and a Director of Enterprises since 1993, a
Director of SJHHS since 1993, President of SJHHS since 1995, a Director of the
PHO since 1993, and a Director of SJHN since 1995.
The PHO Agreement requires that the president of the Hospital
Corporation shall at all times serve on the PHO Board of Directors as one of
the designees of Enterprises. In no event can an attorney or retired or former
attorney at any time serve on the Board of Directors of the PHO.
Vacancies occurring among the Company's representatives on the PHO
Board of Directors are filled by the Company's Board of Directors. Vacancies
occurring among Enterprises' representatives will be filled by Enterprises'
Board of Directors.
For there to be a quorum at meetings of the PHO Board of Directors,
there must be present at least a majority of the directors representing the
Company and a majority of the directors representing Enterprises. When a
quorum is present, the act of a majority of the directors representing the
Company and a majority of the directors representing Enterprises will be the
act of the Board of Directors of the PHO.
The Bylaws of the Company contain a number of provisions governing the
electing of directors to the PHO Board and the manner in which the Company's
representatives on such Board shall act.
Officers of the PHO must be members of the PHO Board of Directors, and
the Company and Enterprises select an equal number of such officers.
Enterprises' Affiliates Bound By PHO Agreement. Pursuant to the PHO
Agreement, Enterprises is required to cause all of its present and future
affiliates to be bound by all of the agreements between Enterprises and the PHO
and/or the Company. The term "affiliates" of Enterprises is defined to include
all present and future subsidiaries of St. Joseph's Health Care Center, Inc.,
or its successor or successors, and all other present and future affiliated and
related entities and divisions of Enterprises, engaged directly or indirectly
in the delivery of health care services, including without limitation the
Hospital Corporation, the division of an affiliate of the Hospital known as
"HealthLine," and their respective present and future affiliated and related
entities and divisions.
Right of First Refusal. The PHO Agreement by its terms currently
prohibits Enterprises or any affiliate (as defined in the PHO Agreement) of
Enterprises, and the Company or any group comprised of ten percent (10%) or
more of the Company's stockholders, (individually or collectively,
10
<PAGE> 13
the "Offeror") from forming, organizing or developing, or accepting any offer
to form, organize, develop, join, invest or otherwise participate in any future
health care related venture (as defined below) without first offering to the
PHO the right to form, organize or develop the same or similar health care
related venture (the "Offer"). The PHO will have thirty (30) days after
receipt of an Offer within which to accept the Offer on the terms and
conditions specified therein.
In the event the PHO accepts an Offer, then the Offeror is prohibited
from forming, organizing, developing, joining, investing or otherwise
participating in the proposed venture. However, an exception is provided for
an Offer by a group of physicians. Each member of the group of physicians will
be entitled to and will have the option to purchase an equitable interest in
the same or similar health care related venture of the PHO.
The "equitable interest" will be determined by the PHO Board of
Directors on a case-by-case basis. In any case-by-case determination, the
equitable interest offered to any physician making an Offer may not be equal to
the equitable interest offered to any other physician making the Offer, but
will be at least equal to the minimum interest which is offered by the PHO to
any other potential physician investor.
The PHO is required to use reasonable efforts to undertake the venture
within sixty (60) days of the PHO's acceptance of the Offer. If the PHO fails
to accept the Offer or to proceed with respect to the venture in the manner and
within the time required by the PHO Agreement, then the PHO will lose all
rights with respect to the venture, and the Offeror will be free to proceed
with respect to the venture described in the Offer.
Whoever proceeds with respect to a venture (whether it be the PHO or
the Offeror) is prohibited from making any substantial changes in the venture
as described in the Offer without obtaining the prior written approval of the
other party.
If either the PHO or the Offeror proceeds with respect to a venture in
violation of the provisions of the PHO Agreement, then the other party will
have the right within one (1) year after it becomes aware of such violation to
purchase the venture at the lower of the cost or appraised value of the
venture.
Except as provided in the following paragraph, the term "health care
related venture" is defined to include any venture that is related to the
delivery of health care services, including without limitation any type of
health care clinic, the rental of any property on the Hospital's campus for
physicians' offices or for any type of health care clinic, any expansion of the
services presently offered by a division of an affiliate of the Hospital known
as "HealthLine," any venture that is related to health care services affecting
non-acute inpatients (such as the establishment of a retirement living/nursing
home facility) and/or outpatients (such as the establishment of an intermediate
care facility or surgical ambulatory care center), any venture that is related
to health care and affects the reimbursement mechanism by which the Hospital
and the Company receive payment for services (such as the establishment of a
provider panel to contract with prepaid health plans, including HMOs or PPOs),
a medical office building, a convalescent care or diagnostic facility, durable
medical equipment services, outpatient or home oxygen/respiratory therapy,
outpatient clinical laboratory or
11
<PAGE> 14
imaging services and all opportunities for the formation of HMOs, PPOs, PHOs
and all other physician-hospital organizations or entities.
However, the term "health care related venture" is defined to exclude,
without limitation, any venture relating to health care services affecting
acute inpatients (such as the purchase of St. Joseph's Women's Hospital), any
venture relating to the care delivered in private offices of the Company's
stockholders and any venture relating to instruments, equipment (with the
exception of diagnostic imaging equipment in connection with a venture
involving the delivery of health care services, such as a diagnostic imaging
center) and devices used in the delivery of health care services or ancillary
thereto. There are certain arrangements, specified therein, to which the right
of first refusal provision in the PHO Agreement does not apply.
Although the PHO Agreement by its terms requires the stockholders of
the Company to make the Offer described above, because such stockholders are
not parties to the PHO Agreement, the issue has been raised as to whether
stockholders are bound by such requirement. However, the Company notes that
all stockholders were aware of such requirement prior to their purchase of
stock and, although there can be no assurance of success, the Company would
seek to enforce such requirement against a non-complying stockholder. Further,
the Company would intend to avail itself of its right to repurchase the Common
Stock in the Company owned by any stockholder who failed to comply with such
provision. Any such repurchase would make the stockholder ineligible to
participate in SJP's preferred provider network and in SJHN's managed care
arrangements and ineligible to continue any ownership interest in the Same-Day
Surgery Center Partnership.
Notwithstanding the foregoing, the PHO has not yet decided upon whether
to involve itself in any businesses other than SJP, SJHN and the Same-Day
Surgery Center Partnership, and the PHO may never decide to involve itself in
any other business. Other situations have arisen during the past year to which
the Right of First Refusal might apply (e.g., the purchase of primary care
medical practices by Enterprises or its affiliates). The Company and
Enterprises have expressed differing views concerning these situations, and
discussions are ongoing with respect to the parameters of the Right of First
Refusal and the exceptions thereto. In January 1996, Enterprises proposed that
the Right of First Refusal be deleted from the PHO Agreement and replaced with
a memorandum of understanding pursuant to which the Company and Enterprises
would strive to communicate with each other openly regarding possible health
care related ventures and would consider requests from the other party to
participate in possible health care related ventures (but with no obligation to
do so). The Company has not yet determined how it will respond to this
proposal by Enterprises. There can be no assurance that the Company and
Enterprises will be able to reach a mutually satisfactory resolution concerning
the parameters and application of the Right of First Refusal.
Stock Transfer Restriction; Buy/Sell Option. The PHO Agreement also
provides that since February 24, 1993 (which is the date five (5) years from
the date of the execution of the PHO Agreement) either the Company or
Enterprises (the "Offeror") may give written notice (the "Notice") to the other
(the "Recipient") that the Offeror desires to purchase the entire interest of
the Recipient in the PHO, or that the Offeror desires to sell to the Recipient
the Offeror's interest in the PHO. The Recipient will have one hundred and
eighty (180) days from the date the Notice is received to accept the offer or
to counteroffer by reversing the offer set forth in the Notice. If the
Recipient does not respond within the 180 day period, then the Recipient will
be deemed to have accepted the offer. If
12
<PAGE> 15
a counteroffer is made, then the Offeror will be deemed to have accepted the
counteroffer on the date of receipt.
In the event either party offers to purchase the interest of the other
party, the purchase price is required to be at least equal to the original
capital contribution and any additional capital contributions by the Recipient,
plus a return from the date of the contribution at the rate of six percent (6%)
per annum, compounded annually.
In the event either party offers to sell its interest to the other
party, the selling price will be determined by the party making the offer to
sell.
As of March 31, 1996, no Notice has been given by either party and the
Company is not presently aware of any intent on the part of either party to
give such a Notice.
Except for the buy/sell option, the Company and Enterprises each are
prohibited from attempting, directly or indirectly, to sell, assign, transfer,
mortgage, encumber, pledge, or otherwise deal with or dispose of all or any
part of their respective shares of stock in the PHO without first obtaining the
written consent of the other party.
Financial Matters
Results of Operations. The PHO accounts for its 4% investment in the
Same-Day Surgery Center Partnership under the equity method due to the PHO's
ability to exercise significant influence over the limited partnership. The
PHO's net gain or loss resulting from its proportionate share of the
partnership's revenue and expenses for the year is included in its statement of
income, included with this Report.
For the year ended December 31, 1995, the PHO's equity in earnings of
limited partnerships was approximately $104,600. The annual level of activity
from the Same-Day Surgery Center Partnership has continued during the first two
months of 1996. While there can be no assurance that the level of activity for
the Same-Day Surgery Center Partnership will continue, the Company is not aware
of any reason that such level of activity should change in the immediate
future, although the Company cannot predict the impact of certain regulatory
matters. See "Special Considerations -- Government Regulation" under Item 6 of
this Report, which discussion is incorporated by reference into the discussion
under this Item 1.
The PHO earned $27,976 in 1995 from its holding of one limited
partnership unit in the Same-Day Surgery Center Partnership. Income is
recorded at the time distributions are declared.
Investment income consists of distributions from certain of the
Partially Owned Operations and interest on bank accounts.
Upon the sale in 1994 of the PHO's interest in St. Joseph's Diagnostic
Center, Ltd. (the "Diagnostic Center Partnership") an amount equal to
approximately $80,000, which represents the PHOs share of the deferred portion
of the consideration paid for the purchase of the PHO's
13
<PAGE> 16
Diagnostic Center Partnership interest, was deposited into an indemnification
escrow fund at the closing of the sale of the Diagnostic Center Partnership
interests. The amount deposited into the indemnification fund with respect to
the PHO's Diagnostic Center Partnership interest is available, together with
all other similar monies deposited therein, to indemnify the purchaser of the
interests in the Diagnostic Center Partnership for any amounts that the
Diagnostic Center Partnership may be required to pay with respect to services
rendered from July 1, 1992 thru the closing date of the sale (i.e. September
30, 1994) if Florida's legislation concerning limiting fee schedules were to be
upheld as constitutional and the Florida administrative agency chooses to
enforce the legislation retroactively to July 1, 1992 or the Diagnostic Center
is required by appropriate court order retroactively back to July 1, 1992 to
refund amounts collected by it in excess of the fee limits contained in the
legislation. See "Special Considerations -- Government Regulation" under Item
6 of this Report, which discussion is incorporated by reference into the
discussion under this Item 1. The $80,000 which is represented by amounts on
deposit in the indemnification escrow fund is reflected on the PHO's
consolidated balance sheet as a long term receivable.
The PHO's cash balances decreased significantly during 1995 as a result
of significant expenditures relating to the evaluation and implementation of
new ventures. Cash balances are not expected to fluctuate significantly in
1996.
General and administrative expenses (excluding the Executive Director
funding discussed below) primarily consist of internal accounting costs and
director and officer liability insurance premiums. Professional fees expense
consists of costs associated with the evaluation of and input with respect to
new and proposed legislation and business ventures, expenditures related to
consulting, legal and actuarial services related to implementation of new
ventures, and audit fees. The increase in professional fees expense was
primarily a result of costs associated with the development of SJHN. At the
end of 1994, significant obligations had accrued for professional services. By
the end of 1995, payments for most professional services had been made, thus
accounting for the decrease in accounts payable and accrued expenses. The
Company expects that in 1996 and future years, the PHO will continue to make
more in depth investigations of new and proposed legislation and possible new
ventures. However, it is not anticipated that any new ventures will be
implemented in 1996. As a consequence, the professional fees expense is likely
to decrease in 1996. Other general and administrative costs should also remain
relatively constant.
Effective October 1, 1991, the PHO began providing funds to the Company
to reimburse the Company for compensation amounts paid by the Company to the
Company's Executive Director. The agreement provided for payment by the PHO to
the Company of $40,000 annually. This Agreement was terminated effective
January 1, 1996. Therefore, this portion of general and administrative
expenses will decrease in 1996 and thereafter.
The decrease in the provision for income taxes is primarily a result of
having to take into account in 1994 the income taxes on the gain from the sale
of the PHO's interest in the Diagnostic Center Partnership coupled with the net
loss incurred by the PHO in 1995 as a result of the increased expenditures
relating to the implementation of SJHN.
Liquidity. As of December 31, 1995, the PHO had cash balances of
$216,789, representing approximately 35% of the PHO's total assets. The PHO
generally receives quarterly distributions
14
<PAGE> 17
from the Same-Day Surgery Center Partnership. The Same-Day Surgery Center
Partnership makes quarterly distributions in amounts equal to the amount by
which the Same-Day Surgery Center Partnership's cash balances exceed the amount
of the cash reserves estimated as being needed to satisfy the Partnership's
cash needs over a 45 day period. In addition, the PHO earns interest income on
its cash balances. For the near future, management believes it likely that
these cash inflows together with the existing cash balances will continue to
provide sufficient funds for the PHO to pay its operating expenses, which
consist primarily of legal, accounting, insurance, tax costs and investigations
and funding of new ventures. No dividends are expected from SJP in its initial
years of operation. It is anticipated that the PHO may provide additional
capital to SJHN, although the amount of such capital has not been determined.
It is expected, however, that the amount of the PHO's contribution to SJHN, if
any, would be determined taking into account the PHO's then available liquidity
and its other anticipated cash needs.
Capital Resources. As the managing general partner of the Same-Day
Surgery Center Partnership, the PHO is contingently liable for all liabilities
of the partnership. As a former managing general partner of the Diagnostic
Center Partnership, the PHO remains contingently liable for liabilities of the
Diagnostic Center Partnership arising prior to sale by the PHO of its interest.
As of December 31, 1995, the Same-Day Surgery Center Partnership had $2,569,435
in current assets in excess of current liabilities and long-term debt and the
Diagnostic Center Partnership had $3,388,715 in current assets in excess of
current liabilities and long-term debt. In addition, all long-term debt of the
partnerships is collateralized by inventory, accounts receivable and medical
equipment.
Also, as the managing general partner of the Same-Day Surgery Center
Partnership, the PHO has determined that it will seek to cause the Same-Day
Surgery Center Partnership to finance, through long term indebtedness, most, if
not all, of its future acquisitions of new and replacement equipment.
Other than as indicated above, the PHO has no debt and it is not
anticipated that any other debt will be incurred.
Impact on SJPA
The Company accounts for its 50% common stock investment in the PHO on
the equity method. The Company's earnings approximate 22.22% of the PHO's net
income after preferred dividends.
ST. JOSEPH'S PREFERRED, INC.
Nature of SJPA Interest
The PHO owns 100% of the outstanding stock of St. Joseph's Preferred,
Inc. ("SJP"). This corporation was organized by the PHO on March 13, 1991, and
initially capitalized with $10,000.
15
<PAGE> 18
Type of Business
SJP has signed contracts with the Hospital Corporation, the Same Day
Surgery Center Partnership, SJHHS, and approximately 400 SJPA physician
stockholders (collectively referred to as the "PPO Providers"). These PPO
Providers have agreed to accept discounted fees as payment in full for services
provided to any patient covered under a PPO Contract between SJP and a payor.
These PPO Contracts will require that the health care benefit plan of the
contracting entity have a design feature that provides some economic incentive
to the patient to use a PPO Provider (versus a non-PPO Provider).
SJP has signed a Network Linking Agreement (the "Network Linking
Agreement") with BayCare Health Network, Inc., previously known as CareFirst
Health Network, Inc., and before that as SunHealth Care Plans - Gulf Coast,
Inc. ("BayCare"). This Network Linking Agreement allows SJP to exclusively
offer the services of its PPO Providers to enrollees of BayCare requiring
access to health care providers in Hillsborough County, Florida. SJP has no
staff and relies on BayCare to perform all operational and marketing functions
for SJP. BayCare previously was owned entirely by Enterprises and by St.
Anthony's Hospital, Inc. and Morton F. Plant Hospital Association, Inc., two
not-for-profit hospitals located in Pinellas County, Florida. During 1994,
several additional hospitals in Hillsborough County and in Pinellas County
acquired ownership interests in BayCare. See the discussions under "BACKGROUND
- - The Company's Principal Ventures - the PHO and SJHHS" in Item 1 of this
Report, which provisions are hereby incorporated by reference. The name of the
organization was changed in 1994 from SunHealth Care Plans, Inc. to CareFirst
Health Network, Inc. and in 1995 from CareFirst Health Network, Inc. to BayCare
Health Network, Inc.
All current PPO Contracts are held by BayCare, and access to SJP's PPO
Providers is through the Network Linking Agreement. Currently BayCare has 70
contracts, covering approximately 37,200 enrolled employees, to provide
standard preferred provider, primary care preferred provider and various
insured health care products. This includes contracts with the Hospital
Corporation and the Same Day Surgery Center Partnership covering approximately
3,600 employees. In addition, BayCare has entered into linking agreements with
a number of other managed care entities through which the PPO Providers are
made available to provide services to the approximately 29,000 enrolled
employees of these other entities (21,250 of such employees being under
hospital services only contracts).
SJP's principal activity is simply to provide a "managed care" vehicle
for bringing together otherwise unaffiliated service providers and groups of
health care consumers, and coordinating the relationships between PPO Providers
and the groups of consumers. Accordingly, SJP has no significant income or
expenses.
Only stockholders in the Company are permitted to participate in SJP's
preferred provider network. As is described under the heading "DESCRIPTION OF
SECURITIES-Physician Qualifications" in Item 5 of this Report, only certain
members in good standing of the Active or Senior Active Medical Staff of St.
Joseph's Hospital are eligible to be stockholders in the Company. A physician
must provide services at the Hospital for at least one year as a Provisional
Member before qualifying to become a member of the Active or Senior Active
Medical Staff. In this regard, a question arose as to whether it would be in
SJP's best interest to also allow Provisional Members to
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<PAGE> 19
participate in SJP's provider panel, in part to facilitate the provision of
care by newly hired physicians in groups of PPO Providers. The Company did not
believe that it was in its best interests to relax its eligibility requirements
or to consent to SJP relaxing its requirements. Instead, an accommodation was
reached to allow Provisional Members to be given temporary credentials as
providers in BayCare's panel of providers, and the individuals then can provide
services through the network linking agreement between SJP and BayCare. The
temporary credentials will terminate when the physician becomes eligible to be
a member of the Active or Senior Active Medical Staff and does not then become
a stockholder in the Company. In 1995, the Company's Board of Directors voted
to instruct the Company's representatives on the Boards of Directors of the PHO
and SJP to take all steps necessary to inform BayCare that it should no longer
extend temporary provider contracts to members of the Provisional Medical Staff
of St. Joseph's Hospital who are not primary care physicians (i.e., those
physicians practicing in the areas of family or general practice, general
internal medicine and general pediatrics) or specialists who join a group which
already has an existing SJPA stockholder as a part of that group.
The bylaws of BayCare currently provide that each hospital-stockholder
is entitled to appoint two physicians to seats on the Board of Directors of
BayCare (along with the Chief Executive Officer and one other administrator of
the hospital-stockholder). Enterprises has agreed that SJPA can choose the two
physician-directors that Enterprises is entitled to appoint to the Board of
Directors of BayCare. The bylaws of BayCare previously included director
quorum and voting requirements which effectively provided that certain actions
could not be taken by BayCare without the affirmative vote of the directors of
BayCare that were designated by SJPA. However, in 1994, the bylaws of BayCare
were modified by the Board of Directors of BayCare so as to retain the director
quorum requirements, but to replace the director voting requirements with
provisions that require simply a two-thirds majority vote of the directors
present at the meeting, thus eliminating the requirement that certain actions
could not be taken by BayCare without the affirmative vote of the directors of
BayCare that are designated by SJPA. There can be no assurance that there will
be no additional changes to the bylaws of BayCare that would operate to further
limit the impact that the directors of BayCare who are designated by SJPA would
have on the BayCare Board of Directors.
Management
The Bylaws of SJP prescribe a Board of Directors for SJP composed of
four (4) persons, two (2) of whom are selected by the Company's Board of
Directors and two (2) of whom are selected by Enterprises. Current members of
the Board of Directors of SJP are:
<TABLE>
<CAPTION>
Company's Representatives(1) Enterprises' Representatives(2)
------------------------- ----------------------------
<S> <C>
Dennis Agliano, M.D. Isaac Mallah
Charles Cernuda, M.D Gilbert Pitisci, M.D.
</TABLE>
- --------------------------
(1) See the discussion under Item 9 of this Report for information
regarding the Company's representatives, which discussion is hereby
incorporated by reference into the discussion under this Item 1. It
should be noted that certain of the Company's representatives may
change as a result of elections scheduled to be held in April 1996.
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<PAGE> 20
(2) See the discussion above relating to management of the PHO for
information regarding Enterprises' representatives.
The above referenced SJP Board members also are Board members of
BayCare.
Financial Matters
SJP commenced operations in July, 1991. It is not anticipated that SJP
will have employees or significant administrative or other expenses, nor any
significant income. It is anticipated that the majority of SJP's contractual
arrangements will be entered into via its linking agreement with BayCare.
Impact on SJPA
Because SJP is not anticipated to have any significant income or
expenses, it is not anticipated to have a material impact on the business, or
the financial condition or results of operations, of the Company.
ST. JOSEPH'S HEALTH NETWORK, INC.
Nature of SJPA Interest
The PHO owns 100% of the outstanding stock of St. Joseph's Health
Network, Inc. ("SJHN"). This corporation was organized by the PHO on May 26,
1995, and initially capitalized with $1,000.
Type of Business
SJHN is a physician-hospital organization established for the purposes
of developing a network of hospitals and physicians (collectively referred to
as the "SJHN Providers") and negotiating at-risk (i.e., capitation) contracts
with managed care organizations on behalf of the SJHN Providers in order to
provide high quality, competitively priced health care services for persons
residing or employed in the Hillsborough County, Florida area.
SJHN is expected to provide a vehicle for risk sharing among the
participating doctors and hospitals, while striving to establish competitive
prices, along with fair payments to the SJHN Providers. SJHN plans to act as
the contracting agent to review, evaluate and negotiate prepaid or capitated
contracts on behalf of the SJHN Providers. Under these contracts, the primary
care physicians (i.e., pediatrics, family practice and general internal
medicine) and perhaps certain of the specialist physicians will be compensated
by a monthly capitation (i.e., fixed payment per subscriber per month) that
will require each physician to assume the risk of providing the medical care
needed by the subscribers in the managed care plan that are assigned to the
physician. This risk may be shared by SJHN and the physician, or it may be
borne by the physician alone. Those physicians who are not capitated also
could share in the volume of care risk, because a portion of the
fee-for-service payments that they will receive may be withheld in risk pools.
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<PAGE> 21
The initial invitation to join SJHN as a physician provider was
extended only to SJPA stockholders. Responses were received from approximately
130 physicians. To be competitive in the capitated managed care business, the
ratio of primary care physicians to specialist physicians must be strictly
controlled. At the current time, the physician representation on SJHN's panel
is being reviewed and evaluated to determine if any additional primary care
physicians or specialists are needed. The Company expects that, if a decision
is made that additional physicians are needed, then invitations will be made
only to SJPA stockholders; provided, that, if a need is identified for an
additional physician-provider that cannot be filled by an SJPA stockholder,
an exception might be made by the Board of SJHN.
Management
The bylaws of SJHN prescribe a Board of Directors for SJHN composed of
nine (9) persons including five physicians (three primary care physicians and
two specialists) and four hospital representatives. The initial physician
representatives were recommended by the Board of Directors of SJPA. The bylaws
of SJHN state that the Executive Director of SJPA shall serve as an ex-officio
board member of SJHN. In addition, an executive director has been hired to be
responsible for SJHN, who also serves as the executive director for SJP and the
PHO. This executive director will also serve as an ex-officio board member.
Current members of the Board of Directors of SJHN are:
<TABLE>
<CAPTION>
Physician Representatives(1) Hospital Representatives(2)
------------------------- ------------------------
<S> <C>
Todd Rosenthal, M.D. Isaac Mallah
Ovidio Mendez, M.D. Gary Chawk
Vijay Diwadkar, M.D Gilbert Pitisci, M.D.
Jack Mezrah, M.D. Charles Scott
Steve Ferzoco, M.D.
</TABLE>
- --------------------------
(1) The Physician Representatives are all stockholders in the Company, but
do not currently serve on the Board of Directors of the Company.
(2) See the discussion above relating to management of the PHO for
information regarding the Hospital Representatives.
Todd Rosenthal, age 40, received his M.D. degree from the University of
Miami. Since 1984, Dr. Rosenthal has engaged in the private practice of
medicine in Tampa, Florida specializing in Internal Medicine. Dr. Rosenthal is
a holder of a provider contract with SJP.
Ovidio Mendez, age 49, received his M.D. degree from the University of
Guadalajara in Mexico. Since 1978, Dr. Mendez has engaged in the private
practice of medicine in Tampa, Florida specializing in Pediatrics. Dr. Mendez
is a holder of a provider contract with SJP.
Vijay Diwadkar, age 46, received his M.D. degree from the Topiwala
National Medical College in India. Since 1983, Dr. Diwadkar has engaged in the
private practice of medicine in Tampa, Florida specializing in Family Practice.
Dr. Diwadkar is a holder of a provider contract with SJP.
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<PAGE> 22
Jack Mezrah, age 67, received his M.D. degree from Emory University.
Since 1961, Dr. Mezrah has engaged in the private practice of medicine in
Tampa, Florida specializing in Gynecology. Dr. Mezrah is a holder of a
provider contract with SJP.
Steve Ferzoco, age 46, received his M.D. degree from Tufts Medical
School. Since 1981, Dr. Ferzoco has engaged in the practice of medicine in
Tampa, Florida specializing in Radiology. Dr. Ferzoco's group practice is a
holder of a provider contract with SJP.
Financial Matters
SJHN began operations in 1995 with limited activity. Applications and
credentialing fees were received from approximately 130 physicians expressing
an interest in joining SJHN. An executive director, who will be responsible
for administering SJHN, SJP and the PHO, was hired in December 1995 and it is
anticipated that significant administrative and start-up costs will be incurred
beginning in 1996. For 1996, it is anticipated that the application fees
received from the physicians and hospitals comprising the SJHN Providers will
be sufficient to cover the start-up and initial administrative costs. It is
also anticipated that the panel of SJHN Providers will be credentialed and
complete before the end of 1996, and SJHN should be prepared to begin accepting
capitated payments on a per member per month basis in the fourth quarter of
1996.
Impact on SJPA
SJPA might find it appropriate to assist the PHO with funding the
initial capitalization of SJHN. The amount of such funding has not been
determined at this time. It is expected that the Company's contribution to
such funding will be determined after taking into account the Company's
available liquidity and its other anticipated cash needs. Additional liquidity
for SJHN is expected to be received from other sources, including possibly from
provider credentialing fees, additional equity contributions from the PHO
and/or from others, and borrowings.
ST. JOSEPH'S SAME-DAY SURGERY CENTER, LTD.
Nature of the Company's Interest
The Same-Day Surgery Center Partnership was organized on May 19, 1987
to develop and operate an outpatient surgery center (the "Same-Day Surgery
Center Facility") in the Medical Arts Building which is located on the campus
of the Hospital and is owned by an affiliate of the Hospital Corporation. San
Damiano Enterprises, Inc., a Florida not-for-profit corporation and an
affiliate of the Hospital Corporation ("San Damiano") is the non-managing
general partner of the Same-Day Surgery Center Partnership, owning a
forty-eight percent (48%) partnership interest therein. As indicated above,
the Company owns up to an approximately 22.22% interest in the PHO, and
therefore up to an approximately 0.88% interest in the Same-Day Surgery Center
Partnership through the PHO by virtue of the PHO's 4% interest therein. Also
as indicated above, the Company owns five limited partnership shares in the
Same-Day Surgery Center Partnership, amounting to a direct 6% ownership
interest.
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Business
The Same-Day Surgery Center Facility is an outpatient surgery center.
The services offered include endoscopy and outpatient surgery including general
surgery, ophthalmology, otolaryngology, orthopedics, gynecology (excluding
abortions and sterilizations), urology, and plastic surgery. The services of
the Same-Day Surgery Center are available to patients of local physicians on a
referral basis. Revenues are derived from billing Medicare, Medicaid, other
third party payors and patients the portion to be paid by each. The PHO, as
the managing general partner, is the only partner with management authority and
is responsible for overall management of the affairs of the Same-Day Surgery
Center Partnership.
The Same-Day Surgery Center Partnership has entered into a management
agreement with St. Joseph's Health Care Center, Inc. ("HCC"). HCC is the 100%
owner of San Damiano, a 48% non-managing general partner of the Same-Day
Surgery Center Partnership. The management agreement provides for a management
fee of 2.5% of gross revenues. Services provided under the management
agreement include management of the day-to-day operations of the Same-Day
Surgery Center Facility by a full-time on-site HCC employee, data processing
systems and support, personnel administration, accounting services, and various
other administrative services. In addition, HCC provides billing and
collection services for 5% of net revenues. The Same-Day Surgery Center
Partnership also has entered into agreements with anesthesiologists and other
professionals to provide medical services.
The Same-Day Surgery Center is in competition with three similar
facilities in Hillsborough County. One such facility is within a short
distance of the Same-Day Surgery Center and offers most of the same services.
The other similar facilities are located more than 10 miles away. The Same-Day
Surgery Center also competes with a nearby outpatient ophthalmic surgery
facility. In addition to existing free-standing centers, the Same-Day Surgery
Center faces competition from hospital-based programs, including both a program
at the Hospital to which the space occupied by the Same-Day Surgery Center
Facility is connected and a program at St. Joseph's Women's Hospital, a
hospital located across the street from the Same-Day Surgery Center Facility.
Facilities and Equipment
The Same-Day Surgery Center Partnership leases from Franciscan
Properties, Inc., a wholly owned subsidiary of HCC and an affiliate of the
Hospital Corporation, approximately 17,000 net square feet on the first floor
of the St. Joseph's Medical Arts Building on the campus of the Hospital. The
Same-Day Surgery Center Partnership exercised its option to renew the lease for
five years and the lease now expires on February 28, 1998. The lease grants to
the Same-Day Surgery Center Partnership an additional option to renew for one
additional five (5) year term. The rent paid by the Same-Day Surgery Center
Partnership presently amounts to $588,640 annually, plus sales tax, and is
subject to periodic escalations based on increases in the Consumer Price Index.
The facility includes the leasehold and improvements providing six
operating suites, three endoscopy rooms, one treatment room, one pre-operative
assessment area, one post anesthesia recovery room with phases I and II, a
stage II pediatric recovery area and support facilities such as waiting areas,
physician reading rooms, offices, medical records and business office. The
Same-Day
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Surgery Center Facility is an outpatient facility designed to create a
comfortable, noninstitutional environment that will be efficient and convenient
for both patients and physicians.
Financial Matters
Results of Operations. During 1995, the Same-Day Surgery Center
performed 10,518 procedures and generated approximately $9.7 million in net
patient service revenues and a net income of approximately $2.6 million. The
Same-Day Surgery Center Facility experienced a growth in volume of 9.6% in
1995.
Liquidity. At December 31, 1995, the Same-Day Surgery Center
Partnership held approximately $1.2 million in cash, which accounted for 32% of
total assets. In 1995, the Same-Day Surgery Center Partnership generated
approximately $236,044 of cash per month after paying expenses and debt
service. There can be no assurance that such level of cash flow will continue.
Beginning with the period commencing on July 1, 1991, and for each
fiscal year of the Same-Day Surgery Center Partnership thereafter, an
assessment equal to 1.5% of the partnership's net revenues is being collected
to fund indigent care in Florida.
The Company is not aware of any other reason that the level of cash
flow for the Partnership should change in the immediate future, except to the
extent that any distributions are made, or if additional Florida or federal
legislation is passed which could affect reimbursement rates or impose
additional compliance expenses or managed care contractual changes that impact
reimbursement. See the discussion under the heading "Special Considerations"
in Item 6 of this Report, which discussion is hereby incorporated by reference
into the discussion under this Item 1. During 1995, the Same-Day Surgery
Center Partnership distributed approximately $2.3 million in cash to limited
and general partners. This included $135,700 to the Company in respect of its
five limited partner units, as well as a distribution of $93,254 to the PHO in
its capacity as managing general partner. In April 1996, the Same-Day Surgery
Center Partnership will distribute approximately $642,000 to partners of record
on March 31, 1996. Of this amount, $38,520 will be distributed to the Company
in respect of its five limited partner units, and $25,680 will be distributed
to the PHO in its capacity as managing general partner.
Capital Resources. At December 31, 1995, the Same-Day Surgery Center
Partnership had approximately $2.6 million in partners' equity. This
represented capital contributions from the general partners, 40 limited partner
shares and accumulated earnings.
The Same-Day Surgery Center Partnership has long-term debt consisting
of a line of credit with HCC payable in monthly installments with interest at
the prime rate. At December 31, 1995, the balance of the HCC line of credit
was approximately $500,000.
In 1995, the Same-Day Surgery Center Partnership completed capital
additions and replacements of approximately $128,000 in replacements and
upgrades which were funded through additional borrowings. No additional funds
were expended in 1995 for construction and build outs.
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The Same-Day Surgery Center Partnership plans capital expenditures in
1996 of approximately $150,000 in equipment and instrumentation replacements
and upgrades which are expected to be funded through additional borrowings.
Impact on SJPA
SJPA is affected by the Same-Day Surgery Center Partnership operations
indirectly through SJPA's investment in the PHO, the 4% managing general
partner of the Same-Day Surgery Center. The PHO accounts for its investment
under the equity method due to the PHO's ability to exercise significant
influence over the Same-Day Surgery Center Partnership.
SJPA accounts for its 50% common stock investment in the PHO on the
equity method. Due to the existence of cumulative preferred stock, however,
SJPA benefits only up to 22.22% in the earnings of the PHO and indirectly up to
0.88% of the net income of the Same-Day Surgery Center Partnership.
In addition, as indicated above, SJPA owns five limited partner units
in the Same-Day Surgery Center Partnership. Revenue on the units will only be
recorded by SJPA upon declaration of distributions or a gain upon sale of the
units. SJPA received $135,700 in cash in partnership distributions in 1995 in
respect of the five units it owns. SJPA has also received an additional
$82,520 in cash during 1996 in respect of the five units.
HOSPITALS' HOME HEALTH CARE OF HILLSBOROUGH COUNTY, INC.
d/b/a St. Joseph's Home Health Services
Nature of SJPA Interest
SJPA owns 50% (4,000 shares) of the common stock of Hospitals' Home
Health Care of Hillsborough County, Inc. ("SJHHS"). The difference between
the Company's cost of acquisition and its equity in the net liabilities of
SJHHS was approximately $84,000 at the acquisition date (approximately $70,574
at December 31, 1995) and is being amortized using the straight-line method
over 40 years as a reduction of equity in net earnings of investees. The other
50% is owned by St. Joseph's Ancillary Services, Inc. ("SJAS"), a wholly owned
subsidiary of St. Joseph's Health Care Center, Inc.
Business
SJHHS primarily provides medical services in the homes of patients.
These services include nursing services by registered nurses ("RNs") and
licensed practical nurses ("LPNs"), personal care services, custodial and
companion services by home health aides, and other ancillary services, such as
infusion therapy.
On October 1, 1991, SJHHS signed a medical director's agreement with
Charles E. Cernuda, M.D., a physician who is a stockholder in and a member of
the Board of Directors of the Company.
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Effective December 31, 1991, SJHHS changed its fiscal year from June 30
to December 31.
Since July 1, 1991, SJHHS has been and continues to be managed under a
management agreement with HCC who replaced ServiceMaster Home Health, Inc. The
agreement with HCC provides for a management fee based on gross revenues of
SJHHS.
SJHHS is in competition with a number of home health agencies, IV
infusion companies, oxygen therapy companies, and temporary staffing agencies
throughout Hillsborough County. Due to the large number of companies competing
in the market, the Company believes that no one company has a dominant position
in the market.
Management
The members of the Board of Directors of SJHHS are elected by the vote
of its stockholders, the Company and SJAS. Current members of the Board of
Directors of SJHHS are:
<TABLE>
<CAPTION>
Company's Representatives(1) SJAS's Representatives(2)
------------------------- ----------------------
<S> <C>
Thomas Mawn, M.D. John Biebel
Norman Castellano, M.D. Isaac Mallah
Bruce Edgerton, M.D. Charles Scott
- --------------------------
</TABLE>
(1) See the discussion under Item 9 of this Report for information
regarding the Company's representatives, which discussion is hereby
incorporated by reference into the discussion under this Item 1. It
should be noted that certain of the Company's Representatives may
change as a result of elections scheduled to be held in April 1996.
(2) See the discussion above relating to management of the PHO for
information regarding SJAS's representatives.
Financial Matters
Results of Operations. For the year ended December 31, 1995, SJHHS
generated a pre-tax income of $162,156 on net revenues of $1.8 million. The
significant decrease in net income for 1995 was the result of the effect of
legislation prohibiting physicians with an investment interest from making
referrals for laboratory and rehabilitation services, as well as all services
with respect to Medicare and Medicaid patients.
Liquidity. At December 31, 1995, SJHHS held approximately $888,000 in
cash. The current ratio of 2.77 indicates the strong liquidity position of
SJHHS at December 31, 1995. It is believed that this liquidity position
coupled with anticipated additional liquidity from future operations will be
sufficient to fund anticipated capital needs over the near term. In addition,
approximately $200,000 was remitted in March 1996 relating to income taxes
payable in 1995. This is the result of the filing of the SJHHS income tax
return on a cash basis and the significant decrease in the accounts receivable
from 1994 to 1995 and the corresponding cash receipts in 1995.
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<PAGE> 27
The Board of Directors of SJHHS currently is evaluating whether to make
a dividend distribution in 1996.
Capital Resources. At December 31, 1995, SJHHS had approximately
$1,038,000 in stockholders' equity. This represented $80,000 in stock and
$958,000 in accumulated earnings.
Health care reform legislation has been enacted by the Florida
Legislature over the past several years and a statute prohibiting physician
referrals for certain "designated health services" (including, among others,
clinical laboratory and physical therapy services) became effective on October
1, 1994. Similar federal legislation became effective on January 1, 1995 which
prohibits a physician from referring a Medicare or Medicaid patient for home
health services, physical therapy services, occupational therapy services,
parenteral and enteral nutrients, equipment and supplies to any entity in which
the physician directly or indirectly owns a financial interest. See the
discussion under the heading "Special Considerations" in Item 6 of this Report,
which discussion is hereby incorporated by reference into the discussion under
this Item 1. In response to this Florida and federal legislation, clinical
laboratory services, rehabilitation services and all services provided by SJHHS
to Medicare and Medicaid patients were transferred out of SJHHS. Based upon
the results in 1995, it is expected that the elimination of these services will
result in an approximate 50% decrease in net income on an ongoing basis from
SJHHS's 1994 net income levels.
Impact on SJPA
SJPA recognizes its investment in SJHHS on the equity basis. Thus it
recognizes 50% of the net income of SJHHS. For the year ended December 31,
1995, SJPA recognized approximately $55,000 in earnings from its interest in
SJHHS, after making certain adjustments to properly reflect the equity basis of
accounting.
ITEM 2. PROPERTIES.
The Company does not own any tangible property, either real or
personal. The Company's principal assets are its investments in other
entities, and the Company does not have any present plans to acquire any
significant properties other than interests in other entities. Although the
entities in which the Company owns interests do own significant properties, and
although the Company does exercise some degree of indirect control over the
management of those entities and their properties, as discussed elsewhere in
this Report, the Company does not directly own or control any such properties.
ITEM 3. LEGAL PROCEEDINGS.
Limiting Fee Schedule Litigation
On July 10, 1992, the Company joined several other entities in filing a
lawsuit in state court against the State of Florida seeking a declaratory
judgment on the constitutionality of the limiting fee schedule on entities that
provide specified "designated health services" that was included in the
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<PAGE> 28
Patient Self-Referral Act of 1992 passed by the Florida Legislature in March,
1992, and requesting that an injunction be granted to stop the enforcement of
the limiting fee schedule. The fee limits originally were scheduled to take
effect on July 1, 1992, but enforcement was temporarily restrained by an order
of the United States District Court for the Northern District of Florida in a
separate lawsuit filed by unrelated parties (the "Federal Case"). The state
court action was filed as a protective measure, in case the federal court in
the Federal Case (which agreed to hear the case and rule quickly) upheld the
constitutionality of the fee limits. The state court action was one of several
(the others being filed by unrelated parties) that were filed in the Circuit
Court of the Second Judicial Circuit, Leon County, Florida, all of which cases
were consolidated under the name Physical Therapy Rehabilitation Center of
Coral Springs, Inc. v. State of Florida (the "State Case"). Shortly after the
lawsuit in which the Company is a party was filed, the United States District
Court for the Northern District of Florida, in the Federal Case, struck down
the fee limits as an unconstitutional violation of the Equal Protection Clause
of the United States Constitution, and entered an injunction against
enforcement. The state court hearing the State Case then entered a temporary
injunction against enforcement, based upon the injunction entered in the
Federal Case.
The injunction entered in the Federal Case was appealed to the United
States Eleventh Circuit Court of Appeals, and, on February 15, 1994, the
Eleventh Circuit Court of Appeals reversed the trial court, holding that the
fee limits do not violate the Equal Protection Clause of the United States
Constitution. A motion for reconsideration was filed with the Eleventh Circuit
Court of Appeals, and that motion was denied in April 1994. Subsequently, a
petition for certiorari was filed with the United States Supreme Court, but the
Supreme Court subsequently denied certiorari. As a result, the decision of
the Eleventh Circuit Court of Appeals on the constitutionality of the fee
limits under the Equal Protection Clause of United States Constitution stands.
In the meantime, as a result of the Eleventh Circuit Court Appeal's
reversal of the federal trial court, the Florida Agency For Health Care
Administration ("AHCA") decided to actively pursue the State Case. AHCA went
back to the state trial court and argued that (1) there is no independent basis
for the state temporary injunction and (2) in any event, the state temporary
injunction should not be entered unless every party who would be protected by
the injunction files a bond with the state trial court. On June 23, 1994, the
trial court ruled that its temporary injunction would stay in place, but anyone
wanting the protection of the injunction would need to post a $1,000 bond.
AHCA was not pleased with these decisions, and it filed an appeal with the
Florida First District Court of Appeals on July 18, 1994.
The state trial court continued to review various motions that were
filed by the plaintiffs, and, on July 7, 1994, the state trial court declared
the limiting fee schedule unconstitutional, under the Florida Constitution, for
providers of the "designated health services" specified in the Patient
Self-Referral Act of 1992 (other than providers of radiation therapy services).
AHCA filed an appeal of this decision with the Florida First District Court
Appeals on August 8, 1994. The Florida First District Court of Appeals ruled
that, because the state trial court's original June 23, 1994 order was already
subject to appeal, the trial court did not have jurisdiction to enter its July
7, 1994 ruling on unconstitutionality. As a result, all that remained for
review by the Florida First District Court of Appeals was the appeal of the
state trial court's June 23, 1994 ruling.
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<PAGE> 29
In the meantime, on February 13, 1995, in a case known as Kagan v.
State of Florida, the Circuit Court of the Second Judicial Circuit, Leon
County, Florida, again ruled that the limiting fee schedule is
unconstitutional, under the Florida Constitution, for providers of diagnostic
imaging services. This case was appealed by AHCA to the Florida First District
Court of Appeals on March 9, 1995.
Oral argument in the State Case originally was scheduled before the
Florida First District Court of Appeals on June 29, 1995. However, the Court
canceled the oral argument and, instead, scheduled an attorneys' conference to
determine how best to resolve the multiple appeals relating to the State Case
and the Kagan decision. As a result of the attorneys' conference, the First
District Court of Appeals entered a new order that (1) allowed the state trial
court to enter a new order in the State Case (replacing the original July 7,
1994 decision) declaring the limiting fee schedule unconstitutional, under the
Florida Constitution, and (2) consolidated all of the appeals into one case.
Under the new order of the First District Court of Appeals, the issues
in the appeal were framed as (1) whether the limiting fee schedule is
unconstitutional under the Florida Constitution, (2) whether the limiting fee
schedule is an unlawful delegation of legislative authority, and (3) if the
limiting fee schedule is deemed constitutional and not an unlawful delegation
of legislative authority, then whether the state trial court's June 23, 1994
ruling should be modified or dissolved. In an opinion filed on January 4,
1996, the First District Court of Appeals ruled that the limiting fee schedule
is unconstitutional under the Florida Constitution and should be stricken from
the Patient Self-Referral Act of 1992. AHCA has filed an appeal of this
decision with the Florida Supreme Court, its brief having been filed on March
25, 1996. The appellees (including the Company) have until April 15, 1996 to
file responsive briefs. No date has been set for oral argument, and the
Florida Supreme Court has the discretion to rule on the appeal without oral
argument.
For further discussion regarding the Patient Self-Referral Act of 1992,
see the discussion under the heading "Special Considerations" in Item 6 of this
Report, which provisions are hereby incorporated by reference into discussion
under this Item 3.
Declaratory Statement Action With Respect to SJHHS
The language of the Patient Self-Referral Act of 1992 is ambiguous in
many respects. One such ambiguity can be found in the definition of an
"investor," which relates to whether a stockholder in SJPA is deemed indirectly
to be an "investor" in the Same-Day Surgery Center Partnership or SJHHS. A
provision of the Patient Self-Referral Act of 1992 allows a person or an entity
that could be affected by the prohibitions included in the Patient
Self-Referral Act of 1992 to request that AHCA, or the applicable professional
board under the Florida Department of Business and Professional Regulation,
issue a declaratory statement defining how the applicable state agency
interprets an ambiguous provision of the Patient Self-Referral Act of 1992.
Using this procedure, a Petition for Declaratory Statement was filed by Charles
E. Cernuda, M.D. and SJPA (the "Declaratory Statement Action"), seeking an
interpretation from the Board of Medicine of the Department of Business and
Professional Regulation (the "Board") on whether a stockholder in SJPA is
deemed to indirectly be an "investor" in SJHHS, thereby prohibiting the
stockholder in SJPA from referring a patient to SJHHS for physical therapy
services, occupational and speech therapy services
27
<PAGE> 30
or clinical laboratory services that are rendered as an incident to other home
health services provided by SJHHS.
In a Final Order issued on March 16, 1995, the Board of Medicine ruled
that the definition of "investor" should be broadly interpreted and concluded
that each stockholder's investment interest in SJPA results in such stockholder
also being an "investor" in SJHHS (by virtue of SJPA's ownership of 50% of the
outstanding stock of SJHHS). Accordingly, the Board concluded that the
stockholders of SJPA are subject to the absolute prohibition for referrals to
SJHHS for the "designated health services" that are specified in the Patient
Self-Referral Act of 1992. For further discussion regarding the Patient
Self-Referral Act of 1992, see the discussion under the heading "Special
Considerations" in Item 6 of this Report, which provisions are hereby
incorporated by reference into the discussion under this Item 3.
To the knowledge of the Company's management, there are no other
material pending legal proceedings, other than ordinary routine litigation
incidental to the business of the Company, or its Partially Owned Operations,
to which the Company or any of its Partially Owned Operations is a party or of
which any of their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
GENERAL
No Market for the Company's Stock
There are substantial limitations on the ownership and transfer of the
Company's Common Stock. Accordingly, there has never been nor will there ever
be (unless there are substantial revisions to the Company's Articles of
Incorporation and Bylaws) any public or other market for the Company's Common
Stock.
Due to restrictions in the Bylaws, there is no market in the Common
Stock, except for repurchase by the Company at a price equivalent to current
book value. All shares of the Company's Common Stock that are issued and
outstanding were purchased directly from the Company. Shares sold to date
include the nine shares sold to the Company's nine initial stockholders shortly
after the Company's organization, shares sold in the Company's initial public
offering in the third quarter of 1988, an additional 11 shares issued in
several transactions not involving a public offering in the third quarter of
1990, all at $1,250 per share, an additional 19 shares issued in several
transactions not involving a public offering in the third quarter of 1991 at
$1,500 per share, an additional 62 shares
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<PAGE> 31
issued in several transactions not involving a public offering in the second
quarter of 1992 at $1,750 per share, an additional 62 shares issued in several
transactions not involving a public offering in the second quarter of 1993 at
$1,925 per share, an additional 46 shares issued in several transactions not
involving a public offering in the second quarter of 1994 at $2,570 per share
and an additional 43 shares issued in several transactions not involving a
public offering in the second quarter of 1995 at $3,000 per share.
Shares have been repurchased by the Company only during the second half
of 1990 and during 1991, 1992, 1993, 1994 and 1995, and additional share
repurchases are anticipated during 1996. The most recent repurchases were for
$3,047 per share, or approximately $1,797 per share more than the original
purchase price of such shares.
Holders
As of March 31, 1996, there were 427 Common Stockholders of record,
each owning exactly one share.
Dividends
In 1995, the Company did not declare any dividends on its Common Stock.
For the foreseeable future, the Board of Directors generally intends to
continue to retain earnings for use in the Company's business. Any future
determination as to declaration and payment of dividends will be made at the
discretion of the Board of Directors and will depend upon, among other things,
the Company's future earnings, capital requirements and financial condition, as
well as all other relevant factors.
DESCRIPTION OF SECURITIES
General
The Company has an authorized capital of 7,500 common shares of one
class, $1.00 par value per share. Upon any dissolution or liquidation of the
Company, the holders of Common Stock will share pro rata in all assets
remaining after the payment of expenses and debts. The holders thereof have no
preemptive or conversion rights. Holders of Common Stock are entitled to one
vote for each share held on all matters submitted to a vote of the Company's
stockholders. Such holders are entitled to receive such dividends as may be
declared by the Board of Directors out of assets legally available for the
payment of dividends.
Eligibility to Participate in Other Ventures
An important facet of ownership of stock in the Company is that only
stockholders in the Company are permitted to participate in SJP's preferred
provider network, to participate in SJHN's at-risk managed care network, or to
invest in the Same Day Surgery Center Partnership.
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<PAGE> 32
Non-Cumulative Voting
The holders of Common Stock do not have cumulative voting rights, which
means that the holders of more than 50% of such outstanding shares
participating in any election of directors can elect all of the directors to be
elected if they so choose, and in such event the holders of the remaining
shares will not be able to elect any directors.
Reports to Stockholders
The Company furnishes its stockholders upon request with annual reports
containing financial statements, as soon as practicable after the end of each
fiscal year.
Restrictions on Transferability
Shares of Common Stock of the Company are not transferable without the
prior written consent of the Company (which consent may be withheld in the sole
discretion of the Board of Directors), and such Shares are subject to
redemption by the Company under certain circumstances.
Physician Qualifications
General. As provided in the Bylaws of the Company, only individual
physicians who are members in good standing of the Active or Senior Active
Medical Staff of the Hospital are qualified to be stockholders. A stockholder
at all times must satisfy the foregoing requirement unless waived by a vote of
two-thirds of the members of the Board of Directors. A stockholder's failure
at any time to satisfy such requirement for any reason whatsoever, including
death, retirement or disability, will cause a termination of such stockholder's
interest and the share of Common Stock held by such stockholder will be
redeemed by the Company. In addition, in 1995, the Board of Directors voted to
restrict the offering of shares to only those Active and Senior Active members
of the Medical Staff of the Hospital who are primary care physicians (i.e.
family or general practitioners, general internists and general pediatricians)
or specialists who are members of a group which already has an existing SJPA
stockholder as a part of that group. If additional shares of stock of the
Company are sold in 1996, it is possible that similar restrictions on potential
investors could be imposed again by the Board of Directors.
Notwithstanding a physician's satisfaction at any time of such
requirement, if a determination is made by two-thirds (2/3) of the members of
the Board of Directors that continued qualification of the physician as a
stockholder is not in the best interests of the Company, then the physician
will not be permitted to acquire or retain any interest in the Company, and
there shall then be a mandatory redemption of such stockholder's Common Stock
in the Company.
Special Consideration for Primary Care Physicians. Historically,
physicians have been given the opportunity to become stockholders of the
Company during annual offering periods by paying the then applicable purchase
price in cash. Recently, a concern was expressed to the Company that many
younger primary care physicians (i.e., family practitioners, general
practitioners, general internists and general pediatricians) have been deterred
from purchasing stock because the purchase price is required to be paid all at
once. The Company has recognized the importance of
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<PAGE> 33
having a substantial number of primary care physicians available in the pool of
physicians who may participate in the preferred provider network offered by SJP
or for other managed care ventures in which the Company may become involved in
the future. As an inducement for primary care physicians, the Company has
decided that, any time an offering of Common Stock is to proceed, primary care
physicians may be given the option by the Company's Board of Directors, of
either paying the entire purchase price for a share of stock at the time of
purchase or making three equal annual installments (without interest) of the
purchase price. This special consideration may be given only to primary care
physicians, as classified by the Company; all other physicians will be required
to pay the purchase price in cash all at once before shares of stock may be
issued to such other physicians.
Procedure for Redemption and Termination of Interest
The redemption price of each share of Common Stock redeemed pursuant to
mandatory redemption will be the adjusted book value per share as of the end of
the fiscal quarter immediately preceding the date on which the Company receives
notice of the mandatory redemption event.
If any stockholder, for any reason other than a mandatory redemption
event, desires to terminate the stockholder's interest in the Company and
offers to transfer such stockholder's share to the Company, then the Company
will be obligated to accept the transfer to the Company of such stockholder's
share. The price and the terms of payment, if any, for each such share
accepted by the Company will be determined by the Board of Directors in its
sole and absolute discretion, within thirty (30) days after receipt by the
Company of the certificate representing the share transferred to the Company.
No stockholder will have the right to require the Company to pay anything to
the stockholder upon termination of the stockholder's interest for any reason
other than a mandatory redemption event. Accordingly, the stockholder may lose
the entire purchase price paid for the share.
31
<PAGE> 34
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following table sets forth, for the periods indicated, selected
financial data with respect to the Company:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Equity in net earnings of
investees $ 16,402 $ 228,891 $181,053 $ 99,817 $132,560
Income before
extraordinary item or
cumulative effect of a
change in accounting
principle 63,068 149,135 192,379 171,750 174,806
Extraordinary item -
realization of loss
carryforward -0- -0- -0- -0- 21,963
Cumulative effect of a
change in accounting
principle -0- -0- 8,951 -0- -0-
Net income 63,068 149,135 183,428 171,750 196,769
Income per common share:
Income before
extraordinary item or
cumulative effect 154 402 599 646 777
Extraordinary item -0- -0- -0- -0- 98
Cumulative effect -0- -0- 28 -0- -0-
Net income 154 402 57 646 875
Total assets 1,406,982 1,216,228 966,45 682,321 417,414
Long-term obligations -0- -0- -0- -0- -0-
Cash dividends declared
per common share -0- -0- 100 100 -0-
</TABLE>
32
<PAGE> 35
Because there exist material uncertainties as to matters that could
affect the Company, the data reflected above may not be indicative of the
Company's future financial condition or results of operations. See the
discussion under the heading "Special Considerations" in Item 6 of this Report,
which provisions are hereby incorporated by reference into the discussion under
this Item 6.
1995 vs. 1994
In 1995, revenues decreased as a result of the (1) decrease in the
profitability of the PHO and SJHHS due to the effect of legislation prohibiting
physicians with an investment interest in SJHHS from making referrals for
laboratory, rehabilitation and other services, the divestiture by the PHO in
1994 of its 4% ownership interest in St. Joseph's Diagnostic Center, Ltd., and
the significant expenditures incurred by the PHO during 1995 for the evaluation
and implementation of new ventures, offset in part by (2) (a) a slight increase
in the distribution income received from the units held in the Same-Day Surgery
Center Partnership, and (b) an increase in interest income resulting from
increased cash balances and increased interest rates.
General and administrative expenses decreased significantly as a result
of a decrease in expenditures for consulting services relating to the
evaluation of new ventures and for legal expenses for legislative activities.
It is anticipated that over the near term, general and administrative expenses
will continue to be incurred at levels consistent with 1995.
1994 vs. 1993
In 1994, revenues increased as a result of (1) an increase in equity
earnings resulting from the increased profitability of SJHHS (see the
discussion under the heading "HOSPITALS' HOME HEALTH CARE OF HILLSBOROUGH
COUNTY, INC." in Item 1 of this Report, which discussion is hereby incorporated
by reference into the discussion under this Item 6) and the PHO, as well as the
proceeds received by the PHO during the third quarter of 1994 from the sale of
its 4% ownership interest in the Diagnostic Center Partnership (see the
discussion under the heading "ST. JOSEPH'S PHYSICIANS-HEALTHCENTER
ORGANIZATION, INC." in Item 1 of this Report, which discussion is hereby
incorporated by reference into the discussion under this Item 6) and (2) a
slight increase in distribution income received from the units held in the
Same-Day Surgery Center Partnership.
General and administrative expenses increased significantly during 1994
due to an increase in legal and consulting expenses for legislative activities
and evaluations of new ventures.
33
<PAGE> 36
LIQUIDITY AND CAPITAL RESOURCES
Shortly after its organization, the Company's nine founding
stockholders each purchased one share of Common Stock in the Company for $1,250
per share. An additional 202 shares of Common Stock were sold for the same
amount in the Company's initial public offering, conducted in the period from
August 12, 1988 through December 31, 1988, bringing the Company's total initial
capitalization to $263,750. The following table sets forth information
concerning additional shares that have since been issued:
<TABLE>
<CAPTION>
===================================================================================
Year Shares Issued Per Share Price Total Consideration Received
===================================================================================
<S> <C> <C> <C>
1990 11 $1,250 $13,750
- -----------------------------------------------------------------------------------
1991 19 $1,500 $28,500
- -----------------------------------------------------------------------------------
1992 62 $1,750 $108,500
- -----------------------------------------------------------------------------------
1993 62 $1,925 $119,350
- -----------------------------------------------------------------------------------
1994 46 $2,570 $118,220
- -----------------------------------------------------------------------------------
1995 43 $3,000 $119,000 cash plus $10,000
in notes
===================================================================================
</TABLE>
The following table sets forth information concerning share repurchases:
<TABLE>
<CAPTION>
===============================================================================
Time Period Shares Repurchased Total Amount Paid
===============================================================================
<S> <C> <C>
Second half of 1990 6 $ 5,639
- -------------------------------------------------------------------------------
Second half of 1991 3 $ 3,512
- -------------------------------------------------------------------------------
Second half of 1992 3 $ 5,769
- -------------------------------------------------------------------------------
Second half of 1993 4 $ 8,124
- -------------------------------------------------------------------------------
Second half of 1994 5 $13,134
- -------------------------------------------------------------------------------
First half of 1995 1 $ 2,627
- -------------------------------------------------------------------------------
Second half of 1995 5 $15,241
===============================================================================
</TABLE>
No dividends were declared in 1995 and no dividends are contemplated in
the near future.
No dividends were received from the PHO in 1995 and no dividends are
expected from the PHO in 1996. SJHHS did not pay any dividend in 1995, and
the Board of Directors of SJHHS currently is evaluating whether to declare and
pay a dividend in 1996. All operating cash in 1995 was derived from the
distributions with respect to the Company's limited partner units in the
Same-Day Surgery Center Partnership. Operating cash in 1996 is expected to be
derived from distributions with
34
<PAGE> 37
respect to the Company's limited partnership units in the Same-Day Surgery
Center Partnership, from the dividend paid by SJHHS and from cash on
hand at the end of 1995. Such cash is anticipated to meet the Company's cash
needs during 1996. Further, the Company may elect to conduct a private offering
of its Common Stock in 1996 at a price that will be determined based upon the
then per share book value of the Company's stock. See the discussion under the
heading "Physician Qualifications" in Item 5 of this report, which discussion is
hereby incorporated by reference into the discussion under this Item 6. If
additional shares are sold in this fashion, such purchases will reduce the
percentage of the Company owned by each shareholder, and thus also the
percentage of the net income and net assets attributable to each shareholder.
PARTIALLY OWNED OPERATIONS
The financial condition, results of operations, liquidity and capital
resources of the Company reflect and depend upon the financial condition,
results of operations, liquidity and capital resources of the Partially Owned
Operations. The discussions of such matters under Item 1 of this Report are
hereby incorporated by reference into the discussion under this Item 6.
SPECIAL CONSIDERATIONS
As with any business venture, there are matters which the Company
cannot predict with certainty. Several of these matters are discussed below,
some of which already have materialized, and others, if they were to
materialize, could have a materially adverse effect on the Company.
Government Regulation
Several new laws and regulations affecting the health care business
were adopted, at both the state and federal levels, during 1992, 1993, 1994 and
1995. Additional health care reform legislation also is being considered in
1996 at both the state and federal levels. All of the legislation and
regulation could have a dramatically adverse impact on the Company, the
Partially Owned Operations and the stockholders of SJPA.
Indigent Care Assessment. New legislation was passed by the Florida
Legislature during its 1991 Session to raise additional State revenues to fund
health care for the indigent. This legislation imposed an assessment (the
"Assessment") equal to 1.5% of the annual "net operating revenues" (gross
revenues less expenses of collection and certain contractual adjustments and
discounts) of certain specified health care entities. The specified health
care entities include: (1) ambulatory surgical centers, (2) clinical
laboratories, (3) free standing radiation therapy centers and (4) free standing
outpatient diagnostic imaging centers.
The initial Assessment covered each entity's net operating revenues for
the portion of its fiscal year that began on July 1, 1991 through the end of
the year, and payment was due on April 30, 1992. The second Assessment,
covering net operating revenues for an entity's 1992 fiscal year, was due on
April 30, 1993. Beginning July 1, 1993, for an entity's 1993 fiscal year and
thereafter, the annual Assessment is due on a quarterly basis. The Florida
Agency for Health Care Administration
35
<PAGE> 38
("AHCA") is responsible for administration of the Assessment, and it published
final regulations relating to the Assessment during 1992.
An entity subject to the Assessment which fails to file the required
reports, or which files incomplete reports, will be subject to a fine not to
exceed $1,000 per day for each violation. In addition, a delinquent report,
other than a false report, will subject the entity to a fine not to exceed $50
per day for the first violation, $100 per day for the second violation and $500
per day for the third or subsequent violations. Also, if an entity fails to
pay the Assessment in a timely manner, it will be subject to a fine not to
exceed $100 per day for the first violation, $500 per day for the second
violation and $1,000 per day for the third or subsequent violations.
The Same-Day Surgery Center Partnership is subject to the Assessment.
The partnership provided for this accrued expense in its financial statements
for the period ended December 31, 1995. See the discussion under "ST. JOSEPH'S
SAME-DAY SURGERY CENTER, LTD. - Financial Matters" in Item 1 of this Report,
which provisions are hereby incorporated by reference into this Item 6. The
Assessment will adversely impact the cash flow available for distribution to
the investors in the partnership, which, in turn, will impact on the cash flow
of the PHO and the Company.
Medicare Fraud and Abuse Safe Harbor Regulations. On July 29, 1991,
the Office of Inspector General ("OIG") of the U.S. Department of Health and
Human Services ("DHHS") published its final Medicare fraud and abuse safe
harbor regulations (the "Regulations"). The Regulations, which became
effective immediately upon publication, are designed to identify certain
arrangements that fall within "safe harbors" and are deemed not to be
violations of the Medicare Anti-Kickback Statute (the "Statute"). The Statute
is violated by anyone who offers, pays or receives "remuneration" in return for
referring (or inducing a referral) or for purchasing, leasing or ordering any
business reimbursed under the Medicare program.
Any entity that provides health care services and is reimbursed for
those services under the Medicare or Medicaid Program is subject to the
provisions of the Statute. SJP currently does not enter into contracts that
cover Medicare patients. It is anticipated that SJHN will contract with
managed care organizations that are qualified to enroll Medicare or Medicaid
patients. Thus, SJHN will be, and the other Partially Owned Operations are,
subject to the provisions of the Statute.
The Regulations establish guidelines and standards for eleven different
arrangements that, if the guidelines and standards are met, are deemed not to
be violations of the Statute (i.e., are "safe harbors"). The arrangements
covered include: (1) investments in privately held ventures (such as the
Partially Owned Operations), (2) rental of office space, (3) rental of
equipment and (4) personal service and management contracts.
Failure to comply with the Regulations does not mean that an
arrangement automatically violates the Statute. All of the facts and
circumstances of the arrangement must be considered to determine whether a
fraud and abuse violation exists. Violation of the Statute is a criminal
felony, punishable by fines of up to $25,000 and up to five years in prison.
In addition to the potential criminal sanctions, in certain cases the OIG can
exclude any physician or other provider from the Medicare Program for a period
of five years (or longer in some cases). This exclusionary authority is
draconian in effect. Medicare will not pay any amount to an excluded
physician, to the patient or
36
<PAGE> 39
to any provider through which services or medications are ordered or prescribed
by the excluded physician. The exclusion applies whether or not the physician
is "participating" in the Medicare Program, and the right to appeal the
exclusion generally arises only after the exclusion has been imposed. The
exclusion of one physician also could adversely affect his or her entire
group's ability to be paid by Medicare during the period of exclusion.
The Company has no intention, and it believes that none of the entities
responsible for operation or management of any of the Partially Owned
Operations intends, to be involved in arrangements that constitute a fraud and
abuse violation. The Company believes that the various rental and management
contract arrangements to which the various Partially Owned Operations are
parties comply with the applicable provisions of the Regulations. However, as
structured, the Partially Owned Operations that are subject to the Statute
(primarily the Same-Day Surgery Center Partnership) will not comply with the
guidelines and standards established for investment interests.
A number of proposals for federal health care reform are under
consideration by the United States Congress. Included in several of the bills
proposed by various members of Congress is an expansion of the Statute to cover
all health care payors, including Medicare/Medicaid, private insurers,
self-insured plans and health maintenance organizations. If the Statute is
expanded in this manner, it is anticipated that the concepts underlying the
Regulations also will be expanded, and the OIG and DHHS (or another federal
regulatory body) will be given authority to enforce the expanded scope of the
Statute and Regulations.
The Company, in conjunction with the various entities responsible for
operating and managing the applicable Partially Owned Operations, is continuing
to review whether the arrangements could be deemed to constitute fraud and
abuse violations under the Statute, both in its current form and with respect
to the proposed expansion, and to review the planning options available to
limit or avoid the risks. The Company cannot predict whether any of the
arrangements would constitute a fraud and abuse violation.
Finally, in connection with the publication of the Regulations, certain
health care entities (including SJHHS) were required to report the names of
physician-investors to the Health Care Financing Administration ("HCFA" - the
department within DHHS responsible for administering Medicare). Because of the
broad definitions included on the reporting form, it was concluded that the
names of all stockholders of SJPA should be included as indirect owners of
SJHHS. This information is intended to be used in analyzing referral patterns
and utilization. The Company cannot predict how the reporting of its
stockholders could impact on any individual stockholder.
The Florida Patient Self-Referral Act of 1992. At the close of its
1992 Session on March 13, 1992, the Florida Legislature passed several bills
that apply to the business of health care. One bill that directly impacted on
the Company, the Partially Owned Operations and the stockholders of SJPA is
known as the "Patient Self-Referral Act of 1992" (the "Patient Self-Referral
Act"). It applies new prohibitions, rules and restrictions on the conduct of
business by a "health care provider" (defined to include an allopathic
physician, osteopathic physician, chiropractor, podiatrist, optometrist and
dentist) and any other "entity" (defined to include an individual, partnership,
firm, corporation or other business entity) that provides any health care
services in Florida.
37
<PAGE> 40
The applicable provisions of the Patient Self-Referral Act:
(1) absolutely prohibit a referral by a health care provider for
the provision of "designated health services" (clinical laboratory
services, diagnostic imaging services, radiation therapy services,
physical therapy services and comprehensive rehabilitation services,
including speech therapy, audiology, occupational therapy and physical
therapy) to an entity in which the health care provider is an investor
or has an investment interest;
(2) prohibit a referral by a health care provider for any other
health care item or service to an entity in which the health care
provider is an investor or owns an investment interest, unless certain
safe harbors are met;
(3) prohibit an entity from making claims for payment or receiving
payment from any individual, third party payor or other entity for a
service that is furnished pursuant to a prohibited referral;
(4) require any entity that furnishes the specified "designated
health services" to be licensed by the Florida Agency For Health and
Administration ("AHCA");
(5) require a health care provider to provide written disclosure
before referring a patient for any health care service to an entity in
which the health care provider has an ownership interest, such written
disclosure to include: (a) the existence of the ownership interest in
the entity, (b) the name and address of the entity, (c) the patient's
right to choose where to have the service rendered (including the
entity in which the health care provider owns an interest), and (d) the
names and addresses of at least two alternative sources of the item or
service;
(6) require any entity that provides health care services to get
the signature of a patient on a written disclosure form before service
is rendered, such written disclosure to include: (a) the existence or
nonexistence of a financial relationship with the referring health care
provider, (b) a schedule of typical fees charged by the entity or a
written estimate of the fees specific to the patient, (c) the patient's
right to choose where to have the service rendered and (d) the names,
addresses and telephone numbers of two reasonable alternative sources
at which the patient can receive the health care item or service;
(7) prohibit a health care provider from "marking up" the cost of
services purchased by the health care provider from any entity outside
of the provider's practice, other than a $2 handling fee (this
provision was repealed by the Florida "Health Care and Insurance Reform
Act of 1993," discussed below); and
(8) impose a limiting fee schedule (the "fee cap") on entities
that provide the specified "designated health services" (with
exceptions for physicians practicing in a group that meets the
definition of a "group practice" and for licensed hospitals).
The limiting fee schedule described in the eighth item above was found
to be unconstitutional by the United States District Court for the Northern
District of Florida, but the United States District Court was overruled by the
United States Eleventh Circuit Court of Appeals. That Federal Case now
38
<PAGE> 41
is over, a petition for certiorari to the United States Supreme Court having
been denied. An injunction against the imposition of the limiting fee schedule
also was entered by the Circuit Court of the Second Judicial Circuit, Leon
County, Florida, which was upheld on appeal to the Florida First District Court
of Appeals, and the case now is pending on appeal before the Florida Supreme
Court, but no decision has yet been rendered by the Supreme Court. See the
discussions of these cases under Item 3 of this Report, which discussion is
incorporated herein by reference. Under several health reform bills currently
pending in the Florida Legislature during its 1996 Session, the limiting fee
schedule would be repealed. The Company cannot predict whether this proposed
legislation ever will become law.
As originally enacted, the provision of the Patient Self-Referral Act
absolutely prohibiting referrals for the specified "designated health services"
was to be applicable for referrals made on or after October 1, 1995 by a health
care provider who acquired his or her interest in the entity before May 1,
1992. However, the effective date was moved back to October 1, 1994 by the
Florida "Health Care and Insurance Reform Act of 1993" (discussed below). If a
provider acquires his or her interest in an entity on or after May 1, 1992,
then referrals made on or after the effective date of the bill (April 8, 1992)
for the specified "designated health services" are absolutely prohibited. The
provision limiting referrals for other health care items or services to those
complying with the safe harbors was applicable on and after July 1, 1992.
The prohibition on making claims for payment or receiving payments for
a service rendered pursuant to a prohibited referral were effective on July 1,
1992. Licenses were to be required for entities providing the specified
"designated health services" on or after April 8, 1992, although regulations
for administering the licensing requirements must be specified by the AHCA' and
the Company is not aware that AHCA has issued any proposed or final regulations
implementing the licensing procedures. The disclosure requirements became
effective on April 8, 1992.
The Company is continuing to review the applicability of each of the
specific provisions of the Patient Self-Referral Act to the various Partially
Owned Operations. It is clear that the new law must be analyzed in two ways
with respect to each individual stockholder of SJPA. First, if an individual
physician owns any direct investment interest (e.g., a limited partnership
interest) in any of the Partially Owned Operations, then he or she must apply
the rules to his or her specific situation. Second, as described in the
Declaratory Statement Action discussed under Item 3 of the Report (which
discussion is incorporated herein by reference), the provisions of the Patient
Self-Referral Act could be applicable merely because of an individual
stockholder's ownership of stock in SJPA (whether or not he or she owns any
direct investment interest in any of the Partially Owned Operations).
However, the Company continues to be unable to resolve to its
satisfaction another issue. That is, it is not clear from the language of the
Patient Self-Referral Act whether the absolute prohibition will apply to all
referrals in which a "designated health service" is involved, or whether the
referral must specifically be for a "designated health service." For example,
would the absolute prohibition apply to a referral for an item or service that
is not a "designated health service" if a "designated health services" is
provided as an incident to the provision of the other item or service? The
answer to this question would be important, for example, when a patient is
referred for ambulatory surgery services to the Same-Day Surgery Center
Facility, and clinical laboratory services also are performed
39
<PAGE> 42
as an incident to the provision of ambulatory surgery services; similarly,
physical therapy services or clinical laboratory services might be performed as
an incident to the provision of home nursing services by SJHHS. As of this
time, it appears that the law would apply only to the specific service which
constitutes a "designated health service" (without regard to the other service
to be provided).
The answer to this open issue is important because, as the Board of
Medicine ruled in the Declaratory Statement Action, a stockholder in SJPA is
absolutely prohibited from referring a patient for "designated health services"
to SJHHS.
The same issue arises for SJHHS under the provision of the Patient
Self-Referral Act that prohibits referrals for other health care items and
services unless the applicable safe harbors are met. This provision will apply
to referrals to SJHHS for services that do not constitute "designated health
services," because the referring health care provider is deemed indirectly to
be an investor or to own an investment interest in SJHHS by virtue of his or
her owning stock in SJPA. Nevertheless, the Company believes that SJHHS will
comply with the applicable safe harbors.
With respect to referrals to the Same-Day Surgery Center Facility, the
definition of "referral" under the Patient Self-Referral Act specifically
excludes referrals by a health care provider for services provided by a
licensed ambulatory surgical center, such as the Same-Day Surgery Center
Facility. Thus, the Company believes that the Patient Self-Referral Act does
not apply to prohibit or limit referrals to the Same-Day Surgery Center
Facility. However, as described above, it is not clear, whether the Same-Day
Surgery Center Partnership would be entitled to charge for clinical laboratory
services that are provided as an incident to the ambulatory surgery services
rendered at the Same- Day Surgery Center Facility.
With respect to SJP and SJHN, the Company does not believe that these
entities provide or will provide health services. Rather, they act to
facilitate the direct provision of health services by PPO Providers or SJHN
Providers, as the case may be, to the individuals contracting for such
services. Accordingly, the Company does not believe that the Patient
Self-Referral Act's provisions relating to limitation on referrals would apply
to SJP or SJHN.
If violations of the Patient Self-Referral Act are found, then the
applicable entity, and the physician who makes the prohibited referral, could
be subject to penalties. The penalties are as follows. Any health care
provider who makes a prohibited referral will be subject to disciplinary action
by the appropriate board of the Florida Department of Business and Professional
Regulation. Any entity or person that presents or causes to be presented a
claim for services that were rendered pursuant to a prohibited referral is
subject to a civil penalty of not more than $15,000 for each such claim.
Finally, any health care provider or entity that enters into a cross-referral
arrangement which is designed to circumvent the provisions of the Patient Self-
Referral Act will be subject to a civil penalty of not more than $100,000 for
each such cross-referral arrangement.
Any health care provider or entity which fails to make the appropriate
disclosures to patients prior to making a referral, or prior to rendering
services, as the case may be, will be subject to criminal prosecution for a
misdemeanor of the first degree, carrying a fine of up to $1,000 or
imprisonment for a period not exceeding one year. In addition, any health care
provider who violates
40
<PAGE> 43
the disclosure requirements will be subject to disciplinary action by the
appropriate board of the Florida Department of Professional Regulation.
The Florida Health Care and Insurance Reform Act of 1993. At the close
of its 1993 Session on April 2, 1993, the Florida Legislature passed sweeping
health care reform legislation that is designed to reduce the spiraling cost of
health care and to ensure the availability of affordable health care for all
Floridians. The Governor signed the "Florida Health Care and Insurance Reform
Act of 1993" (the "Reform Act") into law on April 29, 1993. It is not clear
that the new law will achieve its lofty goals - which are to be met through a
combination of changes in the way that health care is offered to the public,
tort reform and health insurance reform.
The center piece of the Reform Act was the formation during 1993 and
1994 of "community health purchasing alliances" ("CHPAs") which are to
contract, on behalf of small employers (with between one and fifty employees),
qualified individuals, state employees and Medicaid recipients, directly with
groups of health care providers who will group together (either on their own or
as PPO or PPO-type panels through HMOs and health insurers) into "accountable
health partnerships" ("AHPs") to offer health services (and assume the risks
for such care) and negotiate reimbursements with each CHPA on a negotiated bid
basis. This "managed competition" model is coupled with the creation of
medical practice parameters based upon hospital patient outcomes data and
nationally developed practice guidelines (and protection from tort liability
for following the parameters) and requirements for health insurance companies
to ensure that small businesses and individuals can qualify for and afford
health insurance.
As noted above, the new law also amended the Patient Self-Referral Act
in certain respects.
Various provisions of the Reform Act became or will become effective at
different times, ranging from the date that the Governor signed the bill (April
29, 1993) through October 1, 1994. With limited exceptions, the provisions
regarding CHPAs and AHPs became effective on July 1, 1993.
As of this time, the Company is continuing its analysis of the impact
of the new law, along with the entities responsible for operation and
management of the Partially Owned Operations. It is anticipated that the new
law could have a substantial adverse impact on the amount of revenues received
by each of the Partially Owned Operations for specific services rendered. It
is possible that the relationships between the various physician-stockholders
of the Company and St. Joseph's Hospital that has resulted from offering
services as PPO Providers through SJP could be helpful to the formation of an
AHP that can successfully market to the CHPA that will be responsible for
Hillsborough County. In this way, the loss of reimbursement might be offset by
an increase in the volume of business at the Partially Owned Operations.
However, it is not yet possible to determine the market effect of the new law,
or whether the various Partially Owned Operations would have the space,
equipment and manpower capacities to absorb greater volume.
The Florida Legislature currently is holding its 1996 Regular Session,
and pending legislation, among other things, would expand the scope and
applicability of the "managed competition" approach that is being implemented
pursuant to the Reform Act. However, the Company cannot
41
<PAGE> 44
currently predict whether this pending legislation will ever become law, or, if
it does, what the impact of the legislation could be on the Company and on the
various Partially Owned Operations.
Medicare-Medicaid Amendments to the Omnibus Budget Reconciliation Act
of 1993. In August 1993, President Clinton signed into law the Omnibus Budget
Reconciliation Act of 1993 ("OBRA '93"), which contained a number of provisions
affecting the Medicare and Medicaid programs. The primary focus of the
Medicare provisions was a reduction in payments to providers (e.g., hospitals),
under Medicare Part A, and physicians, durable medical equipment suppliers and
other providers of services under Medicare Part B. Taken together, these
provisions will reduce the level of reimbursement paid to the Partially Owned
Operations with respect to services rendered to Medicare patients, thus
reducing the cash flow and profitability of the Partially Owned Operations. In
addition, OBRA '93 specified that there would be no inflation updates in
Medicare payments for ambulatory surgical center services for fiscal years 1994
and 1995.
In addition, OBRA '93 extended the scope of the federal prohibition on
physicians referring Medicare patients to entities in which they own a
financial interest or have a compensation arrangement. Prior to OBRA '93,
federal law prohibited referrals to entities in which a physician holds a
financial interest or has a compensation arrangement only to referrals for
clinical laboratory services. OBRA '93 extended the prohibition to cover
referrals for other "designated health services," including (1) clinical
laboratory services, (2) physical therapy services, (3) occupational therapy
services, (4) radiology services, including magnetic resonance imaging,
computerized axial tomography scans, and ultrasound services, (5) radiation
therapy services, (6) the furnishing of durable medical equipment, (7)
parenteral and enteral nutrients, equipment and supplies, (8) prosthetics,
orthotics and prosthetic devises, (9) home health services, (10) outpatient
prescription drugs and (11) inpatient and outpatient hospital services.
Generally, OBRA '93 prohibits a physician with an ownership or investment
interest in or a compensation arrangement with an entity from making referrals
to that entity for the furnishing of any of the "designated health services".
The Company is continuing to review the applicability of the physician
referral prohibitions contained in OBRA '93 to the various Partially Owned
Operations. It is clear that the prohibitions will apply to most, if not all,
of the services provided by SJHHS. It is not clear at this time whether the
prohibitions will apply to the services rendered by the Same-Day Surgery Center
Partnership. With respect to SJHHS, it no longer provides services to Medicare
or Medicaid patients (see the discussions under "HOSPITALS' HOME HEALTH CARE OF
HILLSBOROUGH COUNTY, INC. - Financial Matters" in Item 1 of this Report, which
provisions are incorporated by reference into this Item 6).
The reductions in payments were effective at various times, ranging
from the date that OBRA '93 became effective through January 1, 1994. The
extension of the prohibition against physician referrals were effective for
referrals made after December 31, 1994 (other than for clinical laboratory
services, which prohibition became effective on January 1, 1992).
Proposed Federal Health Care Reforms. As previously described in this
Item 6, several bills currently are pending in the United Stated Congress that
would extend the prohibition on physician referrals to also prohibit referrals
of patients who are covered by payors other than the Medicare and Medicaid
Programs, including private insurers, self-insured plans and health maintenance
42
<PAGE> 45
organizations (the so called "all payors prohibition"). As of this time, it is
not clear when or whether any of the proposed bills will be acted upon by the
Congress or whether President Clinton would agree to sign any such legislation
into law. If implemented, any one or more of these proposed legislative
initiatives could have a substantial adverse effect upon the various Partially
Owned Operations.
Uncertainty of Financial Results and Capital Needs
If the Company and/or the Partially Owned Operations do not meet their
goals with respect to revenues, or if their expenses of operations are higher
than anticipated, substantial additional funds may be required. Such
additional funds may be sought from a number of sources, including issuance of
additional shares of Common Stock, sale of investments, and loans from banks or
other financial institutions.
Uninsured Professional Liability Claims
The health care industry is extremely vulnerable to claims for
professional liability. The physicians providing services at the facilities
operated by the Partially Owned Operations are required to maintain malpractice
insurance coverage in order to protect against liability for medical
malpractice which may occur at such facilities. Such facilities also maintain
their own professional liability insurance. Although the Company believes that
required professional liability insurance policy limits and coverage of staff
are adequate, there can be no assurance that any of the Partially Owned
Operations will not be subject to a professional liability claim. Any such
liability could have a material adverse effect on the business and financial
condition of the Company.
ITEM 7. FINANCIAL STATEMENTS.
Financial statements meeting all applicable requirements are included
in this report immediately following Item 13 hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
43
<PAGE> 46
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
QUALIFICATION AND ELECTION
The Bylaws of the Company provide that the Board of Directors is to be
composed of nine of its stockholders, consisting of four stockholders
representing surgery specialties, four stockholders representing non-surgery
specialties and one stockholder who is a Hospital based physician. The
directors are to serve staggered terms of four years each. The directors
representing non-surgery specialties are to be selected from the Hospital's
Departments of Internal Medicine, Family Practice, Pediatrics and Psychiatry;
provided, however, that at least one primary care physician at all times is to
serve on the Board of Directors. The directors representing surgery specialties
are to be selected from the Departments of General Surgery, Cardiac Surgery,
Ophthalmology, Otolaryngology, Orthopedics and Urology; provided, however, that
at least one general surgeon at all times is to serve on the Board of
Directors.
Directors are nominated by a Nominating Committee, whose members
consist of the members of the Executive Committee. The Executive Committee is
comprised of the Chairman of the Board, the President and one additional
director. Nominations in addition to those made by the Nominating Committee
may be made by petition signed by at least 25% of the Company's stockholders.
The officers of the Company, except for the Chairman of the Board, are selected
every two years, to serve two-year terms, at the Annual Meeting of the Board of
Directors. The Chairman of the Board is not elected; instead, the President
succeeds to the office of Chairman of the Board.
The Bylaws of the Company require that all officers must be directors,
and that the officers at all times must be equally divided between
representatives of surgery specialties and representatives of non-surgery
specialties, except that one office may be filled by a Hospital based
physician.
The Bylaws of the Company also require that all directors be
shareholders of the Company. In addition, each director representing surgery
specialties and each director representing non-surgery specialties must be a
"qualified physician" within the given specialty in which he or she practices
for the two-year period ending on the date that he or she is nominated as a
director. Generally, the term "qualified physician" means a physician who is a
member in good standing of the Active or Senior Active medical staff of the
Hospital.
DIRECTORS AND OFFICERS
All of the following individuals are members of the Board of Directors
at the present time and have served continuously since the dates of their
election shown below. Information regarding the present officers and directors
of the Company and specialties represented is as follows:
44
<PAGE> 47
<TABLE>
<CAPTION>
Has Served
Principal As a Expiration
Occupation Director of Term of Office
Name Age or Employment(1) Since Office Held
- ----------- --- ------------- ------- ---------- ------
<S> <C> <C> <C> <C> <C>
Dennis Agliano, M.D.** 54 Physician 1987 1996
Andrew Boyer, M.D.* 60 Physician 1990 1997 Treasurer
Anthony Brannan, M.D.** 42 Physician 1994 1998 Secretary
Norman Castellano, M.D.* 49 Physician 1994 1998 President
Charles Cernuda, M.D.* 54 Physician 1987 1996
N. Bruce Edgerton, M.D.* 49 Physician 1995 1999 Vice President
Michael Wasylik, M.D.** 53 Physician 1995 1999
Thomas Mawn, M.D.** 62 Physician 1993 1997 Chairman
Jerry Diehr, M.D.*** 42 Physician 1995 1996
- ------------------------
</TABLE>
(1) Each of the directors and officers has been engaged in the practice of
medicine in the Tampa, Florida area for the last five years.
* non-surgery specialties
** surgery specialties
*** Hospital based
The following individuals have been nominated for election to four year
term positions and one year term positions, as indicated, on the Company's
Board of Directors, such election to be held at the Company's upcoming annual
meeting of stockholders in April 1996:
<TABLE>
<CAPTION>
Name Age Occupation Term of Office
- ----------- --- ---------- --------------
<S> <C> <C> <C>
Benedict S. Maniscalco, M.D.* 54 Physician 4 years
Bill Luria, M.D.** 49 Physician 4 years
Aaron Laden, M.D.*** 47 Physician 1 year
- ----------------------------
</TABLE>
* non-surgery specialties
** surgery specialties
*** Hospital based
None of the directors (present or nominated) or officers of the Company
are related by blood, marriage or adoption.
Dennis Agliano, M.D., age 54, received his M.D. degree from University
of Miami in 1968; his undergraduate degree is from Tulane University in 1964.
After graduating from medical school, Dr. Agliano did his internship at Charity
Hospital, Tulane Division, in New Orleans and a residency in ENT-Head and Neck
Surgery at Charity Hospital, Oschner Foundation, and EENT Hospital in
45
<PAGE> 48
New Orleans, Louisiana. Dr. Agliano served in the U.S. Air Force from 1973 to
1975. Dr. Agliano has been engaged in the private practice of medicine
specializing in otolaryngology since May, 1975 in Tampa, Florida, and is a Past
President of the Medical Staff at St. Joseph's Hospital. Dr. Agliano also is a
Director of the PHO, a limited partner in the Same-Day Surgery Center
Partnership, a Director and Vice President of SJP, the holder of a provider
contract with SJP, and a Director of BayCare.
Andrew Boyer, M.D., age 60, received his M.D. degree from the
University of Iowa. Since 1972 Dr. Boyer has been engaged in the private
practice of medicine in Tampa, Florida, specializing in Internal Medicine. Dr.
Boyer is a Past President of the Medical Staff at St. Joseph's Hospital. Dr.
Boyer also is the holder of a provider contract with SJP and a Director and
Vice President of the PHO.
Anthony Brannan, M.D., age 42, received his M.D. degree from Vanderbilt
University School of Medicine. Since 1986, Dr. Brannan has been engaged in the
private practice of medicine in Tampa, Florida, specializing in general
surgery. Dr. Brannan is also a limited partner in the Same-Day Surgery Center
Partnership and a holder of a provider contract with SJP.
Norman Castellano, M.D., age 49, received his M.D. degree from the
University of Guadalajara. Since 1978, Dr. Castellano has been engaged in the
private practice of medicine in Tampa, Florida, specializing in internal
medicine. Dr. Castellano also is a Director and President of the PHO, a
Director and Vice President of SJHHS and is a holder of a provider contract
with SJP.
Charles Cernuda, M.D., age 54, received his M.D. degree from Emory
University School of Medicine in 1968; his undergraduate degree is from Emory
University College of Arts and Sciences in 1963. After graduating from medical
school, Dr. Cernuda did his internship from 1968 through 1969, a straight
medicine residency from 1969 through 1970, and completed a fellowship in
pulmonary disease in 1972, all at Emory University Affiliated Hospitals. Dr.
Cernuda served in the U.S. Air Force as a Major in the Medical Corps from 1972
through 1973. Dr. Cernuda has been engaged in the private practice of
medicine, specializing in internal medicine and pulmonary disease, since 1974
in Tampa, Florida. Dr. Cernuda also is the employed Executive Director of the
Company, a Director of the PHO, an ex-officio director of SJHN, a Director and
Chairman of SJP, the holder of a provider contract with SJP, a Director of
CareFirst, paid Medical Director of the Intensive Care Unit and Respiratory
Care Services of the Hospital, and paid Medical Director of SJHHS.
Thomas Mawn, age 62, received his M.D. degree from Temple University.
Since 1969, Dr. Mawn has been engaged in the private practice of medicine in
Tampa, Florida, specializing in urology. Dr. Mawn also is a holder of a
provider contract with SJP, a Director of the PHO, and a Director and Chairman
of SJHHS.
N. Bruce Edgerton, M.D., age 49, received his M.D. degree from the
University of Florida. Since 1978, Dr. Edgerton has engaged in the private
practice of medicine in Tampa, Florida, specializing in gastroenterology. Dr.
Edgerton is a holder of a provider contract with SJP and is a Director of
SJHHS.
46
<PAGE> 49
Michael Wasylik, M.D., age 53, received his M.D. degree from Ohio State
University. Since 1975, Dr. Wasylik has engaged in the private practice of
medicine in Tampa, Florida, specializing in orthopedics. Dr. Wasylik is a
holder of a provider contract with SJP.
Jerry Diehr, M.D., age 42, received his M.D. degree from the University
of Florida. Since 1989, Dr. Diehr has engaged in the private practice of
medicine in Tampa, Florida, specializing in anesthesiology. Dr. Diehr is a
holder of a provider contract with SJP.
Benedict S. Maniscalco, M.D., age 54, received his M.D. degree from
Duke University. Since 1976, Dr. Maniscalco has engaged in the private
practice of medicine in Tampa, Florida, specializing in cardiology. Dr.
Maniscalco is a holder of a provider contract with SJP.
Bill Luria, M.D., age 49, received his M.D. degree from the Far Eastern
University in the Philippines. Since 1985, Dr. Luria has engaged in the
private practice of medicine in Tampa, Florida, specializing in plastic
surgery. Dr. Luria is a holder of a provider contract with SJP.
Aaron Laden, M.D., age 47, received his M.D. degree from the Medical
University of South Carolina. Since 1986, Dr. Laden has engaged in the private
practice of medicine in Tampa, Florida, specializing in pathology. Dr. Laden's
group practice is a holder of a provider contract with SJP.
POTENTIAL CONFLICTS OF INTEREST
The relationships between the officers, the members of the Board of
Directors, the stockholders and the Company are such that the parties are
subject to potential conflicts of interest.
The officers and the members of the Board of Directors will not be
required to devote any specific amount of time to the business of the Company,
and there may be conflicting and competing demands upon their time and talent
that could be detrimental to the Company. However, the officers and the
members of the Board of Directors intend to devote sufficient time to discharge
their responsibilities to the Company and to the stockholders.
A potential conflict of interest also exists with respect to any group
of ten percent (10%) or more of the stockholders required to offer to the PHO
the right to engage in a health care venture pursuant to the right of first
refusal provisions in the PHO Agreement. The interests of the Company's
representatives on the PHO Board of Directors (or the interests of the
Company's Board of Directors in directing its representatives on the PHO Board
of Directors) in voting to accept or reject the right to engage in the venture
may conflict with the interests of the offering stockholders.
Notwithstanding the foregoing, the members of the Board of Directors
must act as fiduciaries to the Company and to the stockholders in resolving any
conflict of interest. Decisions under various state laws, which will govern
the affairs of the Company, recognize the rights of stockholders to bring suit
against the Board of Directors, on behalf of the Company, when fiduciary duties
are violated. When a question has arisen, courts have held that a stockholder
may institute legal action on behalf of himself or herself and similarly
situated stockholders (a class action), or on behalf of the Company
47
<PAGE> 50
itself (a derivative action), to recover damages for the breach by a director
of his or her fiduciary duty.
The Bylaws of the Company provide that the officers, directors and
their employees and agents are to be indemnified against any loss, damage or
expense incurred by them and any of the other indemnified parties by reason of
any act or omission performed or omitted by then, for or on behalf of the
Company in furtherance of its interests. However, this indemnification does
not relieve the directors or the other indemnified parties from liability
resulting from gross negligence, fraud, or bad faith. As a result of these
Bylaw provisions, the stockholders may have more restricted rights of action
against the officers and the Board of Directors than would otherwise be the
case absent the indemnity provisions.
As indicated above, certain of the officers and directors of the
Company now or in the future may hold various positions with the Partially
Owned Operations, with affiliates of the Company, and with businesses in
competition with the Company. The holding of such positions could give rise to
conflicts of interest. The directors and officers of the Company are not
required to resolve any such conflicts in any particular manner, provided that
all such conflicts are disclosed to the Company and provided that under certain
circumstances a director or officer may choose not to participate in any
decision relating to a matter in which such director or officer has an
interest.
The foregoing summary involves a number of technical issues in the
fiduciary responsibility area of the law. Any stockholder who believes that a
breach of fiduciary duty has occurred should consult his own counsel.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Florida corporation law provides that a corporation shall have power to
indemnify any person who was or is a party, or is threatened to be made a
party, to any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, by reason of the
fact that he is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding,
including any appeal thereof, if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The Company's Bylaws provide that, under certain circumstances, it will
indemnify any person who is a party to any litigation or proceeding by reason
of the fact that he or she is or was a director or officer of the Company or is
or was a member of a Committee of the Company or is or was serving at the
request of the Company as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise. The Company maintains
liability insurance for the benefit of its directors and officers.
48
<PAGE> 51
ITEM 10. EXECUTIVE COMPENSATION.
No compensation has been paid by the Company to any of its directors or
officers in their capacities as such in connection with the organization or
operation of the Company, or otherwise, and there is no arrangement between the
Company and any of such persons that would result in the payment of any
compensation to any such person for services in his respective capacity as
director or officer. However, on October 1, 1991 the Company engaged Charles
E. Cernuda, M.D., also a director of the Company, as a part-time executive
director to handle various administrative matters for the Company. The
Executive Director position is not an officer position with the Company. Dr.
Cernuda is paid $40,000 annually for his services in such capacity.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The Company does not know of any person, either individually or as part
of a group, who beneficially owns more than five percent (5%) of the
outstanding Common Stock of the Company. The following table sets forth
certain information as to the shares of the Company's Common Stock owned of
record and beneficially by each officer and director of the Company and by all
officers, directors and nominees for directors as a group:
<TABLE>
<CAPTION>
Title of Name of Beneficial Amount and Nature of Percent
Class Owner Beneficial Ownership of Class
---------- ------------------- -------------------- --------
<S> <C> <C> <C>
Common Stock Dennis Agliano, M.D. 1 Share *
Common Stock Andrew Boyer, M.C. 1 Share *
Common Stock Anthony Brannan, M.D. 1 Share *
Common Stock Norman Castellano, M.D. 1 Share *
Common Stock Charles Cernuda, M.D. 1 Share *
Common Stock Jerry Diehr, M.D. 1 Share *
Common Stock N. Bruce Edgerton, M.D. 1 Share *
Common Stock Aaron Laden, M.D.** 1 Share *
Common Stock Bill Luria, M.D.** 1 Share *
Common Stock Benedict S. Maniscalco, M.D.** 1 Share *
Common Stock Thomas Mawn, M.D. 1 Share *
Common Stock Michael Wasylik, M.D. 1 Share *
------- --
12 Shares 2.81%
</TABLE>
*Less than 0.5%
**Nominee for director
49
<PAGE> 52
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company is not aware of any particular transaction of a type
required to be disclosed under this Item 12. However, reference is made to the
discussions of the relationships between and among various persons and entities
under Item 1 of this Report, which provisions are hereby incorporated by
reference into the discussion under this Item 12.
50
<PAGE> 53
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Report and
included immediately following the signature pages.
Financial Statements of Issuer
- Report of Ernst & Young LLP dated as of February 23,
1996, as to the financial statements of St. Joseph's
Physician Associates, Inc. for the years ended
December 31, 1995 and 1994
- Balance Sheets of St. Joseph's Physician Associates,
Inc. as of December 31, 1995 and 1994.
- Statements of Income of St. Joseph's Physician
Associates, Inc. for the years ended December 31,
1995 and 1994.
- Statements of Changes in Stockholders' Equity of St.
Joseph's Physician Associates, Inc. for the years
ended December 31, 1995 and 1994.
- Statements of Cash Flows of St. Joseph's Physician
Associates, Inc. for the years ended December 31,
1995 and 1994.
- Notes to Financial Statements
Financial Statement of Hospitals' Home Health Care of
Hillsborough County, Inc., d/b/a St. Joseph's Home Health
Services, an entity 50% or less owned by issuer.
- Report of Ernst & Young LLP dated February 23, 1996,
as to the Financial Statements of Hospitals' Home
Health Care of Hillsborough County, Inc., d/b/a St.
Joseph's Home Health Services, for the years ended
December 31, 1995 and 1994.
51
<PAGE> 54
- Balance Sheets of Hospitals' Home Health Care of
Hillsborough County, Inc., d/b/a St. Joseph's Home
Health Services, as of December 31, 1995 and 1994.
- Statements of Income of Hospitals' Home Health Care
of Hillsborough County, Inc., d/b/a St. Joseph's Home
Health Services, for the years ended December 31,
1995 and 1994.
- Statements of Changes in Stockholders' Equity of
Hospital's Home Health Care of Hillsborough County,
Inc., d/b/a St. Joseph's Home Health Services, for
the years ended December 31, 1995 and 1994.
- Statements of Cash Flows of Hospitals' Home Health
Care of Hillsborough County, Inc., d/b/a St. Joseph's
Home Health Services, for the years ended December
31, 1995 and 1994.
- Notes to Financial Statements
Financial Statements of St. Joseph's Physicians-Healthcenter
Organization, Inc., an entity 50% or less owned by issuer.
- Report of Ernst & Young LLP dated February 23, 1996,
as to the consolidated Financial Statements of St.
Joseph's Physicians-Healthcenter Organization, Inc.
for the years ended December 31, 1995 and 1994.
- Consolidated Balance Sheets of St. Joseph's
Physicians-Healthcenter Organization, Inc. as of
December 31, 1995 and 1994.
- Consolidated Statements of Operations of St. Joseph's
Physicians-Healthcenter Organization, Inc. for the
years ended December 31, 1995 and 1994.
- Consolidated Statements of Changes in Stockholders'
Equity of St. Joseph's Physicians-Healthcenter
Organization, Inc. for the years ended December 31,
1995 and 1994.
- Consolidated Statements of Cash Flows of St. Joseph's
Physicians-Healthcenter Organization, Inc. for the
years ended December 31, 1995 and 1994.
- Notes to Consolidated Financial Statement.
52
<PAGE> 55
The following exhibits are filed as part of this report (exhibits marked with
an asterisk have been previously filed with the Commission and are incorporated
herein by this reference):
*3.1 Articles of Incorporation of the Company (previously filed as
Exhibit 3.1 to the Company's Registration Statement on Form S-18,
Number 33-22011-A).
*3.2 Amended and Restated Bylaws of the Company dated April 29, 1991
(previously filed as Exhibit 3.2 to the Company's 1991 Annual Report
on Form 10-K).
*3.3 Amendment to Article II of the Bylaws of the Company adopted
December 9, 1991 (previously filed as Exhibit 3.3 to the Company's
1991 Annual Report on Form 10-K).
*3.4 Amendment to Article V of the Bylaws of the Company adopted April 4,
1994 (previously filed as Exhibit 3.4 to the Company's 1994 Annual
Report on Form 10-K).
*4.1 Agreement between St. Joseph's Physician Associates, Inc., St.
Joseph's Enterprises, Inc. and St. Joseph's Physicians-Healthcenter
Organization, Inc. (previously filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-18, Number 33-22011-A).
*10.1 Management Agreement between St. Joseph's Diagnostic Center, Ltd.
and St. Joseph's Health Care Center, Inc. (previously filed as
Exhibit 10.2 to the Company's Registration Statement on Form S-18,
Number 33-22011-A).
*10.2 Lease between St. Joseph's Diagnostic Center, Ltd. and Franciscan
Properties, Inc. (previously filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-18, Number 33-22011-A).
*10.3 Management Agreement between St. Joseph's Same-Day Surgery Center,
Ltd. and St. Joseph's Health Care Center, Inc. (previously filed as
Exhibit 10.4 to the Company's Registration Statement on Form S-18,
Number 33-22011- A).
*10.4 Management Agreement between Hospitals' Home Health Care of
Hillsborough County, Inc. and ServiceMaster Home Health Care
Services, Inc. (previously filed as Exhibit 28 to the Company's
Current Report on Form 8-K dated June 29, 1989).
*10.5 Service Agreement effective December 1, 1989 between Hospitals' Home
Health Care of Hillsborough County, Inc. and American Home Patient
Centers, Inc.
*10.6 Agreement between St. Joseph's Physician Associates, Inc., St.
Joseph's Enterprises, and St. Joseph's Physicians-Healthcenter
Organization, Inc. dated October 1, 1991 (previously filed as
Exhibit 10.6 to the Company's 1991 Annual Report on Form 10-K).
53
<PAGE> 56
10.6.1 Letter, dated October 3, 1995, from Isaac Mallah, Executive Vice
President of St. Joseph's Enterprises, Inc. to Thomas Mawn, M.D.,
Chairman of St. Joseph's Physician Associates, Inc., effecting an
amendment to the Agreement between St. Joseph's Physician
Associates, Inc., St. Joseph's Enterprises, and St. Joseph's
Physicians-Healthcenter Organization, Inc. dated October 1, 1991.
*10.7 Executive Director Agreement between St. Joseph's Physician
Associates, Inc. and Charles E. Cernuda, M.D. dated October 1, 1991
(previously filed as Exhibit 10.7 to the Company's 1991 Annual
Report on Form 10-K).
*10.8 Lease between St. Joseph's Same-Day Surgery Center, Ltd. and
Franciscan Properties, Inc. (previously filed as Exhibit 10.5 to the
Company's Registration Statement on Form S-18, Number 33-22011-A).
27 Financial Data Schedule (For SEC Use Only)
*99.1 Limited Partnership Agreement dated January 1, 1991 between St.
Joseph's Same-Day Surgery Center, Ltd. and the Company (previously
filed as Exhibit 28.1 to the Company's Current Report on Form 8-K
dated January 14, 1991).
*99.2 Contingent Promissory Note due September 30, 1989 running from the
Company to St. Joseph's Same-Day Surgery Center, Ltd. (previously
filed as Exhibit 28.2 to the Company's Current Report on Form 8-K
dated January 14, 1991).
*99.3 Contingent Promissory Note due September 30, 1990 running from the
Company to St. Joseph's Same-Day Surgery Center, Ltd. (previously
filed as Exhibit 28.3 to the Company's Current Report on Form 8-K
dated January 14, 1991).
*99.4 Contingent Promissory Note due September 30, 1991 running from the
Company to St. Joseph's Same-Day Surgery Center, Ltd. (previously
filed as Exhibit 28.4 to the Company's Current Report on Form 8-K
dated January 14, 1991).
*99.5 Form of Purchase Agreement pursuant to which two of the Company's
limited partner units in Same-Day Surgery Center, Ltd. were sold in
two unrelated transactions on March 29, 1991.
*99.6 Form of Transfer and Assignment pursuant to which two of the
Company's limited partner units in Same-Day Surgery Center, Ltd.
were sold in two unrelated transactions on March 29, 1991.
(b) Reports on Form 8-K
None.
54
<PAGE> 57
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.
<TABLE>
<S> <C> <C>
By: /s/ Norman Castellano, M.D. 4/10/96
--------------------------------------- -----------------------
NORMAN CASTELLANO, M.D., President Date
</TABLE>
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
By: /s/ Thomas J. Mawn, M.D. 4/9/96
--------------------------------------- ----------------------
THOMAS J. MAWN, M.D., Chairman, Director Date
(principal executive officer)
By: /s/ Norman Castellano, M.D. 4/10/96
--------------------------------------- -----------------------
NORMAN CASTELLANO, M.D., Date
President, Director
By: /s/ Dennis Agliano, M.D. 4/11/96
--------------------------------------- ----------------------
DENNIS AGLIANO, M.D., Director Date
By:
--------------------------------------- ----------------------
N. BRUCE EDGERTON, M.D., Date
Vice President, Director
By: /s/ Andrew Boyer, M.D. 4/10/96
--------------------------------------- ----------------------
ANDREW BOYER, M.D., Treasurer, Director Date
(principal financial and
accounting officer)
</TABLE>
55
<PAGE> 58
<TABLE>
<S> <C> <C>
By:
----------------------------------------- ----------------------
ANTHONY BRANNAN, M.D., Date
Secretary, Director
By:
----------------------------------------- -----------------------
MICHAEL WASYLIK, M.D., Director Date
By: /s/ Charles E. Cernuda, M.D. 4/9/96
----------------------------------------- -----------------------
CHARLES E. CERNUDA, M.D., Director Date
By:
----------------------------------------- -----------------------
JERRY DIEHR, M.D., Director Date
</TABLE>
56
<PAGE> 59
Report of Independent Certified Public Accountants
Board of Directors
St. Joseph's Physician Associates, Inc.
We have audited the accompanying balance sheets of St. Joseph's Physician
Associates, Inc. as of December 31, 1995 and 1994, and the related statements
of income, changes in stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
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, the financial statements referred to above present fairly, in
all material respects, the financial position of St. Joseph's Physician
Associates, Inc. at December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
February 23, 1996
Tampa, Florida
1
<PAGE> 60
St. Joseph's Physician Associates, Inc.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 643,988 $ 473,781
Distribution receivable from limited partnership investments 44,000 39,820
Prepaid expenses 8,038 8,073
Other investments, current - 20,000
------------------------
Total current assets 696,026 541,674
Equity investments 690,956 674,554
Other investments, noncurrent 20,000 -
------------------------
Total assets $1,406,982 $1,216,228
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses $ 18,625 $ 18,560
Income taxes payable 22,156 19,203
------------------------
Total current liabilities 40,781 37,763
Deferred income taxes 35,518 11,982
Stockholders' equity:
Common stock, $1 par value: 7,500 shares authorized; 422
shares at December 31, 1995 and 390 shares at December 31,
1994 issued and outstanding 422 390
Common stock subscribed, 5 shares at December 31, 1995 5 -
Subscriptions receivable (10,000) -
Additional paid-in capital 685,477 574,382
Retained earnings 654,779 591,711
------------------------
Total stockholders' equity 1,330,683 1,166,483
------------------------
Total liabilities and stockholders' equity $1,406,982 $1,216,228
========================
</TABLE>
See accompanying notes.
2
<PAGE> 61
St. Joseph's Physician Associates, Inc.
Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
---------------------
<S> <C> <C>
Equity in net earnings of investees $ 16,402 $228,891
Distribution income 139,880 125,310
---------------------
156,282 354,201
Expenses:
General and administrative 79,859 206,082
---------------------
Operating income 76,423 148,119
Interest income 22,527 12,222
---------------------
Income before income taxes 98,950 160,341
Income taxes 35,882 11,206
---------------------
Net income $ 63,068 $149,135
=====================
Income per common share $ 154 $ 402
---------------------
Net income $ 154 $ 402
=====================
Weighted average shares outstanding and subscribed 410 371
=====================
</TABLE>
See accompanying notes.
3
<PAGE> 62
St. Joseph's Physician Associates, Inc.
Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
COMMON ADDITIONAL
COMMON STOCK SUBSCRIPTIONS PAID-IN RETAINED
STOCK SUBSCRIBED RECEIVABLE CAPITAL EARNINGS TOTAL
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $349 $ - $ - $469,337 $442,576 $ 912,262
- -
Sale of common stock 46 - - 118,174 - 118,220
Redemption of common stock (5) - - (13,129) - (13,134)
Net income - - - - 149,135 149,135
------------------------------------------------------------------
Balance at December 31, 1994 390 - - 574,382 591,711 1,166,483
Sale and subscription of
common stock 38 5 (10,000) 128,957 - 119,000
Redemption of common stock (6) - - (17,862) - (17,868)
Net income - - - - 63,068 63,068
------------------------------------------------------------------
Balance at December 31, 1995 $422 $ 5 $(10,000) $685,477 $654,779 $1,330,683
==================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 63
St. Joseph's Physician Associates, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
-----------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 63,068 $149,135
Adjustments to reconcile net income to net cash
used in operating activities:
Equity in net earnings of investees (16,402) (228,891)
Distribution income (139,880) (125,310)
Deferred income taxes 23,536 (12,852)
Changes in operating assets and liabilities:
Income tax deposits - 3,521
Prepaid expenses 35 (956)
Accrued expenses 65 (10,796)
Income taxes payable 2,953 19,203
---------------------
Net cash used in operating activities (66,625) (206,946)
INVESTING ACTIVITIES
Dividends from equity investments - 100,000
Distributions received 135,700 120,995
---------------------
Net cash provided by investing activities 135,700 220,995
FINANCING ACTIVITIES
Proceeds from sale of common stock 119,000 118,220
Redemption of common stock (17,868) (13,134)
---------------------
Net cash provided by financing activities 101,132 105,086
---------------------
Increase in cash and cash equivalents 170,207 119,135
Cash and cash equivalents at beginning of year 473,781 354,646
---------------------
Cash and cash equivalents at end of year $643,988 $473,781
=====================
</TABLE>
See accompanying notes.
5
<PAGE> 64
St. Joseph's Physician Associates, Inc.
Notes to Financial Statements
December 31, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
St. Joseph's Physician Associates, Inc. (the Company) was organized on November
20, 1987 to establish and operate an association of qualified physicians and
engage directly or indirectly in health care related ventures.
In February 1989, the Company acquired 2,500 shares of the common stock of St.
Joseph's Physicians-Healthcenter Organization, Inc. (PHO) for $20 per share.
The 2,500 shares represent 50% of the outstanding common stock of the PHO. The
PHO also has 6,250 preferred shares outstanding. The Company earns equity in
the net earnings of the PHO at 22.22% of the PHO's earnings after deducting a
6% cumulative dividend for the 6,250 preferred shares. The PHO was organized
for the purpose of engaging directly or indirectly in health care related
ventures.
In June 1989, the Company acquired 4,000 shares of the common stock of
Hospitals' Home Health Care of Hillsborough County, Inc. d/b/a St. Joseph's
Home Health Services (HHC) for $10 per share. The 4,000 shares represent 50% of
the outstanding common stock of HHC. HHC was organized for the purpose of
providing medical services to patients in the home environment.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from these estimates.
EQUITY INVESTMENTS
The Company accounts for its investments in the PHO and HHC on the equity
method. Accordingly, these investments have been stated in the accompanying
balance sheets at the cost of acquisition plus the Company's equity in the
undistributed earnings/losses since acquisition through December 31, 1995 and
1994, respectively. None of the assets or liabilities of the investments are
included in the balance sheets except to the extent of the Company's interests
in the underlying net assets included in equity investments. The excess of the
cost of acquisition of
6
<PAGE> 65
St. Joseph's Physician Associates, Inc.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the investment in HHC over the Company's interest in the underlying net
liabilities at the date of acquisition was $84,264 and is being amortized as a
component of equity in net earnings of investees over 40 years. The Company's
net earnings/losses resulting from its proportionate share of the investees'
revenues and expenses are included in the statements of income.
OTHER INVESTMENTS
The Company owns five limited partnership units, a 6% interest, in St. Joseph's
Same-Day Surgery Center, Ltd. At December 31, 1994, this investment was held
for resale and included in current assets. Management has not actively marketed
these partnership units and intends to hold them beyond one year. Accordingly,
as of December 31, 1995, this investment is classified as noncurrent. The
investment is accounted for at cost due to the limited percentage interest in
the partnership and inability to exercise significant influence over the
partnership. Distributions are recorded as income when declared and reported as
distribution income.
SUBSCRIPTIONS RECEIVABLE
Subscriptions receivable relate to agreements to purchase common stock of the
Company and are to be paid in installments during 1996 and 1997.
CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities of
three months or less when purchased to be cash equivalents.
INCOME TAXES
The Company follows the liability method of accounting for income taxes.
Deferred income taxes relate to the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes and are measured using
the enacted tax rules and laws in effect when the difference is expected to be
realized.
INCOME PER COMMON SHARE
Income per common share is based upon the weighted average number of common
shares outstanding during the period.
7
<PAGE> 66
St. Joseph's Physician Associates, Inc.
Notes to Financial Statements (continued)
2. EQUITY INVESTMENTS
A summary of the changes in equity investments is presented below:
<TABLE>
<CAPTION>
HHC PHO TOTAL
-----------------------------
<S> <C> <C> <C>
Balance at January 1, 1994 $437,631 $108,032 $545,663
Equity in net earnings of investees 205,794 23,097 228,891
Dividend received (100,000) - (100,000)
-----------------------------
Balance at December 31, 1994 543,425 131,129 674,554
Equity in net earnings (loss)
of investees 46,061 (29,659) 16,402
-----------------------------
Balance at December 31, 1995 $589,486 $101,470 $690,956
=============================
</TABLE>
The condensed balance sheets of the equity investees are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
-----------------------
<S> <C> <C>
HHC
Assets:
Current assets $1,873,999 $1,786,335
Noncurrent assets 9,217 13,531
-----------------------
Total assets $1,883,216 $1,799,866
=======================
Liabilities and stockholders' equity:
Current liabilities $ 676,697 $ 586,189
Long-term liabilities 168,697 272,189
Stockholders' equity 1,037,822 941,488
-----------------------
Total liabilities and stockholders' equity $1,883,216 $1,799,866
=======================
PHO
Assets:
Current assets $ 337,592 $ 606,735
Noncurrent assets 274,867 213,059
-----------------------
Total assets $ 612,459 $ 819,794
=======================
Liabilities and stockholders' equity:
Current liabilities $ 152,267 $ 226,122
Stockholders' equity 460,192 593,672
-----------------------
Total liabilities and stockholders' equity $ 612,459 $ 819,794
=======================
</TABLE>
8
<PAGE> 67
St. Joseph's Physician Associates, Inc.
Notes to Financial Statements (continued)
2. EQUITY INVESTMENTS (CONTINUED)
The condensed statements of income of the equity investees are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
-----------------------
<S> <C> <C>
HHC
Revenues $1,770,451 $2,488,058
Expenses (1,608,295) (1,830,039)
-----------------------
162,156 658,019
Income tax provision 65,822 242,219
-----------------------
Net income $ 96,334 $ 415,800
=======================
PHO
Equity in partnership earnings $ 104,592 $ 179,977
Other revenues 41,822 278,213
Expenses (321,529) (249,754)
-----------------------
(175,115) 208,436
Income tax (benefit) provision (49,135) 96,988
-----------------------
Net income (loss) $ (125,980) $ 111,448
=======================
</TABLE>
3. INCOME TAXES
The provision for income taxes consisted of the following for the years ended
December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
-----------------
<S> <C> <C>
Current:
Federal $28,815 $18,584
State 7,091 5,474
Deferred:
Federal (20) (10,972)
State (4) (1,880)
-----------------
Provision for income taxes $35,882 $11,206
=================
</TABLE>
9
<PAGE> 68
St. Joseph's Physician Associates, Inc.
Notes to Financial Statements (continued)
3. INCOME TAXES (CONTINUED)
The differences between the federal income tax rate and the Company's effective
income tax rate for the years ended December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
--------------
<S> <C> <C>
Federal income tax at statutory rate 34.0% 34.0%
State income taxes, net of federal income
tax benefit 3.7 3.7
Dividend received deduction on equity
in net earnings of investees - (24.2)
Effect of nondeductible expenses 6.9 6.7
Effect of incremental federal tax rates (9.3) (11.9)
Other, net 1.0 (1.3)
------------
36.3% 7.0%
============
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
----------------
<S> <C> <C>
Deferred tax liabilities:
Investments accounted for
under equity method for
financial accounting purposes $68,911 $43,959
----------------
Total deferred tax liabilities 68,911 43,959
Deferred tax assets:
Difference in basis of
investments in limited
partnership interests between
financial and tax reporting 33,393 31,977
----------------
Total deferred tax assets 33,393 31,977
----------------
Net deferred tax liability $35,518 $11,982
================
</TABLE>
10
<PAGE> 69
St. Joseph's Physician Associates, Inc.
Notes to Financial Statements (continued)
3. INCOME TAXES (CONTINUED)
The deferred income tax expense (benefit) for the years ended December 31, 1995
and 1994 arise from the following:
<TABLE>
<CAPTION>
1995 1994
-----------------
<S> <C> <C>
Equity in net earnings of investees, offset
by dividend received deduction $1,392 $ 9,691
Limited partnership investment distributions
and gains, offset by taxable income earned (1,416) (23,335)
Other - 792
-----------------
$ (24) $(12,852)
=================
</TABLE>
The Company paid income taxes of $33,050 and $1,334 in 1995 and 1994,
respectively.
4. RELATED PARTIES
The members of the Board of Directors of the Company are also members of the
medical staff of St. Joseph's Hospital, Inc. St. Joseph's Hospital, Inc. is a
controlled affiliate of St. Joseph's Health Care Center, Inc. (the Center). The
Center provides administrative support to the Company at no charge.
Additionally, all limited partner investors in PHO's ventures are investors in
the Company. Additionally, all physicians who hold provider contracts with a
subsidiary of the PHO are investors in the Company.
On October 1, 1991, the Company hired an executive director to provide and
facilitate the efficient operations of the Company. The executive director is a
member of the Company's Board of Directors. Under the terms of the funding
agreement dated October 1, 1991, PHO agreed to reimburse the Company for
compensation paid to the executive director up to the limits set forth in the
Executive Director Agreement. For each of the years ended December 31, 1995 and
1994, $40,000 of compensation was paid or accrued by PHO. However, the funding
agreement has been terminated by the PHO effective January 1, 1996. The Company
is now responsible for paying the compensation of the executive director.
11
<PAGE> 70
Report of Independent Certified Public Accountants
Board of Directors and Stockholders'
Hospitals' Home Health Care of
Hillsborough County, Inc.
d/b/a St. Joseph's Home Health Services
We have audited the accompanying balance sheets of Hospitals' Home Health Care
of Hillsborough County, Inc. d/b/a St. Joseph's Home Health Services as of
December 31, 1995 and 1994, and the related statements of income, changes in
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Hospitals' Home Health Care of
Hillsborough County, Inc. d/b/a St. Joseph's Home Health Services at December
31, 1995 and 1994, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
February 23, 1996
Tampa, Florida
1
<PAGE> 71
Hospitals' Home Health Care of Hillsborough County, Inc.
d/b/a St. Joseph's Home Health Services
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 888,280 $ 346,130
Accounts receivable, less allowance for uncollectibles of
$61,000 and $104,000 for 1995 and 1994, respectively 963,951 1,302,443
Prepaid expenses and other current assets 21,768 37,181
Income tax deposits - 100,581
------------------------
Total current assets 1,873,999 1,786,335
Equipment, net 9,217 13,531
------------------------
Total assets $1,883,216 $1,799,866
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,664 $ 75,965
Accrued expenses 25,849 36,069
Due to affiliated organizations 439,389 474,155
Income taxes payable 196,795 -
------------------------
Total current liabilities 676,697 586,189
Deferred income taxes 168,697 272,189
Stockholders' equity:
Common stock, $10 par value, 8,000 shares
authorized and outstanding 80,000 80,000
Retained earnings 957,822 861,488
------------------------
Total stockholders' equity 1,037,822 941,488
------------------------
Total liabilities and stockholders' equity $1,883,216 $1,799,866
========================
</TABLE>
See accompanying notes.
2
<PAGE> 72
Hospitals' Home Health Care of Hillsborough County, Inc.
d/b/a St. Joseph's Home Health Services
Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
------------------------
<S> <C> <C>
Net patient service revenue $1,750,666 $2,476,146
Expenses:
Contracted employee compensation 901,358 723,077
Purchased services 304,660 606,332
Supplies 248,315 408,582
Professional fees 35,386 29,621
Depreciation 4,314 5,221
Bad debts 114,262 57,206
-----------------------
Total expenses 1,608,295 1,830,039
-----------------------
Income from operations 142,371 646,107
Nonoperating gains 19,785 11,912
-----------------------
Income before provision for income taxes 162,156 658,019
Provision for income taxes 65,822 242,219
-----------------------
Net income $ 96,334 $ 415,800
=======================
</TABLE>
See accompanying notes.
3
<PAGE> 73
Hospitals' Home Health Care of Hillsborough County, Inc.
d/b/a St. Joseph's Home Health Services
Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
$10 PAR VALUE
COMMON STOCK
---------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
-----------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 8,000 $80,000 $645,688 $ 725,688
Net income - - 415,800 415,800
Dividend - - (200,000) (200,000)
-----------------------------------------
Balance at December 31, 1994 8,000 80,000 861,488 941,488
Net income - - 96,334 96,334
-----------------------------------------
Balance at December 31, 1995 8,000 $80,000 $957,822 $1,037,822
=========================================
</TABLE>
See accompanying notes.
4
<PAGE> 74
Hospitals' Home Health Care of Hillsborough County, Inc.
d/b/a St. Joseph's Home Health Services
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
------------------------
<S> <C> <C>
OPERATING ACTIVITIES AND NONOPERATING GAINS
Net income $ 96,334 $415,800
Adjustments:
Depreciation 4,314 5,221
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net 338,492 (786,058)
Decrease (increase) in prepaid expenses and other assets 15,413 (10,893)
Decrease (increase) in income tax deposit 100,581 (100,581)
Decrease in accounts payable (61,301) (46,914)
(Decrease) increase in accrued expenses (10,220) 6,483
(Decrease) increase in due to affiliated organizations (34,766) 313,402
Increase (decrease) in income taxes payable 196,795 (45,051)
(Decrease) increase in deferred income taxes (103,492) 206,748
---------------------
Net cash provided by (used in) operating activities and
nonoperating gains 542,150 (41,843)
INVESTING ACTIVITIES
Purchases of equipment - (1,291)
---------------------
Net cash used in investing activities - (1,291)
FINANCING ACTIVITIES
Payment of dividends - (200,000)
---------------------
Net cash used in financing activities - (200,000)
---------------------
Increase (decrease) in cash and cash equivalents 542,150 (243,134)
Cash and cash equivalents at beginning of year 346,130 589,264
---------------------
Cash and cash equivalents at end of year $888,280 $346,130
=====================
</TABLE>
See accompanying notes.
5
<PAGE> 75
Hospitals' Home Health Care of Hillsborough County, Inc.
d/b/a St. Joseph's Home Health Services
Notes to Financial Statements
December 31, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Hospitals' Home Health Care of Hillsborough County, Inc. d/b/a St. Joseph's
Home Health Services (the Company) was incorporated in 1985 under the laws of
the State of Florida to provide home health care and related home care
services. In addition to providing home health care services, the Company
supplies certain durable medical equipment and I.V. and respiratory therapy
services to its patients.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from these estimates.
STATEMENTS OF INCOME
For purposes of display, transactions deemed by management to be ongoing,
major, or central to the provision of health care services are reported as
revenue and expenses. Peripheral or incidental transactions, primarily interest
income, are reported as nonoperating gains.
REVENUE RECOGNITION
Net patient service revenue represents the estimated net realizable amounts
from patients and third-parties under the provisions of payment formulas in
effect. Amounts received under these programs are generally less than the
established billing rates of the Company.
Revenues earned under Medicare payment agreements were approximately $858,000
during the year ended December 31, 1994 (see Note 5).
CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities of
three months or less when purchased to be cash equivalents.
6
<PAGE> 76
Hospitals' Home Health Care of Hillsborough County, Inc.
d/b/a St. Joseph's Home Health Services
Notes to Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company follows the liability method of accounting for income taxes.
Deferred income taxes relate to the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
EQUIPMENT
Equipment is recorded at cost, less accumulated depreciation. Maintenance and
repairs are charged to expense as incurred. Expenditures which increase value
and extend the useful lives are capitalized. Upon the sale or retirement of
equipment, the gain or loss is included in nonoperating gains in the year of
disposition.
Depreciation expense is computed using the straight-line method over the useful
lives of the related asset. The range of useful lives is from five to ten
years.
2. EQUIPMENT
Equipment consists of the following:
<TABLE>
<CAPTION>
1995 1994
----------------
<S> <C> <C>
Equipment $27,703 $27,703
Less accumulated depreciation 18,486 14,172
----------------
$ 9,217 $13,531
================
</TABLE>
Expenses incurred under operating leases were $16,845 and $16,037 for the years
ended December 31, 1995 and 1994, respectively.
7
<PAGE> 77
Hospitals' Home Health Care of Hillsborough County, Inc.
d/b/a St. Joseph's Home Health Services
Notes to Financial Statements (continued)
3. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
---------------------
<S> <C> <C>
Current:
Federal $140,156 $ 30,282
State 29,158 5,189
Deferred taxes:
Federal (88,354) 176,506
State (15,138) 30,242
---------------------
Provision for income taxes $ 65,822 $242,219
=====================
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. The Company's deferred tax
liabilities and assets as of December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
----------------------
<S> <C> <C>
Total deferred tax liabilities $(186,480) $(508,156)
Total deferred tax assets 63,634 235,967
Valuation allowance for deferred assets (45,851) -
---------------------
Net deferred tax liability $(168,697) $(272,189)
=====================
</TABLE>
Significant components of the Company's deferred tax liabilities result
primarily from the difference in the method used for financial statement
reporting (accrual accounting) versus the method used for tax reporting (cash
method). At December 31, 1995, the Company has net operating loss carryforwards
of $169,241 for income tax purposes that expire in the years 2000 through 2003.
For financial purposes, a valuation allowance of $45,851 has been recognized
to offset the deferred asset related to these assets.
The Company received an income tax refund of $128,063 in 1995 and paid income
taxes of $130,812 in 1994.
8
<PAGE> 78
Hospitals' Home Health Care of Hillsborough County, Inc.
d/b/a St. Joseph's Home Health Services
Notes to Financial Statements (continued)
4. RELATED PARTIES
The Company is related to certain organizations through the common corporate
membership of the stockholders. The Company and these related organizations
conduct certain types of business transactions.
The Company has entered into management and collection agreements with a
related organization. The agreements provide for a management fee of 2.5% of
gross charges and, through August 31, 1995, a collection fee of 5% of net
collections. Effective September 1, 1995, the Company began performing its own
billing and collection services. Total fees associated with these agreements
were $74,233 and $196,463 for the years ended December 31, 1995 and 1994,
respectively.
For the years ended December 31, 1995 and 1994, the Company paid $1,236,585 and
$1,094,063, respectively, for the purchase of goods and services, including
contracted employee compensation, from related organizations.
The Company is insured for medical malpractice claims through a captive
insurance company related to the Company through the common corporate
ownership. Expenses paid for such insurance were $2,273 and $2,165 for the
years ended December 31, 1995 and 1994, respectively, and are included in
purchased services in the accompanying statements of income.
5. DISCONTINUED SERVICES
Effective January 1, 1995, the Company discontinued services provided to
patients covered by the Medicare and Medicaid programs due to recent
legislation related to limitations on physician referrals to certain entities
in which they own an interest. The Company's common stock is owned 50% by St.
Joseph's Physician Associates, Inc., a corporation wholly owned by physicians.
This change in the Company's business has resulted in a decrease in the
Company's net patient service revenue.
9
<PAGE> 79
Report of Independent Certified Public Accountants
Board of Directors
St. Joseph's Physicians-Healthcenter Organization, Inc.
We have audited the accompanying consolidated balance sheets of St. Joseph's
Physicians-Healthcenter Organization, Inc. as of December 31, 1995 and 1994,
and the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Organization's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of St. Joseph's
Physicians-Healthcenter Organization, Inc. at December 31, 1995 and 1994, and
the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
February 23, 1996
Tampa, Florida
1
<PAGE> 80
St. Joseph's Physicians-Healthcenter Organization, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
-------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $216,789 $582,690
Distribution receivable 38,134 -
Prepaid income taxes 60,434 -
Other current assets 22,235 24,045
-------------------
Total current assets 337,592 606,735
Other receivables--long-term 80,000 80,000
Organization costs, net of accumulated amortization of
$10,166 and $8,063 for 1995 and 1994, respectively 1,228 3,331
Investments in limited partnerships 101,882 90,544
Deferred income taxes 91,757 39,184
-------------------
Total assets $612,459 $819,794
===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 17,081 $ 92,681
Income taxes payable - 84,127
Dividends payable 51,250 43,750
Deferred membership fees 83,500 -
Due to affiliated organizations 436 5,564
-------------------
Total current liabilities 152,267 226,122
Stockholders' equity:
Common stock, $1 par value, 5,000 shares
authorized, issued and outstanding 5,000 5,000
Preferred Stock, $20 par value, 6% cumulative,
6,250 shares authorized, issued and outstanding 125,000 125,000
Additional paid-in capital 95,000 95,000
Retained earnings 235,192 368,672
-------------------
Total stockholders' equity 460,192 593,672
-------------------
Total liabilities and stockholders' equity $612,459 $819,794
===================
</TABLE>
See accompanying notes.
2
<PAGE> 81
St. Joseph's Physicians-Healthcenter Organization, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
------------------------
<S> <C> <C>
Revenue:
Equity in earnings of limited partnerships $ 104,592 $179,977
Investment and other income 41,822 278,213
----------------------
146,414 458,190
Expenses:
General and administrative 87,053 84,493
Professional fees 232,373 163,158
Amortization 2,103 2,103
----------------------
321,529 249,754
----------------------
Income (loss) before income taxes (175,115) 208,436
Provision (benefit) for income taxes (49,135) 96,988
----------------------
Net income (loss) $(125,980) $111,448
======================
</TABLE>
See accompanying notes.
3
<PAGE> 82
St. Joseph's Physicians-Healthcenter Organization, Inc.
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
$20 PAR VALUE
$1 PAR VALUE 6% CUMULATIVE
COMMON STOCK PREFERRED STOCK ADDITIONAL
------------------------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 5,000 $5,000 6,250 $125,000 $95,000 $264,724 $489,724
Dividends declared on
Preferred Stock (7,500) (7,500)
Net income for the year
ended December 31, 1994 111,448 111,448
----------------------------------------------------------------------------
Balance at December 31, 1994 5,000 5,000 6,250 125,000 95,000 368,672 593,672
Dividends declared on
Preferred Stock (7,500) (7,500)
Net loss for the year
ended December 31, 1995 (125,980) (125,980)
----------------------------------------------------------------------------
Balance at December 31, 1995 5,000 $5,000 6,250 $125,000 $95,000 $235,192 $460,192
============================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 83
St. Joseph's Physicians-Healthcenter Organization, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(125,980) $111,448
Adjustments:
Amortization 2,103 2,103
Equity in earnings of limited partnerships (104,592) (179,977)
Gain on sale of investment in limited partnership - (238,126)
Changes in operating assets and liabilities:
Increase in deferred membership fees 83,500 -
Increase in distribution receivable (38,134) -
Decrease (increase) in other current assets 1,810 (2,079)
Increase in deferred income taxes (52,573) (32,885)
(Decrease) increase in accounts payable and accrued
expenses (75,600) 78,594
Increase in prepaid income taxes (60,434) -
(Decrease) increase in income taxes payable (84,127) 71,443
(Decrease) increase in due to affiliated organizations (5,128) 3,764
----------------------
Net cash used in operating activities (459,155) (185,715)
INVESTING ACTIVITIES
Distributions received from limited partnerships 93,254 161,073
Proceeds from sale of investment - 252,000
----------------------
Net cash provided by investing activities 93,254 413,073
----------------------
(Decrease) increase in cash and cash equivalents (365,901) 227,358
Cash and cash equivalents at beginning of year 582,690 355,332
----------------------
Cash and cash equivalents at end of year $ 216,789 $582,690
======================
</TABLE>
See accompanying notes.
5
<PAGE> 84
St. Joseph's Physicians-Healthcenter Organization, Inc.
Notes to Consolidated Financial Statements
December 31, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
St. Joseph's Physicians-Healthcenter Organization, Inc. (the Company) is
organized as a Florida corporation for the purpose of engaging directly or
indirectly in health care related ventures.
The Company is the managing general partner of St. Joseph's Same-Day Surgery
Center, Ltd. (the Surgery Center), a Florida limited partnership formed to
develop and operate an outpatient surgery center. The Company has a four
percent (4%) partnership interest in the Surgery Center.
The Company was the managing general partner of St. Joseph's Diagnostic Center,
Ltd. (the Diagnostic Center), a Florida limited partnership formed to develop
and operate an outpatient diagnostic imaging center. The Company sold its four
percent (4%) partnership interest in the Diagnostic Center during 1994 to a
related organization.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, St. Joseph's Preferred, Inc. (SJP), a
development stage preferred provider network and St. Joseph's Health Network,
Inc. (SJHN), a development stage physician-hospital organization formed to
negotiate at-risk products with managed care organizations on behalf of its
membership.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from these estimates.
INVESTMENT IN LIMITED PARTNERSHIPS
The Company accounts for its 4% investment in the Surgery Center under the
equity method due to the Company's ability to exercise significant influence
over the limited partnership. Accordingly, this investment has been stated in
the accompanying consolidated balance sheet at the cost of acquisition plus the
Company's equity in the undistributed earnings or losses since acquisition
through December 31, 1995 and 1994, respectively. None of the assets or
liabilities of the partnership are included in the consolidated balance sheet
except to the extent of the Company's interests in the underlying net assets of
the limited partnership. The Company's
6
<PAGE> 85
St. Joseph's Physicians-Healthcenter Organization, Inc.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
earnings resulting from its proportionate shares of the partnership's revenue
and expenses are included in equity in earnings of limited partnerships in the
consolidated statements of operations. In November 1995, the Board of Directors
approved the purchase of a one-half limited partnership interest from the
estate of a shareholder under the Company's right of first refusal as managing
partner. The purchase price is expected to be $42,000 and is anticipated to be
paid in March 1996.
The Company also accounted for its 4% investment in the Diagnostic Center under
the equity method through the date of sale (September 30, 1994). The Company's
earnings resulting from its proportionate share of the partnership's revenue
and expenses through the date of sale are included in equity in earnings of
limited partnerships in the consolidated statements of operations. The gain
resulting from the sale of the Company's interest in the Diagnostic Center was
$238,126 and is included in investment and other income in the consolidated
statements of operations.
ORGANIZATION COSTS
Organization costs represent legal costs applicable to the formation of SJP.
These costs are being amortized on a straight-line basis over a period of 60
months.
CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities of
three months or less when purchased to be cash equivalents.
INCOME TAXES
The Company follows the liability method of accounting for income taxes.
Deferred income taxes relate to the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
DEFERRED MEMBERSHIP FEES
Deferred membership fees represent amounts paid by physicians participating in
SJHN. These amounts are being deferred and will be amortized ratably over
future periods upon the commencement of the operations of SJHN.
7
<PAGE> 86
St. Joseph's Physicians-Healthcenter Organization, Inc.
Notes to Financial Statements (continued)
2. PREFERRED STOCK
All Preferred Stock issued by the Company is nonvoting and the Company will, at
the option of any holder of the preferred stock, redeem the Preferred Stock for
a cash price of $20 plus all declared and unpaid dividends.
Cumulative dividends declared but unpaid on the preferred stock at December 31,
1995 and 1994 are $51,250 and $43,750, or $8.20 and $7.00 per share,
respectively.
3. INVESTMENTS IN LIMITED PARTNERSHIPS
A summary of the changes in the Company's investment in limited partnerships is
presented below:
<TABLE>
<CAPTION>
1995 1994
-------------------
<S> <C> <C>
Balance at January 1 $ 90,544 $165,514
Equity in earnings of limited partnerships for
the year ended December 31 104,592 179,977
Distributions received (93,254) (161,073)
Proceeds from sale of investment - (332,000)
Gain on sale of investment - 238,126
-------------------
Balance at December 31 $101,882 $ 90,544
===================
</TABLE>
The combined condensed balance sheets and related statements of income of the
limited partnerships are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
----------------------
<S> <C> <C>
Assets:
Current assets $3,165,638 $3,048,622
Noncurrent assets 700,408 824,930
----------------------
Total assets $3,866,046 $3,873,552
======================
Liabilities and partners' equity:
Current liabilities $ 927,891 $1,212,477
Long-term debt 368,720 375,095
Partners' equity 2,569,435 2,285,980
----------------------
Total liabilities and partners' equity $3,866,046 $3,873,552
======================
</TABLE>
8
<PAGE> 87
St. Joseph's Physicians-Healthcenter Organization, Inc.
Notes to Financial Statements (continued)
3. INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
-----------------------
<S> <C> <C>
Revenues $9,791,803 $17,491,512
Expenses 7,177,015 12,969,700
-----------------------
Net income $2,614,788 $ 4,521,812
=======================
</TABLE>
4. INCOME TAXES
The combined federal and state income tax provision consists of the following
components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
---------------------
<S> <C> <C>
Current:
Federal $ 1,896 110,876
State 1,541 18,997
Deferred taxes:
Federal (44,882) (26,789)
State (7,690) (6,096)
---------------------
Provision (benefit) for income taxes $(49,135) $ 96,988
=====================
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company's deferred
tax liabilities and assets as of December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------
<S> <C> <C>
Total deferred tax liabilities $ (48) $ (584)
Total deferred tax assets 91,805 39,768
-------------------
Net deferred tax asset $91,757 $39,184
===================
</TABLE>
Components of the Company's deferred tax assets result primarily from
differences in basis of investments in partnership interest between financial
and tax reporting as well as deferred expenses on investments in SJHN.
9
<PAGE> 88
St. Joseph's Physicians-Healthcenter Organization, Inc.
Notes to Financial Statements (continued)
4. INCOME TAXES (CONTINUED)
The Company paid income taxes of $148,000 and $38,300 in 1995 and 1994,
respectively.
5. COMMITMENTS AND CONTINGENCIES
As the managing general partner, the Company is contingently liable for all
liabilities of the Surgery Center.
6. RELATED PARTY TRANSACTIONS
The Company is 50% owned by St. Joseph's Enterprises, Inc., an affiliate of St.
Joseph's Health Care Center, Inc. (the Center). The Center provides
administrative support to the Company. All physician limited partners in the
Surgery Center (and the Diagnostic Center prior to September 30, 1994) are also
stockholders in St. Joseph's Physician Associates, Inc. (SJPA), which is a 50%
owner of the Company.
The Company entered into an agreement through December 31, 1995, whereby it
would reimburse SJPA for the services of the executive director of SJPA. Under
this agreement, $40,000 was paid in both 1995 and 1994 and is included in
general and administrative expenses in the consolidated statements of
operations. This agreement has been terminated effective January 1, 1996.
10
<PAGE> 89
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For the fiscal year ended Commission File No. 33-22011-A
December 31, 1995
ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Item
- ------ ----
<S> <C>
10.6.1 Letter, dated October 3, 1995, from Isaac Mallah, Executive Vice President
of St. Joseph's Enterprises, Inc. to Thomas Mawn, M.D., Chairman of
St. Joseph's Physician Associates, Inc., effecting an amendment to the
Agreement between St. Joseph's Physician Associates, Inc., St. Joseph's
Enterprises, and St. Joseph's Physicians-Healthcenter Organization, Inc.
dated October 1, 1991.
27 Financial Data Schedule (for SEC use only)
</TABLE>
<PAGE> 90
Attachment
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE SECURITIES
EXCHANGE ACT OF 1934 (THE "ACT").
The following materials are included herewith and furnished to the
Commission for its information:
(1) One copy of the form of proxy and related materials
sent to the registrant's security holders with respect to its 1996
annual meeting of stockholders.
The foregoing materials shall not be deemed to be "filed" with the
Commission or otherwise subject to the liabilities of Section 18 of the Act.
No annual report or similar material, other than as furnished herewith,
has been sent to the security holders of the registrant with respect to its
1996 annual meeting of stockholders.
<PAGE> 91
March 18, 1995
Dear Stockholder:
The 1996 Annual Meeting of Stockholders will be held on MONDAY, APRIL 29, 1996
AT 6:00 P.M. IN THE MEDICAL ARTS BUILDING AUDITORIUM. For further information,
please refer to the enclosed Notice of Annual Meeting. You also will find
enclosed, a letter from the Chairman of the Board, Thomas Mawn, M.D., and the
Nominating Committee's report on its nominations for each directorship to be
filled at the Annual Meeting.
Reports will be presented on all 1995 activities of St. Joseph's Physician
Associates, Inc., some of which have been notably successful, including the
investments in St. Joseph's Physicians-Healthcenter Organization, Inc. (the
Managing General Partner of St. Joseph's Same-Day Surgery Center, Ltd.) and St.
Joseph's Home Health Services.
This Annual Meeting is intended to provide an opportunity for all Stockholders
to participate in the affairs of the Company. This participation is very
important to the future of the Company and the Bylaws ensure that participation
is open to all Stockholders. The new Board members will be elected, and soon
after the Annual Meeting, new committees will be re-appointed. Please call me
if you are interested in serving on a committee.
We look forward to your participation at the meeting. If you are unable to
attend, however, please complete the enclosed proxy and return it to us in the
enclosed return envelope.
Sincerely,
/s/ Norman Castellano, M.D.
Norman Castellano, M.D.
President
Enclosures
<PAGE> 92
March 20, 1996
Dear Stockholder:
One of the purposes of the 1996 Annual Meeting of the Stockholders is to elect
three members of the Board of Directors. The Nominating Committee of the Board
of Directors has met to nominate individuals to fill the three vacancies on the
Board of Directors. The members of this Committee are Norman Castellano, M.D.,
N. Bruce Edgerton, M.D., and myself. The Chairman of the Committee is Dr.
Edgerton. All members can be contacted at the above mailing address.
Enclosed is the Nominating Committee's report on its nominations for each
directorship to be filled at the Annual Meeting.
Nominations, in addition to those made by the Nominating Committee, may be made
by petition by at least twenty-five percent (25%) of the shareholders eligible
to vote at the Annual Meeting. There were 427 shareholders of record as of
March 15, 1996, so 107 shareholders must sign a nominating petition. The
petition must be filed with the President, Norman Castellano, M.D., or the
Secretary, Anthony Brannan, M.D., not later than fourteen (14) days before the
Annual Meeting scheduled on April 29, 1996.
We look forward to seeing you at the meeting.
Sincerely,
/s/ Thomas Mawn, M.D.
Thomas Mawn, M.D.
Chairman of the Board of Directors
Enclosure
<PAGE> 93
March 12, 1996
Tom Mawn, M.D.
Chairman of the Board, SJPA
4710 North Habana Avenue #400
Tampa, Florida 33614
RE: Nominations for SJPA Board of Directors
Dear Dr. Mawn:
The Nominating Committee, consisting of Norman J. Castellano, M.D., 2727 W. Dr.
M.L. King Jr. Blvd, Suite 450, Tampa, FL 33607; Tom Mawn, M.D., 4710 N. Habana
Avenue, Suite 400, Tampa, FL 33614; and myself, N. Bruce Edgerton, M.D., 2706
W. Dr. M.L. King Jr. Blvd, Suite A, Tampa, FL 33607, has met and submits the
following nominations.
For a full four-year term on the Board of Directors as provided by our Bylaws,
Bill Luria, M.D., Surgery representative; Benedict S. Maniscalco, M.D.,
Medicine representative; and for the one-year, hospital-based physician term;
Aaron Laden, M.D., Pathology.
Respectfully submitted,
/s/ N. Bruce Edgerton, M.D.
- --------------------------------
N. Bruce Edgerton, M.D.
Chairman, Nominating Commitee
NBE/evo
<PAGE> 94
ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 29, 1996
You are cordially invited to attend the 1996 Annual Meeting of the
stockholders of St. Joseph's Physician Associates, Inc., which will be held at
the auditorium of the Medical Arts Building, 3003 W. Dr. Martin Luther King,
Jr. Blvd., Tampa, Florida, on Monday, April 29, 1996 at 6:00 p.m., local time,
for the following purposes:
(1) To elect three directors, two to serve terms of four
years and one to serve a term of one year;
and
(2) To transact such other business as may properly come
before the meeting or any adjournments thereof.
Only stockholders of record at the close of business on March 15, 1996
are entitled to notice of and to vote at the meeting or any adjournments
thereof.
Accompanying this Notice of Annual Meeting is a form of proxy. In the
event that you will be unable to attend the meeting, please sign, date and
return the proxy in the enclosed return envelope.
By order of the Board of Directors
/s/ Anthony Brannan, M.D.
----------------------------------
ANTHONY BRANNAN, M.D., Secretary
March 15, 1996
Enclosures
<PAGE> 95
ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.
PROXY SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS FOR
1996 ANNUAL STOCKHOLDERS' MEETING
The undersigned stockholder of St. Joseph's Physician Associates, Inc.
(the "Company"), revoking all prior proxies, hereby appoints Thomas Mawn, M.D.,
Norman Castellano, M.D. and Charles Cernuda, M.D., or one or more of them, as
the attorneys and proxies of the undersigned, with full power of substitution
and revocation, to vote all the shares of stock of the Company that the
undersigned may be entitled to vote at the 1996 Annual Meeting of the
Stockholders of the Company to be held at the auditorium of the Medical Arts
Building, 3003 W. Buffalo Avenue, Tampa, Florida, on April 29, 1996, at 6:00
p.m., local time, and at any adjournment or adjournments thereof, with all
powers that the undersigned would possess if personally present, upon the
following matters as more fully described in the accompanying Notice of Annual
Meeting, receipt of which is hereby acknowledged:
(1) Election of Directors to serve terms of four years each:
[ ] FOR the nominees listed below (except as marked
to the contrary):
Bill Luria, M.D.
Benedict S. Maniscalco, M.D.
(To withhold authority to vote for one of the
nominees, strike through his name above.)
[ ] WITHHOLD authority to vote for all nominees listed
above.
(2) Election of Director to serve term of one year:
[ ] FOR the nominee listed below:
Aaron Laden, M.D.
[ ] WITHHOLD authority to vote for the nominee listed
above.
(3) In their discretion upon such other matters as may properly
come before the meeting.
When properly executed, this proxy will be voted as specified above.
If the proxy is returned with no contrary specification made, it will be voted
FOR Proposal (1) and FOR Proposal (2).
DATED the day of , 1996.
----- -----------------
(SIGNATURE)
---------------------------------------
(PRINT NAME)
--------------------------------------
PLEASE SIGN NAME EXACTLY AS IT APPEARS ON STOCK CERTIFICATE. WHEN SIGNING AS
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, GIVE FULL TITLE. IF
MORE THAN ONE TRUSTEE OR PERSONAL REPRESENTATIVE, ALL MUST SIGN.
<PAGE> 1
EXHIBIT 10.6.1
HAND-DELIVERED
October 3, 1995
Thomas Mawn, M.D., Chairman
St. Joseph's Physician Associates, Inc.
P.O. Box 151526
Tampa, Florida 33684-1526
Dear Dr. Mawn:
This letter is in reference to the Agreement dated October 1, 1991 by and among
St. Joseph's Physicians-Healthcenter Organization, Inc. (the "PHO"), St.
Joseph's Physician Associates, Inc. ("SJPA"), and St. Joseph's Enterprises,
Inc. ("SJE") (see attached copy).
Since October of 1991, St. Joseph's has provided a grant to SJPA to support the
position of SJPA Executive Director. However, the following recent events have
caused St. Joseph's to reevaluate the continued funding of this position:
- The success of SJPA and its ability to support its ongoing operations
independently.
- The increased scrutiny by governmental agencies of the activities of
not-for-profit organizations involving physician organizations and PHO's.
- The current need to hire a director for St. Joseph's Health Network,
Inc., as well as, the existing PHO's at St. Joseph's and St. Anthony's.
Given the above, SJE would like to terminate the funding relationship as stated
in the attached Agreement. We request the termination be effective January 1,
1996. We are aware that Section 6 of the Agreement provides for a one-year
termination notification. However, due to the mitigating circumstances stated
above, we hope that you will accept this letter to serve as (1) an amendment to
Section 6 of the Agreement to provide for a 90-day
<PAGE> 2
termination provision and (2) as proper written notification of termination of
the Agreement 90 days from the above date (January 1, 1996).
Please sign below and return a copy of this letter in the self-addressed
envelope enclosed. If you have any questions regarding the above, please call
Susie Andree at 870-4230.
Sincerely,
/s/ Isaac Mallah
------------------------------
Isaac Mallah
Executive Vice-President
St. Joseph's Enterprises, Inc.
Enclosure
Copy to Charles E. Cernuda, M.D.
Received and Approved on behalf of St. Joseph's Physician Associates, Inc. by:
/s/ Thomas Mawn, M.D. October 4, 1995
- -------------------------------------- -----------------
Thomas Mawn, M.D. Date
Chairman
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ST. JOSEPH'S
PHYSICIAN ASSOCIATES, INC. BALANCE SHEET AND STATEMENT OF INCOME CONTAINED IN
THE 12/31/95 AUDITED FINANCIAL STATEMENTS, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 643,988
<SECURITIES> 0
<RECEIVABLES> 44,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 696,956
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,406,982
<CURRENT-LIABILITIES> 40,781
<BONDS> 0
0
0
<COMMON> 675,904
<OTHER-SE> 654,779
<TOTAL-LIABILITY-AND-EQUITY> 1,406,982
<SALES> 0
<TOTAL-REVENUES> 178,809
<CGS> 0
<TOTAL-COSTS> 79,859
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 98,950
<INCOME-TAX> 35,882
<INCOME-CONTINUING> 63,068
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,068
<EPS-PRIMARY> 154.00
<EPS-DILUTED> 0
</TABLE>
