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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, 1996
[ ] 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.
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(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
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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. $326,538
State the aggregate market value of the voting stock held by
non-affiliates of the registrant.
Approximately $1,478,303 as of February 28, 1997 (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 -- 433 shares as of March 31,
1997
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, 1996
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . 31
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION. 35
ITEM 7. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ITEM 10. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 53
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
</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 which was organized on November 20, 1987 to establish,
organize, and operate as an association of qualified physicians, for the
purposes of engaging directly or indirectly in the provision of professional
services through one or more managed care arrangements and engaging 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, a Florida corporation, was organized in 1987 and originally
was 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, St. Joseph's
Women's Hospital and The Tampa Children's Hospital (collectively, the
"Hospital"), each of which is located in Hillsborough County, Florida. 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. Until its
redemption on January 31, 1997, Enterprises also owned all of the nonvoting
preferred stock of the PHO.
The PHO is principally a vehicle through which the Company and
Enterprises together indirectly provide hospital and professional services to
various managed care organizations and 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 on March 13,
1991 to provide health care services as a "preferred provider" network. SJHN,
also a Florida corporation, was organized on 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.
SJHHS, a Florida corporation, was organized to provide home health
services, including nursing and certain other health care services in the homes
of home-bound patients. In June 1989, the Company purchased 50% of the
outstanding common stock of SJHHS.
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
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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).
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 and SJHHS, the Company 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
obligation, because the 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. In 1996, the authorized capital stock
of the PHO consisted 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 owned all 6,250 shares of the
preferred stock of the PHO. The PHO preferred stock provided 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 participated
on a per share basis in dividends declared with respect to the common stock.
The PHO preferred stock had a preference on liquidation of the PHO, and
Enterprises also had 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. Enterprises exercised its right to require redemption, and
all 6,250 shares of nonvoting preferred stock were redeemed, effective on
January 31, 1997, for $184,375 (including cumulative unpaid dividends). As a
result of this redemption, the Company and Enterprises now each 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, SJHHS, the St. Joseph's Diagnostic Center, Ltd.
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 offer its services to clients of BayCare
requiring access to health care providers in Hillsborough County, Florida.
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 26,300 enrolled employees, to provide standard
preferred provider, primary care preferred provider (i.e., "gatekeeper") and
various insured health care products. These include contracts with the
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Hospital Corporation and the Same-Day Surgery Center Partnership covering
approximately 3,600 employees.
In addition, BayCare has contracts with other managed care entities
through which the PPO Providers are made available to provide services to the
approximately 24,000 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. In addition, in November 1996, the Board
of Directors of BayCare voted to change the quorum requirements to specify that
a quorum exists when any two representatives (physician or administrators) from
five out of the seven owner hospitals (i.e., at least two representatives of
70% of the stockholders) are present at a meeting (the change has not yet been
incorporated into a revised bylaw provision). 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.
Prior to 1996, SJP had no staff and relied on BayCare to perform all
operational and marketing functions for SJP. In 1996, a PHO Director was
hired, as well as a PHO Coordinator and a Provider Relations Representative, to
staff the operations of the PHO, SJP, SJHN and the physician hospital
organization operated for St. Anthony's Hospital (an organization affiliated
with the Hospital Corporation) and the physicians at that hospital in St.
Petersburg, Florida.
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
purpose of developing a network of hospitals and physicians (collectively
referred to as the "SJHN Providers") and negotiating at-risk (i.e., capitation)
contracts, or discounted fee-for-service contracts that will evolve over time
into 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 is separate and
distinct from the PPO Providers comprising SJP's network (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 pure 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.
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During 1996, SJHN completed the credentialing process, and 162
physicians currently are participating as SJHN Providers. SJHN now is actively
negotiating for capitation contracts. Its first such contract, covering the
employees of St. Joseph's Hospital, will become effective on May 1, 1997.
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 percent
(0.88%) interest in the Same-Day Surgery Center Partnership. Prior to the
January 31, 1997 redemption of Enterprises' preferred stock in the PHO, the
Company's participation in the net income of the PHO was determined after
deduction for accumulated PHO preferred stock dividends, and, thus, any cash
distributed by the Same-Day Surgery Center Partnership to the PHO was applied
first to accumulated unpaid dividends on the PHO preferred stock. As a result
of the redemption, cash distributed by the Same-Day Surgery Center Partnership
to the PHO will be available for other purposes, including distribution equally
to Enterprises and the Company (as the Board of Directors of the PHO deems
appropriate). However, there can be no assurance that the Same-Day Surgery
Center Partnership will distribute cash to the PHO or that the PHO will make
any distribution of any cash that it receives to the Company.
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
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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.
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, from time to time, bills are considered by the Florida
legislature and the United States Congress, and regulations are proposed by
various Florida and federal regulatory agencies, 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 or
regulatory proposals could substantially affect some or all of the Partially
Owned Operations and the Company. There is no assurance that future
legislation or regulations 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
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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.
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 and SJHN 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.
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
of the Same-Day Surgery Center Partnership.
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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 interest 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., a
former director and officer 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. In a previous
agreement between the Company, the PHO and Enterprises, the PHO agreed to
reimburse SJPA for all compensation paid to SJPA's Executive Director.
However, effective January 1, 1996, the funding agreement was terminated and,
as a result, the Company currently is funding 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, prior to January 31, 1997, also owned 100% of the PHO's
preferred stock (6,250 shares). In 1996, the preferred stock had a par value
of $20 per share and carried 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. All cumulative preferred dividends were paid in connection
with the January 31, 1997 redemption of the preferred stock. Thus, any future
dividends that are paid by the PHO, if any, will be shared equally, on a per
share basis, by all shares of common stock. However, except for the cumulative
dividends paid upon redemption of the preferred stock, no dividends have been
paid by the PHO since the Company became a stockholder in the PHO.
Business
The PHO was organized principally as the vehicle through which the
Company and Enterprises together indirectly provide hospital and professional
services to various managed care organizations,
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and it also engages directly or indirectly in various health care related
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 primarily 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 that operates an ambulatory care
center. In addition, the PHO owns one and one half (1 1/2) limited partnership
units (out of a total of 40 units) in the Same-Day Surgery Center Partnership,
but may resell these units to qualified limited partners.
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"). Pursuant to the
PHO Agreement. 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 (which was redeemed on January 31,
1997).
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:
Company's Representatives(1) Enterprises' Representatives
------------------------- ----------------------------
Thomas Mawn, M.D. Isaac Mallah
Norman Castellano, M.D. Gary Chawk
Bill Luria, M.D. Gilbert Pitisci, M.D.
Andrew G. Boyer, M.D. Charles Scott
Benedict Maniscalco, M.D. Revonda Shumaker
- ------------------
(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 when the Company's Board of Directors considers these
appointments at its annual meeting scheduled for May, 1997.
Isaac Mallah, age 48, has been the President and Chief Executive
Officer of St. Joseph's/St. Anthony's Health System since January, 1997, and
was the Executive Vice President from 1993 to 1996, 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 39, 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
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<PAGE> 12
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.
Gilbert Pitisci, M.D., age 53, 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 1996
to 1997 and Chairman from 1995 to 1996, a Director of the PHO since 1989, a
Director of SJP since 1994, Chairman from 1994 to 1995 and 1996 to 1997 and
President from 1995 to 1996, 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 46, 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 from 1995 to 1996 and Chairman
of SJHHS from 1996 to 1997, a Director of the PHO since 1993, and a Director of
SJHN since 1995.
Revonda Shumaker, age 40, has been President and Chief Operating
Officer of St. Anthony's Hospital since 1994, and was Vice President of
Operations/Chief Nurse Executive at St. Joseph's Hospital from 1991 to 1994, a
Director of SJHHS and the PHO since 1996, and a Director of BayCare since 1994
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 are filled by Enterprises' Board
of Directors.
For there to be a quorum at meetings of the Board of Directors of the
PHO, 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
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<PAGE> 13
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, 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
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<PAGE> 14
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 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 or the
development and construction of The Tampa Children's Hospital, which currently
is under way), 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 several years to which the
Right of First Refusal might apply (e.g., the creation of a pediatric clinic
and 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). A draft of such a
memorandum of understanding has been prepared and currently is in the review
process. There can
12
<PAGE> 15
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 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, 1997, 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.
Several members of the Board of Directors of the PHO have recommended
that the purchase price for exercise of this option should be changed to the
fair market value of the stock (to be determined in a mutually acceptable
manner), and this change currently is under review by the Company and
Enterprises. There can be no assurance that the Company and Enterprises will
be able to reach a mutually satisfactory resolution concerning this suggested
change.
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 primary reason for the increase in the
PHO's combined earnings in 1996 resulted from the receipt by SJHN of $241,300
in membership fees from the physicians and the Hospital, who were credentialed
as SJHN Providers in 1996. Each physician desiring to be an SJHN Provider pays
a one-time membership fee of either $150 (if a primary care physician) or
$1,000 (if a specialist) in connection with his or her credentialing
application, which membership fees are included in revenue if and when such
physician is accepted as an SJHN Provider (although several specialists are
paying the membership fee in installments, and their fees will be included when
received). The Hospital also pays a membership fee equal to the aggregate
amount of membership fees paid by all of the physicians. It is anticipated
that additional providers will be credentialed in 1997, although the number
(and thus the revenues generated) will be significantly less than in 1996.
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<PAGE> 16
After 1997, it is anticipated that SJHN will not receive any significant
membership fees, as its panel is expected to have stabilized (the only
additions being replacements for physicians who leave or die and additions to
meet actual or perceived needs). See the discussion at "ST. JOSEPH'S HEALTH
NETWORK, INC. - Financial Matters," in Item 1 of this Report, which provisions
are hereby incorporated by reference.
The PHO accounts for its 4% investment in the Same-Day Surgery Center
Partnership under the equity method, because of 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, 1996, the PHO's equity in
earnings of limited partnerships was $99,260. The annual level of activity
from the Same-Day Surgery Center Partnership has continued during the first
three months of 1997. 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
significantly 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 also earned $42,372 in 1996 from its holding of 1 1/2 limited
partnership units 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, interest on bank accounts, and interest on escrowed
funds held for two years from the sale of the PHO's partnership interest in St.
Joseph's Diagnostic Center, Ltd., as more specifically described in the next
paragraph.
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 represented the PHOs share of the deferred portion
of the consideration paid for the purchase of the PHO's 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 was 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 have been required to pay with respect to services rendered
from July 1, 1992 thru the closing date of the sale (September 30, 1994) if
Florida's legislation concerning limiting fee schedules were to be upheld as
constitutional and the appropriate Florida administrative agency chose to
enforce the legislation retroactively to July 1, 1992 or the Diagnostic Center
was 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 PHO's $80,000 share of the indemnification
escrow fund was distributed to the PHO on October 1, 1996, as a result of the
resolution of limiting fee schedule litigation by a bill passed by the Florida
Legislature that repealed the limiting fee schedule retroactively to July 1,
1992.
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<PAGE> 17
The PHO's cash balance increased during 1996 as a result of the
collection by SJHN of membership fees from credentialed SJHN Providers, a
decrease in expenditures relating to the evaluation and implementation of new
ventures and the receipt of the $80,000 in escrowed funds that is described in
the preceding paragraph. Cash balances are expected to decrease in 1997 because
of the payment of $184,375 to Enterprises in redemption of its preferred stock
in the PHO (see the discussion at "BACKGROUND - The Company's Principal
Ventures -- the PHO and SJHHS," in Item 1 of this Report, which provisions are
hereby incorporated by reference).
General and administrative expenses primarily consist of compensation
paid and benefit costs incurred with respect to newly hired management staff,
internal accounting costs and director and officer liability insurance
premiums. Prior to 1996, the PHO had no staff and relied on Enterprises and
its affiliates to perform all management and administrative functions. In
1996, a PHO Director, a PHO Coordinator and a Provider Relations Representative
were hired to staff the operations of the PHO, SJP, SJHN and the physician
hospital organization operated for St. Anthony's Hospital (an organization
affiliated with the Hospital Corporation) and the physicians at that hospital
in St. Petersburg, Florida. It is anticipated that four additional staff
persons will be hired by July 1, 1997, and the PHO will incur general and
administrative costs for its share of these additional personnel, as well as
for the share that is attributable to SJP, which will be allocated to and paid
by the PHO (see the discussion at "ST. JOSEPH'S PREFERRED, INC. - Type of
Business," in Item 1 of this Report, which provisions are hereby incorporated
by reference). Thus, general and administrative costs are expected to increase
in 1997 and thereafter, primarily because of these recent and anticipated
hirings.
From October 1, 1991 through December 31, 1995, the PHO provided 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 decreased in 1996, and will not thereafter be incurred
by the PHO.
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.
Professional fees expense decreased significantly in 1996 primarily because
expenditures incurred in 1995 that were associated with the development of SJHN
did not continue (because SJHN became operative in early 1996, similar
development costs were not incurred in 1996). The Company expects that in 1997
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 1997. As a
consequence, professional fees expense is not likely to increase substantially,
if at all, in 1997.
The increase in the provision for income taxes in 1996 is primarily a
result of the net income realized in 1996. In 1995, a net loss was incurred by
the PHO, primarily as a result of increased expenditures relating to the
development of SJHN.
Liquidity. As of December 31, 1996, the PHO had cash balances of
$459,628, representing approximately 58% of the PHO's total assets. This
significant increase in cash balances resulted
15
<PAGE> 18
primarily from the revenues received in the form of membership fees paid to
SJHN by the SJHN Providers. In addition, the PHO generally receives quarterly
distributions 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 its current 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 management personnel costs,
legal, accounting, insurance, tax costs and investigations and funding of new
ventures. No dividends are expected from SJP or SJHN. 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, 1996, the Same-Day Surgery Center Partnership had $1,752,915
in current assets in excess of current liabilities and long-term debt and the
Diagnostic Center Partnership had $5,732,798 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. In 1996, the Company's earnings approximated 22.22% of the
PHO's net income after preferred dividends. As a result of the redemption from
Enterprises of the preferred stock in the PHO on January 31, 1997, the
Company's share of the PHO's net income will be 50%.
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.
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<PAGE> 19
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 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 offer the
services of its PPO Providers to enrollees of BayCare requiring access to
health care providers in Hillsborough County, Florida. 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 - Gulf Coast, Inc. to CareFirst Health Network,
Inc., and in 1995, the name again was changed 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 26,300 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 24,000 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. Prior to 1996, SJP had no staff and relied on
BayCare to perform all operational and marketing functions for SJP. In 1996, a
PHO Director was hired, as well as a PHO Coordinator and a Provider Relations
Representative, to staff the operations of the PHO, SJP, SJHN and the physician
hospital organization operated for St. Anthony's Hospital (an organization
affiliated with the Hospital Corporation) and the physicians at that hospital
in St. Petersburg, Florida, and it is anticipated that four additional staff
persons will be hired by July 1, 1997. The portion of the personnel costs
associated with the management and administration of SJP is allocated to and
paid by the PHO. Accordingly, SJP has no significant income or expenses.
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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 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. In addition, in November 1996, the Board
of Directors of BayCare voted to change the quorum requirements to specify that
a quorum exists when any two representatives (physician or administrators) from
five out of the seven owner hospitals (i.e., at least two representatives of
70% of the stockholders) are present at a meeting (the change has not yet been
incorporated into a revised bylaw provision). 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.
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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:
Company's Representatives(1) Enterprises' Representatives(2)
---------------------------- -------------------------------
Dennis Agliano, M.D. Isaac Mallah
Charles Cernuda, M.D. Gilbert Pitisci, M.D.
- ------------------
(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 when the Company's Board of Directors considers these
appointments at its annual meeting scheduled for May, 1997.
(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. Prior to 1996, SJP did not
have employees or significant administrative or other expenses, nor any
significant income. Although a portion of the costs associated with the PHO
Director and staff hired in January, 1996 and to be hired by July 1, 1997 will
be attributable to SJP's operations, such costs were and continue to be
allocated to and paid by the PHO, so financial matters relating to SJP have not
changed and are not expected to change significantly. It is anticipated that
the majority of SJP's contractual arrangements will continue to be entered into
via its linking agreement with BayCare. SJP also may sign individual
contracts, as well, but these contracts are not expected to result in
significant income for SJP.
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.
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<PAGE> 22
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.
The initial invitation to join SJHN as a physician provider was
extended only to SJPA stockholders. To date, approximately 162 physicians have
been credentialed. To be competitive in the capitated managed care business,
the ratio of primary care physicians to specialist physicians must be strictly
controlled. On an ongoing basis, the physician representation on SJHN's panel
is 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,
SJHN has the discretion to allow a physician who is not an SJPA stockholder to
participate in the network.
In 1996, a PHO Director was hired, as well as a PHO Coordinator and a
Provider Relations Representative, to staff the operations of the PHO, SJP,
SJHN and the physician hospital organization operated for St. Anthony's
Hospital (an organization affiliated with the Hospital Corporation) and the
physicians at that hospital in St. Petersburg, Florida. It is anticipated that
four additional staff persons will be hired by July 1, 1997.
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 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:
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<PAGE> 23
Physician Representatives (1) Hospital Representatives (2)
----------------------------- ----------------------------
Todd Rosenthal, M.D. Isaac Mallah
Cres Rodriguez, M.D. Gary Chawk
Vijay Diwadkar, M.D. Gilbert Pitisci, M.D.
Jack Mezrah, M.D. Charles Scott
Steve Ferzoco, M.D.
- --------------
(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 41, 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.
Cres Rodriguez, age 48, received his M.D. degree from the University
Central de Santo Pedro in the Dominican Republic. Since 1990, Dr. Rodriguez
has engaged in the private practice of medicine in Tampa, Florida specializing
in Internal Medicine. Dr. Rodriguez is a holder of a provider contract
with SJP.
Vijay Diwadkar, age 47, 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.
Jack Mezrah, age 68, 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 47, 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
In 1995, applications and credentialing fees were received from
approximately 130 physicians expressing an interest in joining SJHN, and an
additional 32 physicians applied and were credentialed in 1996. A portion of
the costs associated with the PHO Director and staff hired in January, 1996
were attributable to SJHN's operations, and significant administrative and
start-up costs were incurred in 1996. In 1996, the $241,300 in membership fees
received from the physicians and the Hospital comprising the SJHN Providers
were sufficient to cover the start-up and initial administrative costs.
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<PAGE> 24
With the panel of SJHN Providers now credentialed, SJHN will begin
accepting capitation payments on a per member per month basis in the second
quarter of 1997. It is anticipated that more than 2000 persons will be
enrolled under capitated contracts between SJHN and one or more managed care
organizations by the end of 1997. A significant portion of the capitation
payments will be allocated to paying the SJHN Providers for healthcare services
to be rendered to the members of the managed care organizations which contract
with SJHN. Initially, it is anticipated that primary care physicians will be
paid on a capitated basis, pursuant to which the primary care physicians will
assume the risk for all primary care medical services performed for the
applicable members, while specialist physicians will be paid on a discounted
fee-for-service basis. The Hospital (and any other hospital that becomes an
SJHN Provider) will be paid on a negotiated per diem basis for inpatient care,
while certain outpatient and ancillary services will be reimbursed pursuant to
a negotiated fee schedule. A portion of the revenues received from the per
member per month capitation payments received by SJHN also will be allocated to
cover administrative expenses.
In addition to the capitation payments, SJHN also expects to credential
additional physician providers in 1997, and this process will generate
additional membership fee revenue (although substantially less than in 1996)
from the physicians and from the Hospital (see the discussion regarding the
membership fees at "ST. JOSEPH'S PHYSICIANS HEALTHCENTER ORGANIZATION, INC. -
Financial Matters -- Results of Operations," in Item 1 of this Report, which
provisions are hereby incorporated by reference).
In 1997, in addition to the costs for health care services to be
provided to members, SJHN's personnel costs can be expected to increase,
because of the additional staff to be hired by July 1, 1997.
Impact on SJPA
There can be no assurance that SJHN's revenues will be sufficient to
cover its current operating expenses in 1997, particularly given SJHN's lack of
experience in handling risk-based (i.e., capitation) compensation and the
inherent uncertainty relative to the funding of fee-for-service specialist
payments, which are dependent upon utilization. Additional liquidity for SJHN
also is expected to be received from other sources, including possible equity
contributions from the PHO and/or from others, and borrowings. In this regard,
the Company might find it appropriate to assist the PHO to provide funds to
SJHN to be used to cover its working capital needs. 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.
22
<PAGE> 25
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, and the PHO owns a four
percent (4%) interest as the managing general partner of the Same-Day Surgery
Center Partnership (the remaining interests being held by the limited
partners). Prior to the redemption of Enterprises' preferred stock in the PHO
on January 31, 1997, the Company owned approximately a 22.22% interest in the
PHO, and therefore approximately a 0.88% indirect interest in the Same-Day
Surgery Center Partnership by virtue of the PHO's 4% interest therein. As a
result of the redemption of the preferred stock in the PHO, as of January 31,
1997 and thereafter, the Company owns a fifty percent (50%) interest in the
PHO, and thus a 2% indirect interest in the Same-Day Surgery Center Partnership
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.
Business
The Same-Day Surgery Center Facility is an outpatient surgery center.
The services offered include gastroenterology 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
23
<PAGE> 26
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 currently amounts to $626,172 annually (as of December 31, 1996,
the rent was $600,214 annually and was adjusted for cost of living and
additional build-out amortization in 1997), 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 stereotactic
breast suite, 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 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 1996, the Same-Day Surgery Center
performed 10,800 procedures and generated approximately $9.6 million in net
patient service revenues and a net income of approximately $2.5 million. The
Same-Day Surgery Center Facility experienced a growth in volume of 2.6% in
1996.
Liquidity. At December 31, 1996, the Same-Day Surgery Center
Partnership held approximately $780,000 in cash, which accounted for 19% of
total assets. In 1996, the Same-Day Surgery Center Partnership generated
approximately $177,428 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 1996,
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<PAGE> 27
the Same-Day Surgery Center Partnership declared approximately $2.6 million in
distributions to limited and general partners. This included $154,080 declared
payable to the Company in respect of its five limited partner units, as well as
a distribution of $102,720 declared payable to the PHO in its capacity as
managing general partner. In April 1997, the Same-Day Surgery Center
Partnership will distribute approximately $389,700 to partners of record on
March 31, 1997. Of this amount, $23,380 will be distributed to the Company in
respect of its five limited partner units, and $15,587 will be distributed to
the PHO in its capacity as managing general partner.
Capital Resources. At December 31, 1996, the Same-Day Surgery Center
Partnership had approximately $2.5 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, and a capital lease with an unaffiliated vendor for equipment,
payable in thirty-six (36) monthly installments of principal plus accrued
interest at the annual rate of 8.25%. At December 31, 1996, the aggregate
balance of the HCC line of credit and the capital lease was approximately
$652,000.
In 1996, the Same-Day Surgery Center Partnership completed capital
additions and replacements of approximately $298,000 in replacements and
upgrades, approximately $283,000 of which amount relates to equipment obtained
through the capital lease with an unaffiliated vendor discussed in the preceding
paragraph. The additional $15,000 in equipment was purchased with available
cash.
The Same-Day Surgery Center Partnership plans capital expenditures in
1997 of approximately $160,000 in equipment and instrumentation replacements
and upgrades, which are expected to be funded through additional borrowings.
Impact on SJPA
The Company is affected indirectly by the Same-Day Surgery Center
Partnership through its investment in the PHO, which is the 4% managing general
partner of the Same-Day Surgery Center Partnership. The PHO accounts for its
investment under the equity method, because of 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. In 1996, because of the existence of the PHO's cumulative
preferred stock, SJPA benefitted 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. Beginning February 1, 1997 and thereafter, SJPA benefits up to
50% in the earnings of the PHO and indirectly in up to 2% 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 actually received $159,560 in cash in partnership
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distributions in 1996 in respect of the five units it owns. SJPA also has
received an additional $61,900 in cash during 1997 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., d/b/a St. Joseph's Home Health
Services ("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 $68,468 at December 31, 1996) 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 HCC.
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, formerly was a
member of the Board of Directors, and currently serves as the Executive
Director of the Company.
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 upon the 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:
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<PAGE> 29
Company's Representatives(1) SJAS's Representatives(2)
---------------------------- -------------------------
Thomas Mawn, M.D. Isaac Mallah
Norman Castellano, M.D. Charles Scott
Bruce Edgerton, M.D. Revonda Shumaker
- ------------------
(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 when the Company's Board of Directors considers these
appointments at its annual meeting scheduled for May, 1997.
(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, 1996, SJHHS
generated a pre-tax income of $361,455 on net revenues of $3.1 million. The
significant increase in net income for 1996 was the result of an increase in
home care and intravenous therapy services rendered (and resulting increased
revenues).
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. Elimination
of those services resulted in a significant decrease in net income on an
ongoing basis, as compared to operations prior to 1995.
In addition, SJHHS has been able to minimize its general and
administrative expenses by sharing office space and personnel, and the costs
associated therewith, with St. Joseph's Hospital Home Health Care, a home
health agency that is operated as a division of the Hospital Corporation
primarily for Medicare and Medicaid patients ("SJHHH"). Based upon its
interpretation of various Medicare and Medicaid laws and regulations, the
Hospital Corporation has proposed that SJHHH and SJHHS no longer share office
space and personnel. The Company has not yet determined how it will respond to
this proposal by the Hospital Corporation. There can be no assurance that the
Company and the Hospital Corporation will be able to reach a mutually
satisfactory resolution concerning the termination or continuation of the
expense sharing arrangements. If SJHHS must assume the full costs of renting
an office and paying the full costs of its personnel, such additional
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<PAGE> 30
costs will significantly affect the profitability of SJHHS, and there can be no
assurance that the revenues of SJHHS will be sufficient to cover these
increased costs.
Liquidity. At December 31, 1996, SJHHS held approximately $430,000 in
cash. The current ratio of 2.57 indicates the strong liquidity position of
SJHHS at December 31, 1996. 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, although the
termination of the expense sharing arrangement with SJHHH could have a
significant adverse effect on SJHHS' cash reserves if, as a result of such
termination, SJHHS's current revenues cannot cover its current costs.
The Board of Directors of SJHHS approved a dividend distribution in
1996 of $190,000.
Capital Resources. At December 31, 1996, SJHHS had approximately
$1,073,000 in stockholders' equity. This represented $80,000 in stock and
$993,000 in accumulated earnings.
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,
1996, SJPA recognized approximately $110,000 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 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
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<PAGE> 31
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.
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.
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<PAGE> 32
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 filed an appeal of this
decision with the Florida Supreme Court.
Two bills that were passed by the Florida Legislature during its
Session that ended on May 4, 1996, included provisions that repeal the limiting
fee schedule retroactive to the original date on which it was to become
effective (July 1, 1992). One of the bills also prohibits any governmental
agency from imposing or collecting an administrative fine from a provider for
failure to comply with the limiting fee schedule. Both bills became law in May
1996 when the Governor did not veto them.
Notice of these two bills was filed with the Florida Supreme Court, and
the Supreme Court issued an order dismissing the State Case. As a result, all
litigation relating to the limiting fee schedule is now ended.
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
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<PAGE> 33
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 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
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<PAGE> 34
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 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, an additional 43 shares issued in several transactions not
involving a public offering in the second quarter of 1995 at $3,000 per share,
and an additional 22 shares issued in several transactions not involving a
public offering in the second quarter of 1996 at $3,200.
Shares have been repurchased by the Company during the second half of
1990 and during 1991, 1992, 1993, 1994, 1995 and 1996, and additional share
repurchases are anticipated during 1997. The most recent repurchases were for
$3,200 per share, or approximately $1,950 per share more than the original
purchase price of such shares.
Holders
As of March 31, 1997, there were 433 Common Stockholders of record,
each owning exactly one share.
Dividends
In 1996, 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.
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<PAGE> 35
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.
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 in which at
least one existing SJPA stockholder also is a part. If additional shares of
stock of the Company are sold in 1997, 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.
33
<PAGE> 36
Special Consideration for Primary Care Physicians.
Historically, physicians have been given the opportunity to become stockholders
of the Company during specified 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 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, in the network
offered by SJHN 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 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.
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<PAGE> 37
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,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Equity in net earnings of
investees $146,911 $ 16,402 $228,891 $181,053 $ 99,817
Income before
cumulative effect of a
change in accounting
principle 133,111 63,068 149,135 192,379 171,750
Cumulative effect of a
change in accounting
principle -0- -0- -0- 8,951 -0-
Net income 133,111 63,068 149,135 183,428 171,750
Income per common share:
Income before
cumulative effect 307 154 402 599 646
Cumulative effect -0- -0- -0- 28 -0-
Net income 307 154 402 571 646
Total assets 1,584,002 1,406,982 1,216,228 966,452 682,321
Long-term obligations -0- -0- -0- -0- -0-
Cash dividends declared
per common share -0- -0- -0- 100 100
</TABLE>
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.
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<PAGE> 38
1996 vs. 1995
In 1996, revenues increased as a result of the increase in the
profitability of the PHO and SJHHS. The increase in the profitability of the
PHO is a result of (1) an decrease in expenditures for the evaluation and
implementation of new ventures and (2) the receipt of significant one-time
membership fees paid to SJHN by the physicians and the Hospital which were
credentialed and became SJHN Providers. It is anticipated that SJHN will
receive additional membership fees in 1997 as well, although not as much as in
1996. After 1997, it is anticipated that SJHN will not receive any significant
membership fees, as its panel is expected to have stabilized (see the
discussion regarding the membership fees at "ST. JOSEPH'S PHYSICIANS
HEALTHCENTER ORGANIZATION, INC. - Financial Matters -- Results of Operations,"
in Item 1 of this Report, which provisions are hereby incorporated by
reference). The increase in the profitability of SJHHS is the result of a
significant increase in home care revenue and intravenous therapy revenue in
1996 as compared to 1995.
Expenses increased in 1996 because of the payment by the Company,
without reimbursement, of the Executive Director's salary (prior to 1996, the
PHO reimbursed the Company for the amount of such salary). It is anticipated
that general and administrative expenses will increase in 1997, because of
additional expenditures relating to bookkeeping and administrative expenses
that previously were provided without charge by HCC.
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.
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:
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<PAGE> 39
<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
1996 22 $3,200 $63,800 cash plus $6,600
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
First half of 1996 1 $ 3,048
Second half of 1996 15 $45,848
</TABLE>
No dividends were declared in 1996, and no dividends are contemplated
in the near future.
No dividends were received from the PHO in 1996 and no dividends are
expected from the PHO in 1997. SJHHS paid $190,000 ($95,000 per shareholder)
in aggregate dividends in 1996, and the Board of Directors of SJHHS currently
is evaluating whether to declare and pay a dividend in 1997 (none currently is
anticipated). All operating cash in 1996 was derived from the distributions
with respect to the Company's limited partner units in the Same-Day Surgery
Center Partnership. Operating cash in 1997 is expected to be derived from
distributions with 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 1996. Such cash is anticipated to meet the
Company's cash needs during 1997. Further, the Company may elect to conduct a
private offering of its
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<PAGE> 40
Common Stock in 1997 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,
1995 and 1996. Healthcare reform legislation was passed by the Florida
Legislature during its Session that ended on May 4, 1996, and the United States
Congress passed healthcare reform legislation during the third quarter of 1996.
Additional healthcare reform currently is being considered by the Florida
Legislature during its Session that began on March 4, 1997 and currently is
scheduled to continue through the first week in May. Additional health care
reform legislation also is being considered in 1997 at the federal level. 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
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<PAGE> 41
Assessment is due on a quarterly basis. The Florida Agency for Health Care
Administration ("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, 1996. 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 and Medicaid 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 and Medicaid
fraud and abuse safe harbor regulations, and additional final regulations were
added on November 5, 1992 (collectively, 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 or Medicaid 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 original Regulations, published on July 29, 1991 established
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, (4) personal
service and management contracts and (5) group purchasing arrangements.
The additional Regulations, published on November 5, 1992, added two
additional safe harbors that were specifically designed to address the
relationships between healthcare providers, managed care organizations (i.e.,
health maintenance organizations and preferred provider organizations), and
enrollees in managed care organizations. There safe harbors include
protections
39
<PAGE> 42
for: (1) incentives to enrollees (including waiver of coinsurance and
deductible amounts), and (2) negotiated price reductions between healthcare
providers and managed care organizations.
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 or Medicaid Program
for a period of five years (or longer in some cases). This exclusionary
authority is draconian in effect. Medicare and Medicaid will not pay any
amount to an excluded physician, to the patient or 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 or Medicaid 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 or Medicaid 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 and any group purchasing arrangements in which any of the Partially
Owned Operations may participate, 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.
Several laws passed by the United States Congress and regulations
issued by the OIG and DHHS since 1992 have added additional sanctions and
clarified the application of the Statute and the Regulations. The PHO, SJP and
SJHN are continuing to evaluate how these new laws and regulations may impact
on their business arrangements and relationships.
In addition, 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 the President and 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.
40
<PAGE> 43
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 was
known as the "Patient Self-Referral Act of 1992" (the "Patient Self-Referral
Act"). It applied 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.
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,
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<PAGE> 44
(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 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 appeal then was taken before the Florida Supreme Court. No
decision had yet been rendered by the Supreme Court when the fee cap was
repealed retroactively to its effective date by several bills passed by the
Florida Legislature during its 1996 Legislative Session. See the discussion
under the heading "LEGAL PROCEEDINGS - Limiting Fee Schedule Litigation" in
Item 3 of this Report, which provisions are hereby incorporated by reference
into discussion under this Item 6.
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 to the various
Partially Owned Operations of each of the specific provisions of the Patient
Self-Referral Act that remain in effect.
42
<PAGE> 45
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 service" 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 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
43
<PAGE> 46
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 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 was 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 still 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. Refinements to the law have
been made in each of the 1994, 1995 and 1996 Legislative Sessions, but none of
the refinements have made substantive changes in the Reform Act's primary
provisions.
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.
44
<PAGE> 47
Various provisions of the Reform Act became 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.
The Company, along with the entities responsible for operation and
management of the Partially Owned Operations, is continuing its analysis of the
impact of the Reform Act and the various changes that have been made since its
enactment. There can be no assurance that the Reform Act, as it is implemented
and refined over time, will not have a substantial adverse impact on the amount
of revenues received by each of the Partially Owned Operations for specific
services rendered.
The Florida Legislature currently is holding its 1997 Regular Session,
and pending legislation, among other things, would expand the scope and
applicability of the Reform Act. However, the Company cannot currently predict
whether any 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
45
<PAGE> 48
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. The President recently announced
his intention to introduce a bill or bills 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 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. 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 operation 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.
46
<PAGE> 49
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.
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<PAGE> 50
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:
48
<PAGE> 51
<TABLE>
<CAPTION>
Has Served
Principal As a Expiration Office
Occupation Director of Term of Currently
Name Age or Employment(1) Since Office Held
- ----------- --- ------------- ------- ---------- ------
<S> <C> <C> <C> <C> <C>
Andrew Boyer, M.D.* 61 Physician 1990 1997 Treasurer
Anthony Brannan, M.D.** 43 Physician 1994 1998 Secretary
Norman Castellano, M.D.* 50 Physician 1994 1998 President
N. Bruce Edgerton, M.D.* 50 Physician 1995 1999 Vice President
Aaron Laden, M.D.*** 48 Physician 1996 1997
Bill Luria, M.D.** 50 Physician 1996 2000
Benedict S. Maniscalco, M.D.* 55 Physician 1996 2000
Thomas Mawn, M.D.** 63 Physician 1993 1997 Chairman
Michael Wasylik, M.D.** 54 Physician 1995 1999
- ------------------------
</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 or 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 May 1997:
<TABLE>
<CAPTION>
Name Age Occupation Term of Office
- ----------- --- ---------- --------------
<S> <C> <C> <C>
Lane France, M.D.* 58 Physician 4 years
Allen Miller, M.D.** 47 Physician 4 years
John Rasmussen, M.D.*** 41 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.
Andrew Boyer, M.D., age 61, 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.
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<PAGE> 52
Anthony Brannan, M.D., age 43, 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 50, 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.
N. Bruce Edgerton, M.D., age 50, 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.
Lane France, M.D., age 58, received his M.D. degree from Temple
University. Since 1971, Dr. France has engaged in the private practice of
medicine in Tampa, Florida, specializing in pediatrics. Dr. France is a holder
of a provider contract with SJP.
Aaron Laden, M.D., age 48, 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.
Bill Luria, M.D., age 50, 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.
Benedict S. Maniscalco, M.D., age 55, 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.
Thomas Mawn, age 63, 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.
Allen Miller,. M.D., age 47, received his M.D. degree from McGill
University. Since 1979, Dr. Miller has been engaged in the private practice of
medicine in Tampa, Florida, specializing in orthopedics. Dr. Miller is a
holder of a provider contract with SJP.
John Rasmussen, M.D., age 41, received his M.D. degree from the
University of Wisconsin. Since 1989, Dr. Rasmussen has been engaged in the
private practice of medicine in Tampa, Florida, specializing in radiology. Dr.
Rasmussen is a holder of a provider contract with SJP.
50
<PAGE> 53
Michael Wasylik, M.D., age 54, 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.
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 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 them, 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
51
<PAGE> 54
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.
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., a former 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.
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<PAGE> 55
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 Lane France, M.D.** 1 Share *
Common Stock Andrew Boyer, M.D. 1 Share *
Common Stock Anthony Brannan, M.D. 1 Share *
Common Stock Norman Castellano, 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 Allen Miller, M.D.** 1 Share *
Common Stock John Rasmussen, M.D.** 1 Share *
Common Stock Michael Wasylik, M.D. 1 Share *
------- --
12 Shares 2.77%
</TABLE>
*Less than 0.5%
**Nominee for director
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.
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<PAGE> 56
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
<TABLE>
<S> <C>
- Report of Ernst & Young LLP dated as of February 21, 1997, as to the
financial statements of St. Joseph's Physician Associates, Inc. for
the years ended December 31, 1996 and 1995.
- Balance Sheets of St. Joseph's Physician Associates, Inc. as of
December 31, 1996 and 1995.
- Statements of Income of St. Joseph's Physician Associates, Inc. for
the years ended December 31, 1996 and 1995.
- Statements of Changes in Stockholders' Equity of St. Joseph's
Physician Associates, Inc. for the years ended December 31, 1996 and
1995.
- Statements of Cash Flows of St. Joseph's Physician Associates, Inc.
for the years ended December 31, 1996 and 1995.
- 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 26, 1997, 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, 1996 and 1995.
</TABLE>
54
<PAGE> 57
<TABLE>
<S> <C>
- Balance Sheets of Hospitals' Home Health Care of Hillsborough County,
Inc., d/b/a St. Joseph's Home Health Services, as of December 31,
1996 and 1995.
- 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, 1996 and 1995.
- 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, 1996 and 1995.
- 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, 1996 and 1995.
- Notes to Financial Statements.
Consolidated 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 26, 1997, as to the
Consolidated Financial Statements of St. Joseph's Physicians-
Healthcenter Organization, Inc. for the years ended December 31, 1996
and 1995.
- Consolidated Balance Sheets of St. Joseph's Physicians-Healthcenter
Organization, Inc. as of December 31, 1996 and 1995.
- Consolidated Statements of Operations of St. Joseph's Physicians-
Healthcenter Organization, Inc. for the years ended December 31, 1996
and 1995.
</TABLE>
55
<PAGE> 58
<TABLE>
<S> <C>
- Consolidated Statements of Changes in Stockholders' Equity of St.
Joseph's Physicians-Healthcenter Organization, Inc. for the years
ended December 31, 1996 and 1995.
- Consolidated Statements of Cash Flows of St. Joseph's Physicians-
Healthcenter Organization, Inc. for the years ended December 31, 1996
and 1995.
- Notes to Consolidated Financial Statement.
</TABLE>
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).
56
<PAGE> 59
*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).
*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).
57
<PAGE> 60
*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.
58
<PAGE> 61
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.
By: /s/ NORMAN CASTELLANO, M.D. 4/14/97
----------------------------------------- ----------------------------------
NORMAN CASTELLANO, M.D., President Date
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.
By:
----------------------------------------- ----------------------------------
THOMAS MAWN, M.D., Chairman, Director Date
(principal executive officer)
By: /s/ NORMAN CASTELLANO, M.D. 4/14/97
----------------------------------------- ----------------------------------
NORMAN CASTELLANO, M.D., President, Date
Director
By: /s/ N. BRUCE EDGERTON, M.D. 4/10/97
----------------------------------------- ----------------------------------
N. BRUCE EDGERTON, M.D., Vice President, Date
Director
By: /s/ ANDREW BOYER, M.D. 4/14/97
----------------------------------------- ----------------------------------
ANDREW BOYER, M.D., Treasurer, Director Date
(principal financial and accounting officer)
By: /s/ ANTHONY BRANNAN, M.D. 4/14/97
----------------------------------------- ----------------------------------
ANTHONY BRANNAN, M.D., Secretary, Director Date
59
<PAGE> 62
By:
----------------------------------------- ----------------------------------
AARON LADEN, M.D., Director Date
By: /s/ BILL LURIA, M.D. 4/10/97
----------------------------------------- ----------------------------------
BILL LURIA, M.D., Director Date
By:
----------------------------------------- ----------------------------------
BENEDICT S. MANISCALCO, M.D., Director Date
By:
----------------------------------------- ----------------------------------
MICHAEL WASYLIK, M.D., Director Date
60
<PAGE> 63
Financial Statements
St. Joseph's Physician Associates, Inc.
Years ended December 31, 1996 and 1995
with Report of Independent Auditors
<PAGE> 64
St. Joseph's Physician Associates, Inc.
Financial Statements
Years ended December 31, 1996 and 1995
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors....................................................................................1
Audited Financial Statements
Balance Sheets....................................................................................................2
Statements of Income..............................................................................................3
Statements of Changes in Stockholders' Equity.....................................................................4
Statements of Cash Flows..........................................................................................5
Notes to Financial Statements.....................................................................................6
</TABLE>
<PAGE> 65
[ERNST & YOUNG LLP LETTERHEAD]
Report of Independent Auditors
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, 1996 and 1995, 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, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
February 21, 1997
<PAGE> 66
St. Joseph's Physician Associates, Inc.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 769,570 $ 643,988
Distribution receivable from limited partnership investments 38,520 44,000
Income taxes receivable 6,379 -
Prepaid expenses 6,666 8,038
------------------------------------
Total current assets 821,135 696,026
Equity investments 742,867 690,956
Other investments 20,000 20,000
------------------------------------
Total assets $ 1,584,002 $ 1,406,982
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses $ 23,978 $ 18,625
Income taxes payable - 22,156
------------------------------------
Total current liabilities 23,978 40,781
Deferred income taxes 78,326 35,518
Stockholders' equity:
Common stock, $1 par value: 7,500 shares authorized;
426 shares at December 31, 1996 and 422 shares at December 31, 1995
issued and outstanding 426 422
Common stock subscribed, 7 shares at December 31, 1996
and 5 shares at December 31, 1995 7 5
Subscriptions receivable (11,600) (10,000)
Additional paid-in capital 704,975 685,477
Retained earnings 787,890 654,779
------------------------------------
Total stockholders' equity 1,481,698 1,330,683
------------------------------------
Total liabilities and stockholders' equity $ 1,584,002 $ 1,406,982
====================================
</TABLE>
2
See accompanying notes.
<PAGE> 67
St. Joseph's Physician Associates, Inc.
Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995
------------------------------------
<S> <C> <C>
Equity in net earnings of investees $146,911 $ 16,402
Distribution income 154,080 139,880
------------------------------------
300,991 156,282
Expenses:
Salary 40,000 -
General and administrative 79,718 79,859
------------------------------------
Operating income 181,273 76,423
Interest income 25,547 22,527
------------------------------------
Income before income taxes 206,820 98,950
Income taxes 73,709 35,882
------------------------------------
Net income $133,111 $ 63,068
====================================
Net income per common share $ 307 $ 154
====================================
Weighted average shares outstanding and subscribed 434 410
====================================
</TABLE>
See accompanying notes.
3
<PAGE> 68
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, 1995 $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
Sale and subscription of
common stock 19 3 (3,600) 70,378 - 66,800
Redemption of common stock (15) (1) 2,000 (50,880) - (48,896)
Net income - - - - 133,111 133,111
-----------------------------------------------------------------------------------
Balance at December 31, 1996 $426 $7 $(11,600) $704,975 $787,890 $1,481,698
===================================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 69
St. Joseph's Physician Associates, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995
------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $133,111 $ 63,068
Adjustments to reconcile net income to net cash
used in operating activities:
Equity in net earnings of investees (146,911) (16,402)
Distribution income (154,080) (139,880)
Deferred income taxes 42,808 23,536
Changes in operating assets and liabilities:
Prepaid expenses 1,372 35
Income taxes receivable (6,379) -
Accrued expenses 5,353 65
Income taxes payable (22,156) 2,953
------------------------------------
Net cash used in operating activities (146,882) (66,625)
INVESTING ACTIVITIES
Dividends from equity investments 95,000 -
Distributions received 159,560 135,700
------------------------------------
Net cash provided by investing activities 254,560 135,700
FINANCING ACTIVITIES
Proceeds from sale of common stock 66,800 119,000
Redemption of common stock (48,896) (17,868)
------------------------------------
Net cash provided by financing activities 17,904 101,132
Increase in cash and cash equivalents 125,582 170,207
Cash and cash equivalents at beginning of year 643,988 473,781
------------------------------------
Cash and cash equivalents at end of year $769,570 $643,988
====================================
</TABLE>
See accompanying notes.
5
<PAGE> 70
St. Joseph's Physician Associates, Inc.
Notes to Financial Statements
December 31, 1996
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 as of December 31, 1996. The Company
earned 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's preferred shares were redeemed effective January 31, 1997. 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, 1996 and
1995, 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> 71
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. Management has not actively marketed these
partnership units and intends to hold them beyond one year. Accordingly, this
investment is presented as noncurrent, other investments. 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 1997 and 1998.
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.
7
<PAGE> 72
St. Joseph's Physician Associates, Inc.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME PER COMMON SHARE
Income per common share is based upon the weighted average number of common
shares outstanding during the period.
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 $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
Equity in net earnings of investees 110,614 36,297 146,911
Dividend received (95,000) - (95,000)
------------------------------------------------------
Balance at December 31, 1996 $605,100 $137,767 $742,867
======================================================
</TABLE>
The condensed balance sheets of the equity investees are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
------------------------------------
<S> <C> <C>
HHC
Assets:
Current assets $2,128,418 $1,873,999
Noncurrent assets 4,902 9,217
------------------------------------
Total assets $2,133,320 $1,883,216
====================================
Liabilities and stockholders' equity:
Current liabilities $ 827,404 $ 676,697
Long-term liabilities 232,654 168,697
Stockholders' equity 1,073,262 1,037,822
------------------------------------
Total liabilities and stockholders' equity $2,133,320 $1,883,216
====================================
</TABLE>
8
<PAGE> 73
St. Joseph's Physician Associates, Inc.
Notes to Financial Statements (continued)
2. EQUITY INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
------------------------------------
<S> <C> <C>
PHO
Assets:
Current assets $529,474 $ 337,592
Noncurrent assets 259,025 274,867
------------------------------------
Total assets $788,499 $ 612,459
====================================
Liabilities and stockholders' equity:
Current liabilities $163,323 $ 152,267
Stockholders' equity 625,176 460,192
------------------------------------
Total liabilities and stockholders' equity $788,499 $ 612,459
====================================
</TABLE>
The condensed statements of income of the equity investees are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995
------------------------------------
<S> <C> <C>
HHC
Revenues $3,121,893 $1,770,451
Expenses (2,760,438) (1,608,295)
------------------------------------
361,455 162,156
Income tax provision (136,015) (65,822)
------------------------------------
Net income $ 225,440 $ 96,334
====================================
PHO
Revenues $ 398,432 $ 146,414
Expenses (197,991) (321,529)
------------------------------------
200,441 (175,115)
Income tax benefit (provision) (27,957) 49,135
------------------------------------
Net income (loss) $ 172,484 $ (125,980)
====================================
</TABLE>
9
<PAGE> 74
St. Joseph's Physician Associates, Inc.
Notes to Financial Statements (continued)
3. INCOME TAXES
The provision for income taxes consisted of the following for the years ended
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------------------------------
<S> <C> <C>
Current:
Federal $26,408 $28,815
State 4,521 7,091
Deferred:
Federal 36,528 (20)
State 6,252 (4)
====================================
Provision for income taxes $73,709 $35,882
====================================
</TABLE>
The differences between the federal income tax rate and the Company's effective
income tax rate for the years ended December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------------
<S> <C> <C>
Federal income tax at statutory rate 34.0% 34.0%
State income taxes, net of federal income
tax benefit 3.6 3.7
Effect of nondeductible expenses - 6.9
Effect of incremental federal tax rates - (9.3)
Other, net - 1.0
------------------------------------
37.6% 36.3%
====================================
</TABLE>
10
<PAGE> 75
St. Joseph's Physician Associates, Inc.
Notes to Financial Statements (continued)
3. INCOME TAXES (CONTINUED)
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
1996 1995
------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Investments accounted for under equity method for
financial accounting purposes $112,980 $68,911
------------------------------------
Total deferred tax liabilities 112,980 68,911
Deferred tax assets:
Difference in basis of investments in limited partnership
interests between financial and
tax reporting 33,862 33,393
Other 792 -
------------------------------------
Total deferred tax assets 34,654 33,393
------------------------------------
Net deferred tax liability $ 78,326 $35,518
====================================
</TABLE>
The Company paid income taxes of $36,594 and $33,050 in 1996 and 1995,
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 provided administrative support to the Company at no charge. Beginning
February 1, 1997, the Center will charge the Company for administrative support
and direct costs (i.e., supplies, food charges, printing, etc.).
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.
11
<PAGE> 76
St. Joseph's Physician Associates, Inc.
Notes to Financial Statements (continued)
4. RELATED PARTIES (CONTINUED)
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 the year ended December 31, 1995, $40,000 of
compensation was paid or accrued by PHO. The funding agreement was terminated by
the PHO effective January 1, 1996. The Company's payment of compensation to the
executive director for the year ended December 31, 1996 is presented as salary
expense.
12
<PAGE> 77
Financial Statements
Hospitals' Home Health Care of
Hillsborough County, Inc. d/b/a
St. Joseph's Home Health Services
Years ended December 31, 1996 and 1995
with Report of Independent Auditors
<PAGE> 78
Hospitals' Home Health Care of Hillsborough County, Inc.
d/b/a St. Joseph's Home Health Services
Financial Statements
Years ended December 31, 1996 and 1995
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors....................................................................................1
Audited Financial Statements
Balance Sheets....................................................................................................2
Statements of Income..............................................................................................3
Statements of Changes in Stockholders' Equity.....................................................................4
Statements of Cash Flows..........................................................................................5
Notes to Financial Statements.....................................................................................6
</TABLE>
<PAGE> 79
[ERNST & YOUNG LLP LETTERHEAD]
Report of Independent Auditors
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, 1996 and 1995, 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, 1996 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
February 26, 1997
1
<PAGE> 80
Hospitals' Home Health Care of Hillsborough County, Inc.
d/b/a St. Joseph's Home Health Services
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 429,784 $ 888,280
Accounts receivable, less allowance for
uncollectibles of $136,000 for 1996 and
$61,000 for 1995, respectively 1,654,913 963,951
Income tax receivable 26,203 -
Prepaid expenses and other current assets 17,518 21,768
------------------------------------
Total current assets 2,128,418 1,873,999
Equipment, net 4,902 9,217
------------------------------------
Total assets $ 2,133,320 $ 1,883,216
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 136,238 $ 40,513
Due to affiliated organizations 691,166 439,389
Income taxes payable - 196,795
------------------------------------
Total current liabilities 827,404 676,697
Deferred income taxes 232,654 168,697
Stockholders' equity:
Common stock, $10 par value: 8,000 shares
authorized, issued and outstanding 80,000 80,000
Retained earnings 993,262 957,822
------------------------------------
Total stockholders' equity 1,073,262 1,037,822
------------------------------------
Total liabilities and stockholders' equity $ 2,133,320 $ 1,883,216
====================================
</TABLE>
2
See accompanying notes.
<PAGE> 81
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
1996 1995
------------------------------------
<S> <C> <C>
Net patient service revenue $3,089,325 $1,750,666
Expenses:
Contract employee compensation 1,346,090 808,949
Purchased services 1,128,012 633,825
Supplies 20,194 11,559
Professional fees 36,064 35,386
Depreciation 4,315 4,314
Bad debts 225,763 114,262
------------------------------------
Total expenses 2,760,438 1,608,295
------------------------------------
Income from operations 328,887 142,371
Nonoperating gains 32,568 19,785
------------------------------------
Income before provision for income taxes 361,455 162,156
Provision for income taxes 136,015 65,822
------------------------------------
Net income $ 225,440 $ 96,334
====================================
</TABLE>
3
See accompanying notes.
<PAGE> 82
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, 1995 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
Net income - - 225,440 225,440
Dividends - - (190,000) (190,000)
=================================================================
Balance at December 31, 1996 8,000 $80,000 $993,262 $1,073,262
=================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 83
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
1996 1995
------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES AND NONOPERATING GAINS
Net income $225,440 $ 96,334
Adjustments to reconcile net income to net cash (used in) provided by
operating activities and nonoperating gains:
Depreciation 4,315 4,314
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net (690,962) 338,492
Decrease in prepaid expenses and other assets 4,250 15,413
(Increase) decrease in income tax receivable (26,203) 100,581
Increase (decrease) in accrued expenses 95,725 (71,521)
Increase (decrease) in due to affiliated organizations 251,777 (34,766)
(Decrease) increase in income taxes payable (196,795) 196,795
Increase (decrease) in deferred income taxes 63,957 (103,492)
------------------------------------
Net cash (used in) provided by operating activities and
nonoperating gains (268,496) 542,150
FINANCING ACTIVITIES
Payment of dividends (190,000) -
------------------------------------
Net cash used in financing activities (190,000) -
------------------------------------
(Decrease) increase in cash and cash equivalents (458,496) 542,150
Cash and cash equivalents at beginning of year 888,280 346,130
------------------------------------
Cash and cash equivalents at end of year $429,784 $888,280
====================================
</TABLE>
See accompanying notes.
5
<PAGE> 84
Hospitals' Home Health Care of Hillsborough County, Inc.
d/b/a St. Joseph's Home Health Services
Notes to Financial Statements
December 31, 1996
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 infusion 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.
NET PATIENT SERVICE REVENUE AND BAD DEBTS
Net patient service revenue is reported at the estimated net realizable amounts
from patients and third-party payors under the provisions of payment formulas in
effect. Amounts received under these programs are generally less than the
established billing rates of the Company.
Adjustments to revenue and the provision for bad debts are accrued on an
estimated basis in the period the related services are rendered and adjusted in
future periods as changes in estimated provisions are determined.
6
<PAGE> 85
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)
CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities of
three months or less when purchased to be cash equivalents.
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 assets. The range of useful lives is from five to ten
years.
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.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year financial statements to
conform with the 1996 presentation.
7
<PAGE> 86
Hospitals' Home Health Care of Hillsborough County, Inc.
d/b/a St. Joseph's Home Health Services
Notes to Financial Statements (continued)
2. EQUIPMENT
Equipment consists of the following:
<TABLE>
<CAPTION>
1996 1995
------------------------------------
<S> <C> <C>
Equipment $27,703 $27,703
Less accumulated depreciation 22,801 18,486
------------------------------------
$ 4,902 $ 9,217
====================================
</TABLE>
Expenses incurred under operating leases were $25,306 and $16,845 for the years
ended December 31, 1996 and 1995, respectively.
3. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995
------------------------------
<S> <C> <C>
Current:
Federal $ 61,526 $140,156
State 10,532 29,158
Deferred taxes:
Federal 54,609 (88,354)
State 9,348 (15,138)
-------------------------------
Provision for income $ 136,015 $ 65,822
===============================
</TABLE>
8
<PAGE> 87
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 (CONTINUED)
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>
1996 1995
---------------------------
<S> <C> <C>
Total deferred tax liabilities $(232,654) $(186,480)
Total deferred tax assets 45,851 63,634
Valuation allowance for deferred assets (45,851) (45,851)
===========================
Net deferred tax liability $(232,654) $(168,697)
===========================
</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, 1996, the Company has net operating loss carryforwards
of $172,173 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 paid income taxes of $262,300 in 1996 and received an income tax
refund of $128,063 in 1995.
4. RELATED PARTY TRANSACTIONS
The Company is related to certain organizations through the common corporate
ownership of the stockholders. The Company and these related organizations
conduct certain types of business transactions.
The Company has previously 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 $103,763 and $74,233 for the years ended December 31, 1996 and 1995,
respectively.
9
<PAGE> 88
Hospitals' Home Health Care of Hillsborough County, Inc.
d/b/a St. Joseph's Home Health Services
Notes to Financial Statements (continued)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
For the years ended December 31, 1996 and 1995, the Company paid $2,225,476 and
$1,236,585, respectively, for the purchase of goods and services, including
contract 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 $2,643 and $2,273 for the years ended
December 31, 1996 and 1995, respectively, and are included in purchased services
in the accompanying statements of income.
10
<PAGE> 89
Consolidated Financial Statements
St. Joseph's Physicians-Healthcenter
Organization, Inc.
Years ended December 31, 1996 and 1995
with Report of Independent Auditors
<PAGE> 90
St. Joseph's Physicians-Healthcenter Organization, Inc.
Consolidated Financial Statements
Years ended December 31, 1996 and 1995
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors....................................................................................1
Audited Consolidated Financial Statements
Consolidated Balance Sheets.......................................................................................2
Consolidated Statements of Operations.............................................................................3
Consolidated Statements of Changes in Stockholders' Equity........................................................4
Consolidated Statements of Cash Flows.............................................................................5
Notes to Consolidated Financial Statements........................................................................6
</TABLE>
<PAGE> 91
[ERNST & YOUNG LLP LETTERHEAD]
Report of Independent Auditors
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, 1996 and 1995, 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, 1996 and 1995, and
the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
February 26, 1997
1
<PAGE> 92
St. Joseph's Physicians-Healthcenter Organization, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
-------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $459,628 $216,789
Accounts receivable 12,800 -
Distribution receivable 37,236 38,134
Prepaid income taxes - 60,434
Other current assets 19,810 22,235
-------------------------------
Total current assets 529,474 337,592
Other receivables--long-term - 80,000
Organization costs, net of accumulated amortization
of $10,166 for 1995 - 1,228
Equity investment in limited partnership 98,422 101,882
Other investments 52,000 -
Deferred income taxes 108,603 91,757
-------------------------------
Total assets $788,499 $612,459
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 32,445 $ 17,081
Income taxes payable 39,072 -
Dividends payable 58,750 51,250
Membership fee deposits 15,000 83,500
Due to affiliated organizations 18,056 436
-------------------------------
Total current liabilities 163,323 152,267
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 400,176 235,192
-------------------------------
Total stockholders' equity 625,176 460,192
-------------------------------
Total liabilities and stockholders' equity $788,499 $612,459
===============================
</TABLE>
See accompanying notes.
2
<PAGE> 93
St. Joseph's Physicians-Healthcenter Organization, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995
--------------------------------
<S> <C> <C>
Revenues:
Membership fees $241,300 $ -
Equity in earnings of limited partnerships 99,260 104,592
Investment and other income 57,872 41,822
--------------------------------
Total revenues 398,432 146,414
Expenses:
General and administrative 143,028 87,053
Professional fees 53,735 232,373
Amortization 1,228 2,103
--------------------------------
Total expenses 197,991 321,529
--------------------------------
Income (loss) before income taxes 200,441 (175,115)
(Provision) benefit for income taxes (27,957) 49,135
================================
Net income (loss) $172,484 $(125,980)
================================
</TABLE>
3
See accompanying notes.
<PAGE> 94
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, 1995 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
Dividends declared on
Preferred Stock - - - - - (7,500) (7,500)
Net income for the year ended
December 31, 1996 - - - - - 172,484 172,484
---------------------------------------------------------------------------------
Balance at December 31, 1996 5,000 $5,000 6,250 $125,000 $95,000 $400,176 $625,176
=================================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 95
St. Joseph's Physicians-Healthcenter Organization, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995
------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $172,484 $(125,980)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Amortization 1,228 2,103
Equity in earnings of limited partnerships (99,260) (104,592)
Changes in operating assets and liabilities:
Increase in accounts receivable (12,800) -
Decrease (increase) in distribution receivable 898 (38,134)
Decrease (increase) in prepaid income taxes 60,434 (60,434)
(Increase) decrease in other current assets (7,575) 1,810
Decrease in other long-term receivable 80,000 -
Increase in deferred income taxes (16,846) (52,573)
Increase (decrease) in accounts payable and accrued
expenses 15,364 (75,600)
Increase (decrease) in income taxes payable 39,072 (84,127)
(Decrease) increase in membership fee deposits (68,500) 83,500
Increase (decrease) in due to affiliated organizations 17,620 (5,128)
------------------------------------
Net cash provided by (used in) operating activities 182,119 (459,155)
INVESTING ACTIVITIES
Purchase of other investments (42,000) -
Distributions received from limited partnerships 102,720 93,254
------------------------------------
Net cash provided by investing activities 60,720 93,254
------------------------------------
Increase (decrease) in cash and cash equivalents 242,839 (365,901)
Cash and cash equivalents at beginning of year 216,789 582,690
------------------------------------
Cash and cash equivalents at end of year $459,628 $ 216,789
====================================
</TABLE>
See accompanying notes.
5
<PAGE> 96
St. Joseph's Physicians-Healthcenter Organization, Inc.
Notes to Consolidated Financial Statements
December 31, 1996
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 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 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.
EQUITY INVESTMENT IN LIMITED PARTNERSHIP
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, 1996 and 1995, respectively. None of the assets or
liabilities of the partnership are included in the consolidated balance sheets
except to the extent of the Company's interests in the underlying net assets of
the limited partnership. The Company's 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.
6
<PAGE> 97
St. Joseph's Physicians-Healthcenter Organization, Inc.
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
MEMBERSHIP FEES
Membership fees represent amounts paid by physicians participating in SJHN.
These amounts are recognized as revenue upon approval of the respective
physician's membership in SJHN by its board of directors. In addition, upon
board approval, St. Joseph's Hospital (see Note 7) pays an additional membership
fee equaling that of the new member physician. Amounts included in membership
fee deposits are from physicians pending board approval.
ACCOUNTS RECEIVABLE
Accounts receivable represents amounts due from physicians and St. Joseph's
Hospital for membership fees.
2. PREFERRED STOCK
All Preferred Stock issued by the Company is nonvoting. 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, 1996 and 1995 are
$58,750 and $51,250, or $9.40 and $8.20 per share, respectively (see Note 8).
<PAGE> 98
St. Joseph's Physicians-Healthcenter Organization, Inc.
Notes to Consolidated Financial Statements (continued)
3. EQUITY INVESTMENT IN LIMITED PARTNERSHIP
A summary of the changes in the Company's equity investment in a limited
partnership is presented below:
<TABLE>
<CAPTION>
1996 1995
------------------------------------
<S> <C> <C>
Balance at January 1 $101,882 $ 90,544
Equity in earnings of limited partnerships for
the year ended December 31 99,260 104,592
Distributions received (102,720) (93,254)
------------------------------------
Balance at December 31 $ 98,422 $ 101,882
====================================
</TABLE>
The combined condensed balance sheets and related statements of income of the
limited partnership is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
------------------------------------
<S> <C> <C>
Assets:
Current assets $3,415,417 $3,165,638
Noncurrent assets 730,015 700,408
------------------------------------
Total assets $4,145,432 $3,866,046
====================================
Liabilities and partners' equity:
Current liabilities $1,238,987 $ 927,891
Long-term debt 423,513 368,720
Partners' equity 2,482,932 2,569,435
------------------------------------
Total liabilities and partners' equity $4,145,432 $3,866,046
====================================
YEAR ENDED DECEMBER 31
1996 1995
------------------------------------
Revenues $9,646,996 $9,791,803
Expenses 7,165,501 7,177,015
------------------------------------
Net income $2,481,495 $2,614,788
====================================
</TABLE>
8
<PAGE> 99
St. Joseph's Physicians-Healthcenter Organization, Inc.
Notes to Consolidated Financial Statements (continued)
4. OTHER INVESTMENTS
The Company owned one limited partnership unit, a 1.2% interest, in the Surgery
Center at December 31, 1995. This investment in the amount of $10,000 was held
for resale and included in other current assets. During 1996, the Company
acquired at a cost of $42,000 a one-half limited partnership unit, a 0.6%
interest, from the estate of a shareholder under the Company's right of first
refusal as managing partner. Management has not actively marketed these limited
partnership units and will likely hold them beyond one year. Accordingly, as of
December 31, 1996, these investments are classified as other investments
(noncurrent). Distributions are recorded as income when declared and included in
investment and other income. The difference between accounting for these
investments at cost rather than under the equity method is not material to net
income or the financial position of the Company.
5. INCOME TAXES
The combined federal and state income tax provision consists of the following
components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995
------------------------------------
<S> <C> <C>
Current:
Federal $38,255 $ 1,896
State 6,548 1,541
Deferred taxes:
Federal (14,384) (44,882)
State (2,462) (7,690)
------------------------------------
Provision (benefit) for income taxes $27,957 $ (49,135)
====================================
</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>
1996 1995
--------------------------------
<S> <C> <C>
Total deferred tax liabilities $ (524) $ (48)
Total deferred tax assets 109,127 91,805
--------------------------------
Net deferred tax asset $ 108,603 $ 91,757
================================
</TABLE>
9
<PAGE> 100
St. Joseph's Physicians-Healthcenter Organization, Inc.
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
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.
The Company paid income taxes of $7,920 and $148,000 in 1996 and 1995,
respectively.
6. COMMITMENTS AND CONTINGENCIES
As the managing general partner, the Company is contingently liable for all
liabilities of the Surgery Center.
7. 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. Amounts assessed for this support by the
Center are included in the consolidated statements of operations in general and
administrative expense. The Company paid $90,160 in 1996. No amounts were
charged in 1995. Membership fee revenue from St. Joseph's Hospital, a division
of the Center, totaled $120,650 in 1996.
All physician limited partners in the Surgery Center are also stockholders in
St. Joseph's Physician Associates, Inc. (SJPA), which is the other 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 1995 and is included in general and
administrative expenses in the consolidated statements of operations. This
agreement was terminated effective January 1, 1996.
8. SUBSEQUENT EVENT
The outstanding preferred stock of the Company, 100% owned by St. Joseph's
Enterprises, Inc., together with all declared and unpaid dividends through
January 31, 1997, was redeemed through the payment of $184,375 by the Company on
February 6, 1997 ($125,000 for the 6,250 shares of preferred stock and $59,375
in dividends).
10
<PAGE> 101
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For the fiscal year ended December 31, 1996 Commission File No. 33-22011-A
ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Item
- ------ ----
<S> <C>
27 Financial Data Schedule (For SEC Use Only)
</TABLE>
<PAGE> 102
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 1997 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
1997 annual meeting of stockholders.
<PAGE> 103
[LETTERHEAD] ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.
March 20, 1997
Dear Stockholder:
The 1997 Annual Meeting of Stockholders will be held on Monday, May 5, 1997 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 1996 activities of St. Joseph's Physician
Associates, Inc. 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> 104
[LETTERHEAD] ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.
March 20, 1997
Dear Stockholder:
One of the purposes of the 1997 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 433 shareholders of record as of March
15, 1997, so 109 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 May 5, 1997.
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> 105
[LETTERHEAD] ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.
March 21, 1997
Dr. Thomas Mawn, M.D.
Chairman of the Board, SJPA
4710 North Habana Avenue #400
Tampa, FL 33614
RE: Nominations for SJPA Board of Directors
Dear Dr. Mawn:
The Nominating Committee, consisting of Norman J. Castellano, M.D., 2727 W. Dr.
Martin Luther King Jr. Blvd., Suite 450, Tampa, FL 33607; Thomas Mawn, M.D.,
4710 North Habana Avenue, Suite 400, Tampa, FL 33614; and myself, N. Bruce
Edgerton, M.D., 2706 W. Dr. Martin Luther 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,
Allen Miller, M.D., Surgery representative; Lane France, M.D., Pediatric
representative; and for the one-year, hospital-based physician term: John
Rasmussen, M.D., Radiology.
Respectfully submitted,
/s/ N. Bruce Edgerton, M.D.
N. Bruce Edgerton, M.D.
Chairman, Nominating Committee
NBD/mbg
<PAGE> 106
ST. JOSEPH'S PHYSICIAN ASSOCIATION, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 5, 1997
You are cordially invited to attend the 1997 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, May 5, 1997 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, 1997
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 19, 1997
Enclosures
<PAGE> 107
ST. JOSEPH'S PHYSICIAN ASSOCIATES, INC.
Proxy Solicited on Behalf of the
Board of Directors for
1997 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 N. Bruce Edgerton, 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 1997 Annual Meeting of the
Stockholders of the Company to be held at the auditorium of the Medical Arts
Building, 3003 W. Dr. Martin Luther King Jr. Blvd., Tampa, Florida, on May 5,
1997, 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):
Allen Miller, M.D.
Lane France, 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:
John Rasmussen, 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 , 1997.
----- -----------------
(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.
<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 12/31/96 AUDITED FINANCIAL STATEMENTS, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 769,570
<SECURITIES> 0
<RECEIVABLES> 38,520
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 821,135
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,584,002
<CURRENT-LIABILITIES> 23,978
<BONDS> 0
0
0
<COMMON> 693,808
<OTHER-SE> 787,890
<TOTAL-LIABILITY-AND-EQUITY> 1,584,002
<SALES> 0
<TOTAL-REVENUES> 326,538
<CGS> 0
<TOTAL-COSTS> 119,718
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 206,820
<INCOME-TAX> 73,709
<INCOME-CONTINUING> 133,111
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 133,111
<EPS-PRIMARY> 307
<EPS-DILUTED> 307
</TABLE>
