UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 0-19393
LIFEMARK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-3338328
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer
Identification No.)
7600 NORTH 16TH STREET
SUITE 150
PHOENIX, ARIZONA 85020
(Address of principal executive offices)
(Zip Code)
602-331-5100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 ______
There were 5,084,673 shares of common stock outstanding as of April 10, 2000.
<PAGE>
TABLE OF CONTENTS
PAGE
Part I Financial Information
Item 1.Financial Statements
Consolidated Balance Sheets......................................3
Consolidated Statements of Income................................4
Consolidated Statements of Cash Flows............................5
Notes to Unaudited Consolidated Financial Statements..........6-10
Item 2.Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................11-14
Item 3.Quantitative and Qualitative Disclosures About Market Risk......14
Part II OTHER INFORMATION
Item 1.Legal Proceedings...............................................15
Item 6.Exhibits and Reports on Form 8-K................................15
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIFEMARK CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 29, MAY 31,
2000 1999
-------------- -------------
<S> <C> <C>
(UNAUDITED)
ASSETS
------
Current Assets:
Cash and cash equivalents, including restricted cash of $11,163,000
and $9,713,000, respectively $ 15,924,000 $ 13,792,000
Short-term investments, including restricted investments of $2,878,000
and none, respectively 2,878,000 501,000
Accounts and notes receivable and unbilled services, net 19,480,000 5,886,000
Deferred income taxes, net 1,054,000 1,213,000
Prepaid expenses and other current assets 1,394,000 882,000
------------ ------------
Total current assets $ 40,730,000 $ 22,274,000
Related party notes receivable - 568,000
Property and equipment, net 5,532,000 4,205,000
Performance bonds 6,823,000 4,203,000
Goodwill, net 2,188,000 2,462,000
Other assets 321,000 1,108,000
------------ ------------
Total assets $ 55,594,000 $ 34,820,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 659,000 $ 659,000
Accrued medical claims 25,832,000 8,662,000
Risk pool payable 654,000 691,000
Related party risk pool payable 164,000 152,000
Accrued compensation 2,261,000 2,464,000
Other accrued expenses 4,070,000 1,750,000
Current portion of related party interest payable - 710,000
Current portion of long-term debt 1,308,000 23,000
------------ ------------
Total current liabilities 34,948,000 15,111,000
Long-term debt 2,581,000 211,000
Related party long-term debt 300,000 3,440,000
Deferred income taxes, net 210,000 155,000
------------ ------------
Total liabilities 38,039,000 18,917,000
------------ ------------
Commitments and Contingencies - -
Stockholders' Equity:
Common stock, $0.01 par value
Authorized - 10,000,000 shares
Issued and outstanding 5,085,000 shares
and 4,808,000 shares, respectively 51,000 48,000
Capital in excess of par value 16,955,000 16,148,000
Stockholder notes receivable (696,000) -
Retained earnings (accumulated deficit) 1,245,000 (293,000)
------------ ------------
Total stockholders' equity 17,555,000 15,903,000
------------ ------------
$ 55,594,000 $ 34,820,000
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
3
<PAGE>
LIFEMARK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- ------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2000 1999 2000 1999
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues $ 49,650,000 $ 21,573,000 $ 97,832,000 $ 61,456,000
Direct cost of operations 43,418,000 16,064,000 79,226,000 45,675,000
Marketing, sales and administrative 5,108,000 5,145,000 16,522,000 14,260,000
-------------- ------------- -------------- --------------
Total costs and expenses 48,526,000 21,209,000 95,748,000 59,935,000
-------------- ------------- -------------- --------------
Operating income 1,124,000 364,000 2,084,000 1,521,000
-------------- ------------- -------------- --------------
Interest income 614,000 234,000 1,137,000 720,000
Interest expense (99,000) (91,000) (292,000) (271,000)
-------------- ------------- -------------- --------------
Net interest income 515,000 143,000 845,000 449,000
-------------- ------------- -------------- --------------
Income before income taxes 1,639,000 507,000 2,929,000 1,970,000
Provision for income taxes 830,000 (111,000) 1,391,000 438,000
-------------- ------------- -------------- --------------
Net income $ 809,000 $ 618,000 $ 1,538,000 $ 1,532,000
============== ============= ============== ==============
Net income per share--basic $ 0.17 $ 0.13 $ 0.32 $ 0.32
============== ============= ============== ==============
Weighted average common
shares outstanding--basic 4,850,000 4,767,000 4,822,000 4,727,000
============== ============= ============== ==============
Net income per share--assuming dilution $ 0.16 $ 0.11 $ 0.30 $ 0.28
============== ============= ============== ==============
Weighted average common shares
outstanding--assuming dilution 4,984,000 5,882,000 5,454,000 5,891,000
============== ============= ============== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
4
<PAGE>
LIFEMARK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
FEBRUARY 29, FEBRUARY 28,
2000 1999
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,538,000 $ 1,532,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Bad debt expense (11,000) (2,000)
Depreciation and amortization 1,615,000 1,685,000
Loss on sale of property and equipment 6,000 5,000
Deferred income taxes 214,000 (332,000)
Interest on long-term debt 163,000 165,000
Changes in assets and liabilities:
Accounts receivable and unbilled services (13,583,000) (1,410,000)
Prepaid expenses and other current assets (512,000) (93,000)
Other assets 787,000 (195,000)
Accounts payable - 913,000
Accrued medical claims 17,170,000 1,273,000
Risk pool payable (37,000) (136,000)
Related party risk pool payable 12,000 (35,000)
Accrued compensation (203,000) 453,000
Accrued expenses 2,320,000 (379,000)
Interest paid on long-term debt (844,000) -
-------------- ---------------
Net cash provided by operating activities 8,635,000 3,444,000
-------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment (2,966,000) (1,003,000)
Proceeds from sale of property and equipment 290,000 55,000
Purchase of short-term investments (2,878,000) (1,645,000)
Proceeds from maturity/sale of short-term investments 501,000 999,000
Proceeds from related party notes receivable 568,000 121,000
Proceeds from maturity of assets securing performance bond - 1,241,000
Purchases of assets securing performance bond (2,620,000) -
-------------- ---------------
Net cash used in investing activities (7,105,000) (232,000)
-------------- ---------------
Cash flows from financing activities:
Proceeds from long-term debt 3,698,000 -
Payments on long-term debt (3,210,000) (155,000)
Proceeds from common stock issuance 114,000 198,000
-------------- ---------------
Net cash provided by (used in) financing activities (602,000) 43,000
-------------- ---------------
Net increase (decrease) in cash and cash equivalents 2,132,000 3,255,000
Cash and cash equivalents, beginning of period 13,792,000 12,764,000
-------------- ---------------
Cash and cash equivalents, end of period $ 15,924,000 $ 16,019,000
============== ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
5
<PAGE>
LIFEMARK CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - FINANCIAL STATEMENTS
In management's opinion, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) considered necessary for a fair statement of the results for the
interim periods presented. The results of operations for the period ended
February 29, 2000 are not necessarily indicative of the results to be expected
for the full year. The interim consolidated financial statements should be read
in conjunction with the Lifemark Corporation ("Lifemark" or "Company")
consolidated financial statements and notes thereto included in the Company's
Form 10-K for the year ended May 31, 1999.
NOTE 2 - NET INCOME PER SHARE
Basic net income per share is computed by dividing net income by the weighted
average number of common shares outstanding during each period. Net income per
share assuming dilution is computed by dividing net income by the weighted
average number of common shares outstanding during the period after giving
effect to dilutive stock options and warrants and adjusted for dilutive common
shares assumed to be issued on conversion of the Company's convertible loans.
The following is the computation of the reconciliation of the numerators and
denominators of net income per common share - basic and net income per common
share - assuming dilution in accordance with Statement of Financial Accounting
Standards No. 128, "Earnings Per Share".
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------
FEBRUARY 29, 2000 FEBRUARY 28, 1999
------------------------------------- ----------------------------------
Income Shares Per Share Income Shares Per Share
(NUMERATOR) (DENOMINATOR) Amount (NUMERATOR) (DENOMINATOR) Amount
---------- ------------ --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income per common share:
Income available to common stockholders $ 809,000 5,085,000 $ 618,000 4,767,000
Reduction in shares outstanding in
connection with stockholder notes
receivable (6,000) (235,000) - -
---------- --------- ---------- -----------
Adjusted income available to common
stockholders 803,000 4,850,000 $ 0.17 618,000 4,767,000 $ 0.13
Effect of dilutive securities:
Stock options and warrants - 56,000 - 258,000
Convertible notes 3,000 78,000 40,000 857,000
---------- --------- ---------- -----------
Net income per common share,
assuming dilution:
Income available to common
stockholders and assumed conversions $ 806,000 4,984,000 $ 0.16 $ 658,000 5,882,000 $ 0.11
========== ========= ========= ========== =========== =========
</TABLE>
6
<PAGE>
<TABLE>
NINE MONTHS ENDED
---------------------------------------------------------------------------
FEBRUARY 29, 2000 FEBRUARY 28, 1999
-------------------------------------- ----------------------------------
Income Shares Per Share Income Shares Per Share
(NUMERATOR) (DENOMINATOR) Amount (NUMERATOR) (DENOMINATOR) Amount
----------- ------------- ---------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net income per common share:
Income available to common stockholders $ 1,538,000 4,939,000 $ 1,532,000 4,727,000
Reduction in shares outstanding in
connection with stockholder notes
receivable (10,000) (117,000) - -
----------- ------------- ----------- -----------
Adjusted income available to common
shareholders 1,528,000 4,822,000 $ 0.32 1,532,000 4,727,000 $ 0.32
Effect of dilutive securities:
Stock options and warrants - 42,000 - 307,000
Convertible notes 83,000 590,000 119,000 857,000
----------- ------------- ----------- -----------
Net income per common share,
assuming dilution:
Income available to common
stockholders and assumed conversions $ 1,611,000 5,454,000 $ 0.30 $ 1,651,000 5,891,000 $ 0.28
=========== ============= ========== =========== =========== =========
</TABLE>
NOTE 3 - ACCOUNTS AND NOTES RECEIVABLE
Third party accounts and notes receivable and unbilled services consist of the
following:
February 29, 2000 May 31, 1999
----------------- ------------
Due from Rio Grande HMO, Inc. $ 14,216,000 $ -
Contract management receivables 3,170,000 3,869,000
Due from AHCCCSA 1,697,000 1,810,000
Interest receivable 170,000 147,000
Other 262,000 95,000
------------- -------------
19,515,000 5,921,000
Less allowance for doubtful accounts 35,000 35,000
------------- -------------
Net current portion of accounts and
notes receivables $ 19,480,000 $ 5,886,000
============== =============
The amount due from Rio Grande HMO, Inc. primarily represents revenue earned by
Lifemark of Texas, Inc. ("LMTX"), a subsidiary of the Company, which has
contracted with Rio Grande HMO, Inc. ("RGHMO"), a subsidiary of Health Care
Services Corporation ("HCSC") as successor to Blue Cross Blue Shield of Texas
("BCBSTX").
The amounts due from AHCCCSA primarily include billed and unbilled reinsurance,
SOBRA and capitation receivables.
The current portion of related party notes receivable are $213,000 and none at
February 29, 2000 and May 31, 1999 respectively. The related party note
receivable at February 29, 2000 is due from a Director of the Company. The note
bears an interest rate of 8% and matures on December 31, 2000.
7
<PAGE>
NOTE 4 - RESTRICTIONS ON FUND TRANSFERS
Certain of the Company's operating subsidiaries are subject to state regulations
which require compliance with certain net worth, reserve and deposit
requirements. To the extent the operating subsidiaries must comply with these
regulations, they may not have the financial flexibility to transfer funds to
the parent organization, Lifemark. Net assets of subsidiaries (after
inter-company eliminations) which, at February 29, 2000, may not be transferred
to Lifemark by subsidiaries in the form of loans, advances or cash dividends
without the consent of a third party are referred to as "Restricted Net Assets".
Total Restricted Net Assets of these operating subsidiaries were $12,429,000 at
February 29, 2000, with deposit and reserve requirements representing $6,923,000
of the Restricted Net Assets and net worth requirements, in excess of deposit
and reserve requirements, representing the remaining $5,506,000.
NOTE 5 - BUSINESS SEGMENTS
The Company's business segments consist of management services, long-term care
health services and acute care health services. The management services segment
is engaged in the business of administering risk-based managed care plans and
programs in seven states. Long-term care health services is comprised of Ventana
Health Systems, Inc. ("Ventana"), which is a long-term care Medicaid health plan
operating in seven counties in Arizona; Lifemark of Texas, Inc. ("LMTX") which
has contracted with RGHMO to share financial risk in the state of Texas'
STAR+PLUS program contract in Harris County, Texas. Lifemark At Home, Inc.,
which provides in-home personal, respite, companionship and homemaking services
to qualified recipients in Arizona. Acute care health services consists of
Arizona Health Concepts, Inc. ("AHC"), an acute care Medicaid health plan
currently operating in two counties in Arizona.
8
<PAGE>
Information concerning operations by business segment follows:
<TABLE>
<CAPTION>
For the Three Months Ended February 29, 2000
-----------------------------------------------------------
Management Long-Term Care Acute Care
SERVICES HEALTH SERVICES HEALTH SERVICES TOTALS
------------ --------------- ---------------- ------
<S> <C> <C> <C> <C>
Total revenues from reportable segments $ 13,142,000 $ 36,149,000 $ 5,399,000 $ 54,690,000
Intersegment revenues (4,650,000) (390,000) - (5,040,000)
------------ ------------- ------------ -------------
Total consolidated revenues $ 8,492,000 $ 35,759,000 $ 5,399,000 $ 49,650,000
============ ============= ============ =============
Interest income $ 84,000 $ 446,000 $ 84,000 $ 614,000
Intersegment interest income - - - -
Interest expense (99,000) - - (99,000)
Intersegment interest expense - - - -
------------ ------------- ------------ -------------
Net interest income (expense) $ (15,000) $ 446,000 $ 84,000 $ 515,000
============ ============= ============ =============
Depreciation and amortization $ 541,000 $ - $ - $ 541,000
============ ============= ============ =============
Segment income (loss) before taxes $ 1,667,000 $ (58,000) $ 30,000 $ 1,639,000
============ ============= ============ =============
Expenditures for capital assets $ 1,111,000 $ - $ - $ 1,111,000
============ ============= ============ =============
For the Three Months Ended February 28, 1999
--------------------------------------------------------------
Management Long-Term Care Acute Care
SERVICES HEALTH SERVICES HEALTH SERVICES TOTALS
------------ --------------- ---------------- ------
<S> <C> <C> <C> <C>
Total revenues from reportable segments $ 11,084,000 $ 7,713,000 $ 4,381,000 $ 23,178,000
Intersegment revenues (1,302,000) (303,000) - (1,605,000)
------------ ------------- ------------ -------------
Total consolidated revenues $ 9,782,000 $ 7,410,000 $ 4,381,000 $ 21,573,000
============ ============= ============ =============
Interest income $ 47,000 $ 118,000 $ 75,000 $ 240,000
Intersegment interest income - (6,000) - (6,000)
Interest expense (97,000) - (97,000) -
Intersegment interest expense 6,000 - - 6,000
------------ ------------- ------------ -------------
Net interest income (expense) $ (44,000) $ 112,000 $ 75,000 $ 143,000
============ ============= ============ =============
Depreciation and amortization $ 543,000 $ - $ - $ 543,000
============ ============= ============ =============
Segment income (loss) before taxes $ 103,000 $ 547,000 $ (143,000) $ 507,000
============ ============= ============ =============
Expenditures for capital assets $ 378,000 $ - $ - $ 378,000
============ ============= ============ =============
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
For the Nine Months Ended February 29, 2000
-----------------------------------------------------------
Management Long-Term Care Acute Care
SERVICES HEALTH SERVICES HEALTH SERVICES TOTALS
------------ --------------- ---------------- ------
<S> <C> <C> <C> <C>
Total revenues from reportable segments $ 38,589,000 $ 52,780,000 $ 15,058,000 $ 106,427,000
Intersegment revenues (7,493,000) (1,102,000) - (8,595,000)
------------ ------------- ------------ -------------
Total consolidated revenues $ 31,096,000 $ 51,678,000 $ 15,058,000 $ 97,832,000
============ ============= ============ =============
Interest income $ 213,000 $ 709,000 $ 219,000 $ 1,141,000
Intersegment interest income - (4,000) - (4,000)
Interest expense (296,000) - - (296,000)
Intersegment interest expense 4,000 - - 4,000
------------ ------------- ------------ -------------
Net interest income $ (79,000) $ 705,000 $ 219,000 $ 845,000
============ ============= ============ =============
Depreciation and amortization $ 1,615,000 $ - $ - $ 1,615,000
============ ============= ============ =============
Segment income (loss) before taxes $ 3,370,000 $ 244,000 $ (685,000) $ 2,929,000
============ ============= ============ =============
Expenditures for capital assets $ 2,966,000 $ - $ - $ 2,966,000
============ ============= ============ =============
Segment total assets $ 28,105,000 $ 29,663,000 $ 7,359,000 $ 65,127,000
Intersegment assets (8,915,000) (204,000) (414,000) (9,533,000)
------------ ------------- ------------ -------------
Total assets $ 19,190,000 $ 29,459,000 $ 6,945,000 $ 55,594,000
============ ============= ============ =============
For the Nine Months Ended February 28, 1999
-----------------------------------------------------------
Management Long-Term Care Acute Care
SERVICES HEALTH SERVICES HEALTH SERVICES TOTALS
------------ --------------- ---------------- ------
<S> <C> <C> <C> <C>
Total revenues from reportable segments $ 31,573,000 $ 22,029,000 $ 12,369,000 $ 65,971,000
Intersegment revenues (3,678,000) (837,000) - (4,515,000)
------------ ------------- ------------ -------------
Total consolidated revenues $ 27,895,000 $ 21,192,000 $ 12,369,000 $ 61,456,000
============ ============= ============ =============
Interest income $ 132,000 $ 357,000 $ 255,000 $ 744,000
Intersegment interest income - (24,000) - (24,000)
Interest expense (295,000) - - (295,000)
Intersegment interest expense 24,000 - - 24,000
------------ ------------- ------------ -------------
Net interest income (expense) $ (139,000) $ 333,000 $ 255,000 $ 449,000
============ ============= ============ =============
Depreciation and amortization $ 1,685,000 $ - $ - $ 1,685,000
============ ============= ============ =============
Segment income (loss) before taxes $ 440,000 $ 1,744,000 $ (214,000) $ 1,970,000
============ ============= ============ =============
Expenditures for capital assets $ 1,003,000 - - $ 1,003,000
============ ============= ============ =============
Segment total assets $ 24,388,000 $ 11,665,000 $ 8,314,000 $ 44,367,000
Intersegment assets (8,337,000) (402,000) (105,000) (8,844,000)
------------ ------------- ------------ -------------
Total assets $ 16,051,000 $ 11,263,000 $ 8,209,000 $ 35,523,000
============ ============= ============ =============
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
Lifemark Corporation ("Lifemark" or the "Company"), formerly Managed Care
Solutions, Inc., is involved in a variety of health care programs, many of which
serve high risk and chronic populations including those covered by Medicaid and
Medicare. Two subsidiaries of the Company, Ventana Health Systems, Inc.
("Ventana") and Arizona Health Concepts, Inc. ("AHC"), derive substantially all
of their revenues through contracts with the Arizona Health Care Cost
Containment System Administration ("AHCCCSA") to provide specified long-term and
acute care health services, respectively, to qualified members. The contract
periods expire September 30, 2001 and September 30, 2002 for Ventana and AHC,
respectively. Each contract provides for fixed monthly premiums, based on
negotiated per capita enrollee rates. Ventana and AHC subcontract with nursing
homes, hospitals, physicians, and other medical providers within Arizona to care
for members.
Effective December 1, 1999, Lifemark of Texas, Inc. ("LMTX"), another subsidiary
of the Company, contracted with Rio Grande HMO, Inc. ("RGHMO"), a subsidiary of
Health Care Service Corporation ("HCSC") formerly Blue Cross Blue Shield of
Texas ("BCBSTX"), to share financial risk in the State of Texas' STAR+PLUS
program contract in Harris County, Texas. The contract expires on August 31,
2001, with the option to extend the contract for two additional one-year periods
upon mutual agreement. The STAR+PLUS program is the State of Texas' managed
long-term care demonstration project designed to provide comprehensive managed
health care services to aged, blind and disabled Medicaid beneficiaries,
including those needing long-term care services. Lifemark has administered
RGHMO's STAR+PLUS program ("HMO") operations since its inception in
January 1998. The current annualized RGHMO revenue from this program is
approximately $100 million, and enrollment is approximately 20,000 members.
The Company also provides contract management services to county and state
governmental units and other health care organizations. The Company's contracts
typically have multi-year terms, with its existing contracts expiring at various
dates through the year 2002.
RESULTS OF OPERATIONS
Consolidated revenues for the three and nine-month periods ended February 29,
2000 increased 130% and 59%, respectively, over the comparable periods of the
previous fiscal year. For the three and nine-month periods ended February 29,
2000, direct costs of operations increased 182% and 73%, respectively, over the
same periods of the previous fiscal year. The increase in both revenues and
expenses is primarily a result of the financial risk sharing agreement with
RGHMO and growth in enrollment in the RGHMO and Community Choice Michigan plans,
along with an increase in membership for both Ventana and AHC.
MANAGEMENT SERVICES. For the three-month period ended February 29, 2000,
revenues generated from fees for management services decreased 13% to $8,492,000
from $9,782,000 for the equivalent period of the prior fiscal year. The decrease
primarily represents the change in a contractual relationship with RGHMO from a
management services agreement to a financial risk sharing agreement which
resulted in a reclassification of $2,684,000 as long-term care service revenues
effective December 1, 1999. Excluding the impact of this reclassification,
revenues from management services increased $1,394,000, which represents 14%
growth during the current quarter as compared with the same quarter of the prior
fiscal year. For the nine-month period ended February 29, 2000, revenues
generated from fees for management services increased 11% to $31,096,000 from
$27,895,000 for the corresponding period of the prior fiscal year. The increase
during both the three and nine-month periods ended February 29, 2000, excluding
the impact of the reclassification, is attributable to the growth in Community
Choice Michigan enrollment, the acquisition of Advinet, Inc. in March 1999, and
the renegotiated administrative services agreement with AlohaCare.
Direct costs of operations for the three and nine-month periods ended February
29, 2000 included $3,851,000 and $15,593,000 respectively, related to fees
generated from management services of health plans and programs. The direct cost
of operations for management services as a percentage of related revenues for
the three and nine-month periods ended February 29, 2000 decreased 7% and 3%,
respectively, from the comparable periods of the previous fiscal year to 45% and
50%, due in part to initiatives to strengthen Lifemark's infrastructure and
technology and increased profitability from the Company's renegotiated agreement
with AlohaCare, which was effective August 1, 1999 and expires July 31, 2000.
11
<PAGE>
LONG-TERM CARE HEALTH SERVICES. Long-term care health and personal services,
which consists of the operations of Ventana, Lifemark at Home, Inc., and LMTX,
generated revenues of $35,759,000 and $51,678,000 for the three and nine-month
periods ended February 29, 2000, respectively, as compared to $7,410,000 and
$21,192,000 for the corresponding periods of the prior fiscal year. The
increases during the three month period ended February 29, 2000 are primarily
due to LMTX revenues of $23,549,000 described above under the `Introduction'
caption, growth in Ventana membership with the addition of two new counties
which generated revenues of $3,868,000, and the purchase of Valleywide Attendant
Care in January 2000, which contributed revenues of $108,000.
Ventana was awarded contracts covering two additional rural Arizona counties,
effective December 1, 1999. These additional counties added 550 members to
Ventana's membership and accounted for $3,868,000 in additional revenues during
the quarter ended February 29, 2000.
In January 2000, the Company acquired Valleywide Attendant Care, who performs
non-medical home and community based services in Maricopa and Pinal counties in
Arizona. The Company paid $143,000 for Valleywide Attendant Care and
incorporated its operations into its existing Lifemark at Home, Inc. subsidiary.
Direct costs of operations related to long-term care health services for the
three and nine-month periods ended February 29, 2000 were $34,359,000 and
$48,373,000, respectively, versus $6,451,000 and $18,337,000 for the same
periods of last fiscal year. As a percentage of related revenues, direct cost of
operations related to long-term care health services increased to 96% and 94%
for the three and nine-month periods ended February 29, 2000, respectively,
versus 87% for both periods of the previous fiscal year. The increases are
primarily due to the addition of LMTX, which experienced higher direct cost of
operations as a percentage of related revenues than other long-term care
services segment operations.
ACUTE CARE HEALTH SERVICES. Acute care health services, which consists of the
operations of AHC, generated revenues of $5,399,000 and $15,058,000 for the
three and nine-month periods ended February 29, 2000, respectively, representing
a 23% and 22% increase over the comparable periods of the prior fiscal year,
respectively. The change was caused by the recognition of the final prior period
coverage settlement for September 30, 1999, an increase in membership of
AHC and approximately 6% increase in the capitation rate received by AHC from
AHCCCSA.
Direct costs of operations related to acute care health services for the three
and nine-month periods ended February 29, 2000 were $5,208,000 and $15,258,000,
respectively, versus $4,470,000 and $12,479,000 for the same periods of the
previous fiscal year. Direct costs of operations as a percentage of related
revenues decreased to 96% for the three month period ended February 29, 2000
versus 102% for the comparable period of the prior fiscal year, while the nine
month period ended February 29, 2000 remained at 101% when compared to the
comparable period from the prior fiscal year. The change relates to higher
revenues generated by AHC due to a reconciliation of capitation reimbursement
from AHCCCSA.
MARKETING, SALES AND ADMINISTRATIVE. Marketing, sales and administrative
expenses decreased $37,000 to $5,108,000 for the three-month period ended
February 29, 2000, when compared to the same period for the previous fiscal
year. Marketing, sales and administrative expenses as a percentage of
consolidated revenue were 10% and 17%, respectively, for the three and
nine-month periods ended February 29, 2000 versus 24% and 23%, respectively, for
the corresponding periods of the previous year. The decrease in marketing, sales
and administrative expenses for the three months ended February 29, 2000
compared with the same quarter of the prior fiscal year is primarily a result of
LMTX entering into the financial risk sharing agreement with RGHMO effective
December 1, 1999. LMTX, similar to other health plan operations, typically
experiences significantly less marketing, sales and administrative expenses as a
percentage of related revenue when compared with an administrative services
contract structure. An increase in profitability due to membership growth in the
RGHMO and Community Choice Michigan plans has also contributed to the reduction
in marketing, sales and administrative expenses as a percentage of related
revenue during the current fiscal year. In addition, prior year marketing, sales
and administrative expenses included consulting fees related to management
reorganization and process redesign intended to improve the Company's service
delivery system. The Company did not incur significant consulting fees related
to this initiative in the current fiscal year.
12
<PAGE>
INTEREST INCOME. Interest income for the three and nine-month periods ended
February 29, 2000 was $614,000 and $1,137,000 versus $234,000 and $720,000 for
the same periods of the prior fiscal year. The additional income during the
current fiscal year is primarily attributable to LMTX's share of income earned
on investments attributable to RGHMO's STAR+PLUS operations of $256,000 as well
as the growth of the Company's interest bearing cash and cash equivalents.
INTEREST EXPENSE. Interest expense was $99,000 and $292,000 for the three and
the nine-month periods ended February 29, 2000, respectively, as compared to
$91,000 and $271,000 for the same periods of the last fiscal year. During the
current quarter, Lifemark repaid its $3,000,000 convertible loan to HCSC,
replacing it with a four-year term note with a bank. The warrant to purchase
100,000 shares of the Company's common stock held by HCSC as part of the loan
transaction was also terminated. The loans mentioned above coupled with an
interim funding agreement obtained from a bank during the fourth quarter of
fiscal year 1999 were the primary reasons for the interest expense incurred
during both the three and nine-months periods ended February 29, 2000. The
Company has borrowed $841,000 under this funding agreement as of
February 29, 2000.
INCOME TAXES. Income tax expense was $830,000 and $1,391,000 for the three-month
and nine-month periods ended February 29, 2000, respectively. The effective tax
rates were 51% and 47%, respectively. These rates were higher than the statutory
rates for the respective periods primarily due to the amortization of
non-deductible goodwill expense. During the three-month and nine-month periods
ended February 28, 1999, the effective tax rate was 22%. These rates were a
result of the reduction in the deferred tax valuation allowance of $366,000
based on the Company's assessment of the realizeability of deferred tax assets
partially offset by amortization of non-deductible goodwill expense.
NET INCOME. Net income for the three and nine-month periods ended February 29,
2000 was $809,000 and $1,538,000 as compared to $618,000 and $1,532,000 for the
comparable periods of the previous fiscal year. The increase in profitability
for the three and nine-month periods ended February 29, 2000 is primarily due to
the enhanced profitability in the management services segment with the growth in
enrollment in the Community Choice Michigan and RGHMO plans. The renegotiated
administrative service agreement with AlohaCare effective August 1, 1999 also
contributed to the increase in net income. Additional income generated from
the management services segment was partially offset by increases in direct
expenses as a percentage of related revenue in the long-term care and acute care
health service segments.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents increased to $15,924,000 at February 29,
2000 from $13,792,000 at May 31, 1999. Operating activities generated $8,635,000
for the nine-month period ended February 29, 2000 versus $3,444,000 during the
same period of the previous fiscal year. The primary reasons for the increase in
cash are earnings before non-cash charges, a refundable deposit of $650,000
obtained from AlohaCare pursuant to the terms of the renegotiated administrative
services agreement, receipt of a $600,000 incentive fee payment pursuant to the
administrative services agreement with RGHMO, an increase in accrued income
taxes and an increase in accrued medical expenses. The growth in accrued medical
expenses was related to LMTX operations, and for both Ventana and AHC, the
annual increases in fee-for-service rates paid to providers coupled with
enrollment growth. The growth in cash was partially offset by an increase in
accounts receivable caused by the financial risk sharing agreement with RGHMO
and a payment of $844,000 in interest to HCSC relating to the $3,000,000
convertible debt.
Investing activities used $7,105,000 for the nine-month period ended February
29, 2000 as compared to $232,000 during the corresponding period of the prior
fiscal year. Cash of $2,966,000 was used to purchase fixed assets during the
nine-month period ended February 29, 2000. Other uses of cash for the nine-month
period ended February 29, 2000 included the purchase of a certificate of deposit
for $2,878,000. The Company pledged the certificate of deposit to RGHMO to
secure its obligations under the financial risk sharing agreement with RGHMO
effective December 1999. In addition, Ventana and AHC invested $2,398,000 and
$222,000 in assets securing performance bonds during the nine-month period ended
February 29, 2000, due to increased enrollment. During the same period, sources
of cash included the sale of fixed assets to AlohaCare for $285,000 pursuant to
the terms of the renegotiated administrative services agreement and maturity
of Ventana's short-term investments of $501,000. During the nine-month period
ended February 28, 1999, cash was used to purchase $1,003,000 of fixed assets
and $1,645,000 was used to purchase additional short-term investments.
13
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Financing activities generated $602,000 and $43,000 for the nine-month periods
ended February 29, 2000 and 1999, respectively. Issuance of common stock under
the employee stock purchase plan provided $198,000 for the nine-month period
ended February 29, 2000 while principal payments on long-term debt utilized
$155,000. During the current quarter, the Company repaid its $3,000,000
convertible loan to HCSC, replacing it with a four-year term note with a bank.
The warrant held by HCSC to purchase 100,000 shares of the Company's common
stock was also terminated as part of the transaction.
Certain of the Company's operating subsidiaries are subject to state regulations
which require compliance with net worth, reserve and deposit requirements. To
the extent the operating subsidiaries must comply with these regulations, they
may not have the financial flexibility to transfer funds to Lifemark. Net assets
of subsidiaries (after inter-company eliminations) which, at February 29, 2000,
may not be transferred to Lifemark by subsidiaries in the form of loans,
advances or cash dividends without the consent of a third party are referred to
as "Restricted Net Assets". Total Restricted Net Assets of these operating
subsidiaries was $12,429,000 at February 29, 2000, with deposit and reserve
requirements (performance bonds) representing $6,923,000 of the Restricted Net
Assets and net worth requirements, in excess of deposit and reserve
requirements, representing the remaining $5,506,000. There were no funds
provided by Ventana to Lifemark under loan agreements at February 29, 2000.
The Company believes that its existing capital resources and cash flow generated
from future operations will enable it to maintain its current level of
operations and its planned operations, including capital expenditures, in fiscal
year 2000.
FORWARD-LOOKING INFORMATION
This report contains both historical and forward-looking information.
Forward-looking statements include, but are not limited to, discussion of the
Company's strategic goals, new contracts, possible expansion of existing plans,
expected increase in certain expenses, and cash flow. These statements speak of
the Company's plans, goals or expectations and refer to estimates. The
forward-looking statements may be significantly impacted by risks and
uncertainties, and are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). There can
be no assurance that anticipated future results will be achieved because actual
results may differ materially from those projected in the forward-looking
statements. Readers are cautioned that a number of factors, which are described
herein and in the Company's Form 10-K for the year ended May 31, 1999, could
adversely affect the Company's ability to obtain these results. These include
the effects of either federal or state health care reform or other legislation;
changes in reimbursement system trends, the ability of care providers (including
physician practice management groups) to comply with current contract terms; and
renewal of the Company's contracts with various state and other governmental
entities. Such factors also include the effects of other general business
conditions, including but not limited to, government regulation, competition and
general economic conditions. The cautionary statements made pursuant to the
Reform Act herein and elsewhere by the Company should not be construed as
exhaustive or as any admission regarding the adequacy of disclosures made by the
Company prior to the effective date of the Reform Act. The Company cannot always
predict what factors would cause actual results to differ materially from those
indicated by the forward-looking statements. In addition, readers are urged to
consider statements that include the terms "believes", "belief", "expects",
"plans", "objectives", "anticipates", "intends" or the like to be uncertain and
forward-looking.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to the risk of fluctuating interest rates in the ordinary
course of business on certain assets and liabilities including cash and cash
equivalents, short-term investments and long-term debt. The Company does not
expect changes in interest rates to have a significant effect on the Company's
operations, cash flow or financial position.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to an administrative services agreement with Rio Grande
HMO, Inc. ("RGHMO"), a wholly owned subsidiary of HCSC. Under the agreement, the
Company administers RGHMO's STAR+PLUS operations in Texas and is responsible,
among other things, for developing and maintaining RGHMO's provider network and
for administering the claims adjudication and payment functions. On July 5,
1997, RGHMO entered into agreement for medical services with Universal
Healthplan, Inc. ("Universal"), a Texas health maintenance organization. The
agreement provided for Universal to provide hospitalization services to RGHMO
members through Universal's contract with Tenet Health Care Ltd. ("Tenet"), a
hospital chain. Tenet asserts that RGHMO owes it approximately $6,500,000 for
claims allegedly improperly denied or paid at incorrect rates. On July 1, 1999,
Tenet filed a demand for arbitration against RGHMO to recover such amounts. On
March 23, 2000, RGHMO filed a demand for arbitration against the Company in the
same arbitration alleging that because the Company is responsible for claim
adjudication, the Company should be responsible for any amount determined by the
arbitrators to be due to Tenet. The Company believes that there is no valid
basis for its inclusion in the arbitration action. The Company also believes its
adjudication of the Tenet claims on RGHMO's behalf was appropriate and Tenet was
paid what it was owed. Accordingly, the Company intends to vigorously assert its
position in this matter.
The Company is also a party to various claims and legal proceedings which
management believes are in the normal course of business and will not involve
any material loss.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Health Services Agreement between Rio Grande HMO, Inc. and
Lifemark of Texas, Inc. *
10.2 Amended and Restated Administrative Services Agreement
between Rio Grande HMO, Inc. and the Registrant *
27 Financial data schedule
(b) Reports on Form 8-K
None
* Confidential treatment requested
15
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LIFEMARK CORPORATION
By: /S/ RHONDA E. BREDE
----------------------------------------------
Rhonda E. Brede, President and Chief Executive
Officer (Principal Executive Officer)
By: /S/ MICHAEL J. KENNEDY
----------------------------------------------
Michael J. Kennedy, Vice President and Chief
Financial Officer (Principal Financial and
Accounting Officer)
Dated: April 14, 2000
16
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Exhibit 10.1
HEALTH SERVICES AGREEMENT
BY AND BETWEEN
RIO GRANDE HMO, INC.
AND
LIFEMARK OF TEXAS, INC,
<PAGE>
This HEALTH SERVICES AGREEMENT ("Agreement") is entered into by and between Rio
Grande HMO, Inc. d/b/a HMO Blue(R), Southeast Texas, a health maintenance
organization certified under Article 20A of the Insurance Code of the State of
Texas (hereinafter referred to as "HMO"), and Lifemark of Texas, Inc. a
nonprofit health corporation certified under Section 5.01(a) of the Texas
Medical Practice Act (hereinafter referred to as "Lifemark Texas").
1 PREAMBLE
HMO is engaged in the development, management and operation of a health
maintenance organization, one of whose purposes is to provide or arrange
for comprehensive health care on a prepaid basis for Medicaid recipients.
HMO desires to engage the services of Lifemark Texas in the Medicaid
program. Lifemark Texas desires to participate in the HMO's health service
delivery system and directly provide or arrange health care services to
Medicaid recipients who have selected the HMO, and to provide certain
administrative services to HMO.
Now, therefore, in consideration of the mutual promises herein stated, it
is agreed by and between the parties hereto as follows:
2 DEFINITIONS
The following terms will have the meanings for purposes of this Agreement,
as set forth below:
2.1 "AGREEMENT" means this contract, including all attachments appended hereto
and any written amendments subsequently executed by the parties.
2.2 "CLEAN CLAIM" means a TDHS approved or identified claim format that
contains all data fields required by HMO and TDHS for final adjudication
of the claim. The required data fields must be complete and accurate and
include HMO-published requirements for adjudication.
2.3 "CONTRACT YEAR" means September 1 of the current year through August 31 of
the following year or as otherwise defined by the Texas Department of
Human Services for a particular service area or service area expansion.
2.4 "COVERED SERVICES" means those health care services or products, including
medical, dental, vision, behavioral, approved home and community based
care, and other services to which Members are entitled under the Program
as described in the RFA, the TDHS Contract and value-added services as
described in the HMO's response to the RFA dated April 7, 1997.
2.5 "DESIGNATED MEMBERS" means those Members who have selected, or been
assigned to, participating Providers to be those Members' Primary Care
Physicians.
2
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2.6 "EMERGENCY MEDICAL CONDITION" means a medical condition manifesting itself
by acute symptoms of sufficient severity (including severe pain), such
that a prudent layperson who possesses an average knowledge of health and
medicine could reasonably expect the absence of immediate medical care
could result in:
(a) placing the patient's health in serious jeopardy;
(b) serious impairment to bodily functions;
(c) serious dysfunction of any bodily organ or part;
(d) serious disfigurement; or
(e) in the case of a pregnant woman, serious jeopardy to the health of
the fetus.
2.7 "EMERGENCY SERVICES" means Covered Services that are furnished by a
Provider that is qualified to furnish such services under this Agreement
and are needed to evaluate or stabilize an Emergency Medical Condition
and/or emergency behavioral health condition.
2.8 "EPSDT" means the Early and Periodic Screening, Diagnosis, and Treatment
program contained at 42 United States Code 1396d(r). The name has been
changed to "Texas Health Steps" in the State of Texas.
2.9 "EPSDT-CCP" means the Early and Periodic Screening, Diagnosis, and
Treatment -- Comprehensive Care Program, under which TDH added
comprehensive care benefits to the federal EPSDT (Texas Health Steps)
program requirements.
2.10 "HCFA" means the Health Care Financing Administration.
2.11 "HEALTH CARE PROFESSIONAL" means any physician, nurse, audiologist,
physician assistant, clinical psychologist, occupational therapist,
physical therapist, speech and language pathologist, and other
professional engaged in the delivery of health services who is licensed,
practices under an institutional license, certified, or practices under
authority of a physician or legally constituted professional association
or other authority consistent with State law to render services to Members
pursuant to an agreement with HMO or Lifemark Texas.
2.12 "INSTITUTIONAL SERVICES" means those non-professional Covered Services
provided by or through a State licensed or Medicare/Medicaid certified
facility. Such services include, but are not limited to: inpatient or
outpatient hospital services, skilled nursing facility services, and
emergency room services.
2.13 "MEDICAL DIRECTOR" means a physician designated by HMO who is responsible
for monitoring the provision of Covered Services to Members.
2.14 "MEDICALLY NECESSARY" means those services or supplies specified in the
TDHS Contract which are:
3
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(a) reasonable and necessary to prevent illnesses or medical conditions,
or provide early screening, interventions, and/or treatments for
conditions that cause suffering or pain, cause physical deformity or
limitations in function, threaten to cause or worsen a handicap, cause
illness or infirmity of a Member, or endanger life;
(b) provided at appropriate facilities and at the appropriate levels of
care for treatment of a Member's medical conditions;
(c) consistent with health care practice guidelines and standards that are
issued by professionally recognized health care organizations or
governmental agencies;
(d) consistent with the diagnoses of the conditions; and
(e) no more intrusive or restrictive than necessary to provide a proper
balance of safety, effectiveness, and efficiency.
2.15 MEDICALLY NECESSARY BEHAVIORAL HEALTH SERVICES" means those behavioral
health services which:
(a) are reasonable and necessary for the diagnosis or treatment of a
mental health or chemical dependency disorder or to improve or to maintain
or to prevent deterioration of functioning resulting from such a disorder;
(b) are in accordance with professionally accepted clinical guidelines and
standards of practice in behavioral health care;
(c) are furnished in the most appropriate and least restrictive setting in
which services can be safely provided;
(d) are the most appropriate level of supply or service which can safely
be provided; and
(e) could not be omitted without adversely affecting the Member's mental
and/or physician health or the quality of care rendered.
2.16 "MEMBER" means any person residing in the service enrollment area who is:
(1) entitled to benefits under Title XIX of the Social Security Act and
the Texas Medical Assistance Program (Medicaid);
(2) in a Medicaid eligibility category included in the Program;
(3) enrolled in the Program; and
(4) enrolled with HMO.
4
<PAGE>
2.17 "PARTICIPATING PROVIDER" means any health care facility or Health Care
Professional that renders Covered Services to Members pursuant to an
agreement with HMO or Lifemark Texas.
2.18 "PRIMARY CARE PHYSICIAN OR PROVIDER" means a Participating Provider who
has further agreed to provide to Designated Members a medical home, and
who is responsible for providing initial and primary care to patients,
maintaining the continuity of patient care, and initiating referral for
care.
2.19 "PROVIDER" means an individual or entity and its employees and
subcontractors that directly provide health care services to HMO's Members
under a TDHS Medicaid managed care program.
2.20 "PROGRAM" means the State of Texas STAR+PLUS Program for the provision of
medical, dental, vision, behavioral, approved home and community based,
and other health services to Medicaid recipients in a managed care
delivery setting as described in the STAR+PLUS portion of the Request For
Application by the Texas Department of Health, dated January 7, 1997, and
the TDHS Contract.
2.21 "REQUEST FOR APPLICATION" or "RFA" shall mean the TDH/TDHS Request for
Application for the Program dated January 7, 1997 and any amendments
thereto.
2.22 "REVENUE" means the monthly payments and all subsequent adjustment
payments made to HMO under the TDHS Contract.
2.23 "SPECIALIST PHYSICIAN" means a physician who is a Participating Provider
and who agrees to directly provide Covered Services to Designated Members
upon the referral by any Primary Care Physician.
2.24 "STATE" means the State of Texas.
2.25 "TDH" means the Texas Department of Health.
2.26 "TDHS" shall mean the Texas Department of Human Services.
2.27 "TDHS CONTRACT" means the agreement between HMO and TDHS specifying the
terms and conditions under which Covered Services are to be provided to
Members pursuant to the Program, and any of its written amendments,
corrections or modifications.
2.28 "TDI" means the Texas Department of Insurance.
2.29 "TDMHMR" means the Texas Department of Mental Health and Mental
Retardation.
5
<PAGE>
2.30 "THHSC" means the Texas Department of Health and Human Services.
2.31 "THIRD PARTY LIABILITY" means benefits paid or payable by all other
federal or State medical care programs that are primary to Medicaid, group
or individual insurance (including the insurance of absent spouses or
parents who may have insurance to pay medical care for spouses or minor
Members, and auto or casualty insurance collections, subject to limitation
pursuant to State law).
3 OBLIGATIONS OF HMO
3.1 GENERAL. HMO shall maintain the organizational and administrative capacity
and capabilities to carry out duties and responsibilities under the TDHS
Contract.
3.2 FISCAL SOLVENCY. HMO is and shall remain in full compliance with all State
and federal solvency requirements for HMOs, including but not limited to,
all reserve requirements, net worth standards, debt to equity ratios or
other debt limitations.
3.3 INSURANCE. HMO has obtained and shall maintain the insurance coverages as
required by the TDHS Contract.
3.4 COMPLIANCE. HMO shall comply with all State and federal laws and
regulations relating to the Texas Medicaid Program which have not been
waived by HCFA. HMO shall comply with all rules relating to the Medicaid
Managed Care Program adopted by TDHS, TDI, TDH, THHSC, TDMHMR any other
state agency delegated authority to operate or administer Medicaid or
Medicaid Managed Care Programs.
4 ACCOUNTABILITY, DELEGATION AND OVERSIGHT.
4.1 ACCOUNTABILITY. HMO is and shall remain responsible for performing all
duties, responsibilities and services under the TDHS Contract regardless
of whether the duty, responsibility or service is subcontracted or
delegated to Lifemark Texas under this Agreement.
4.2 SUBCONTRACT/DELEGATION. HMO has subcontracted and/or delegated to Lifemark
Texas, and Lifemark Texas shall perform, those duties, responsibilities
and services (collectively, "Activities") which are specified in this
Agreement. Lifemark Texas shall not further subcontract or delegate the
performance of these Activities to any organization or entity without the
prior written consent of HMO. Any such subcontract or delegation agreement
shall be approved by HMO, and TDHS if deemed necessary under regulatory or
TDHS Contract requirements, and attached as an addendum to this Agreement.
6
<PAGE>
4.3 OVERSIGHT. Lifemark Texas shall comply with all HMO standards and
requirements applicable to the Activities, and Lifemark Texas's policies
and procedures for performing the Activities shall be consistent with
HMO's policies and procedures. If Lifemark Texas's policies and procedures
are inconsistent with the HMO's, the HMO's policies and procedures shall
apply.
4.4 MAINTENANCE OF INFORMATION AND RECORDS. Lifemark Texas shall maintain all
records reviewed or created in connection with performing the Activities
in a form acceptable to HMO, provide HMO with access to such information
and records, and permit HMO to review and copy such information and
records, in accordance with the requirements of State and federal law.
Lifemark Texas shall create, keep and maintain records in accordance with
TDHS Contract Section 3.5 and other requirements as specified by federal
or State laws or regulations.
4.5 REPORTING OBLIGATIONS. Lifemark Texas shall provide HMO with periodic
written reports regarding all Activities in the formats specified by HMO
for each of the Activities. Lifemark Texas shall disclose, and shall
require network Providers to disclose, to HMO all pending or potential
arbitration, litigation or administrative actions against Lifemark Texas
or the network Provider prior to the execution of this Agreement, and
within seven (7) days of receiving service or becoming aware of threatened
litigation during the term of the Agreement.
4.6 MONITORING/AUDITS. HMO shall oversee Lifemark Texas's performance of the
Activities through review of periodic written reports provided by Lifemark
Texas as described above, meetings with appropriate Lifemark Texas
representatives, and onsite audits and assessments of Lifemark Texas.
Lifemark Texas shall cooperate, participate and comply with HMO in such
monitoring and audits. Such audits and assessments shall be performed in
accordance with requirements of State and federal law. Without limiting
the foregoing, Lifemark Texas agrees that contracts with Participating
Providers shall permit Lifemark Texas to disclose to HMO its Participating
Providers credentialing files. Lifemark Texas agrees that TDHS, TDI or
their designee have the right from time to time to examine and audit the
books of Lifemark Texas and its subcontractors relating to: 1) capacity to
bear the risk of potential financial losses; 2) services performed or
determination of amounts payable under the TDHS Contract; 3) detection of
fraud and abuse; and 4) other purposes TDHS deems necessary to perform its
regulatory function and/or to enforce the provisions of the TDHS Contract
or other requirements as specified by federal or State laws or
regulations.
4.7 LIFEMARK TEXAS COVENANTS - NONPROVIDER SERVICES. Lifemark Texas agrees to
the following covenants, and agrees to include such covenants in any
subcontract for nonProvider services:
7
<PAGE>
4.7.1 Lifemark Texas understands that services provided under this
contract are funded by State and federal funds under the Texas
Medical Assistance Program (Medicaid). Lifemark Texas is subject to
all State and federal laws, rules and regulations that apply to
persons or entities receiving State and federal funds. Lifemark
Texas understands that any violation by Lifemark Texas of a State or
federal law relating to the delivery of services under this
Agreement, or any violation of the TDHS Contract could result in
liability for contract money damages, and/or civil criminal
penalties and sanctions under State and federal law.
4.7.2 Lifemark Texas understands and agrees that the HMO has the sole
responsibility for payment of services rendered by the Lifemark
Texas under this Agreement. In the event of HMO insolvency or
cessation of operations, Lifemark Texas's sole recourse is against
the HMO through the bankruptcy or receivership estate of the HMO.
4.7.3 Lifemark Texas understands and agrees that TDHS is not liable or
responsible for payment for any services provided under this
Agreement.
4.7.4 Lifemark Texas agrees that any modification, addition, or deletion
of the provisions of this Agreement will become effective no earlier
than 30 days after the HMO notifies TDHS of the change. If TDHS does
not provide written approval within 30 days from receipt of
notification from the HMO, changes may be considered provisionally
approved.
4.8 This Agreement is subject to State and federal fraud and abuse statutes.
Lifemark Texas is subject to State and federal fraud and abuse statutes.
Lifemark Texas will be required to cooperate in the investigation and
prosecution of any suspected fraud or abuse, and must provide any and all
requested originals and copies of records and information, free of charge
on request, to any State or federal agency with authority to investigate
fraud and abuse in the Medicaid program.
The Texas Medicaid Fraud Control Unit must be allowed to conduct private
interviews of Lifemark Texas personnel, subcontractors and their
personnel, witnesses, and patients. Requests for information are to be
complied with, in the form and the language requested. Lifemark Texas, its
employees and subcontractors and their employees and contractors must
cooperate fully in making themselves available in person for interviews,
consultation, grand jury proceedings, pretrial conference, hearings, trial
and in any other process, including investigations. Compliance with this
covenant shall be a shared expense of HMO and Lifemark Texas and shall not
be charged to the Program.
4.9 LIFEMARK TEXAS COVENANTS - PROVIDER SERVICES. Lifemark Texas agrees to the
following covenants, and agrees to include such covenants in any contract
for Provider services:
8
<PAGE>
4.9.1 Lifemark Texas is being contracted to deliver Medicaid managed care
under the TDHS STAR+PLUS program. HMO must provide copies of the
TDHS Contract to the Lifemark Texas upon request. Lifemark Texas
understands that services provided under this contract are funded by
State and federal funds under the Medicaid program. Lifemark Texas
is subject to all state and federal laws, rules, regulations that
apply to all persons or entities receiving state and federal funds.
Lifemark Texas understands that any violation by a Provider of State
or federal law relating to the delivery of services by the Provider
under this Agreement, or any violation of the TDHS Contract could
result in liability for money damages, and/or civil criminal
penalties and sanctions under state and/or federal law.
4.9.2 Lifemark Texas understands and agrees that HMO has the sole
responsibility for payment of covered services rendered by the
Provider under this Agreement. In the event of HMO insolvency or
cessation of operations, Lifemark Texas's sole recourse is against
HMO through the bankruptcy, conservatorship, or receivership estate
of HMO.
4.9.3 Lifemark Texas understands and agrees TDHS is not liable or
responsible for payment for any Medicaid covered services provided
to mandatory Member under this Agreement. Federal and State laws
provide severe penalties for any Provider who attempts to collect
any payment from or bill a Medicaid recipient for a Covered Service.
4.9.4 Lifemark Texas agrees that any modification, addition, or deletion
of the provisions of this Agreement will become effective no earlier
than 30 days after HMO notifies TDHS of the change in writing. If
TDHS does not provide written approval within 30 days from receipt
of notification from HMO, changes can be considered provisionally
approved, and will become effective. Modifications, additions or
deletions which are required by TDHS or by changes in State or
federal law are effective immediately.
4.9.5 This contract is subject to all State and federal laws and
regulations relating to fraud and abuse in health care and the
Medicaid program. Lifemark Texas must cooperate and assist TDHS and
any State or federal agency that is charged with the duty of
identifying, investigating, sanctioning or prosecuting suspected
fraud and abuse. Lifemark Texas must provide originals and/or copies
of any and all information, allow access to premises and provide
records to TDHS or its authorized agent(s), THHSC, HCFA, the U.S.
Department of Health and Human Services, FBI, TDI, and the Texas
Attorney General's Medicaid Fraud Control Unit, upon request, and
free-of-charge. Lifemark Texas must report any suspected fraud or
abuse including any suspected fraud and abuse committed by HMO or a
Medicaid recipient to TDHS for referral to THHSC.
4.9.6 Lifemark Texas is required to submit proxy claims or encounter forms
to HMO for services provided to all STAR+PLUS Members that are
capitated by HMO in accordance with the encounter data submissions
requirements established by HMO and TDHS.
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4.9.7 HMO is prohibited from imposing restrictions upon the Lifemark
Texas' free communication with Members about a Member's medical
conditions, treatment options, HMO referral policies, and other
HMO policies, including financial incentives or arrangements and all
STAR+PLUS managed care plans with whom Lifemark Texas contracts.
4.9.8 The Texas Medicaid Fraud Control Unit must be allowed to conduct
private interviews of Lifemark Texas and the Lifemark Texas's
employees, contractors, and patients. Requests for information must
be complied with, in the form and language requested. Lifemark Texas
and their employees and contractors must cooperate fully in making
themselves available in person for interviews, consultation, grand
jury proceedings, pre-trial conference, hearings, trial and in any
other process, including investigations. Compliance with this
covenant is at Lifemark Texas's own expense.
4.10 COMPLIANCE. Lifemark Texas must comply, and shall require its network
Providers and subcontractors to comply, with all State and federal laws
and regulations relating to the Texas Medicaid program, all rules relating
to the Medicaid Managed Care program adopted by TDHS, TDI, TDH, THHSC,
TDMHMR and any other State agency delegated authority to operate Medicaid
or Medicaid Managed Care programs, and the TDHS Contract. Lifemark Texas,
its network Providers and subcontractors shall comply with the provisions
of the Clean Air Act and the Federal Water Pollution Control Act, as
amended. To the extent required by Federal or State law, Lifemark Texas
shall prepare and implement an affirmative action program. Lifemark Texas
agrees to buy Texas products and services when they are available at a
comparable price and a comparable period of time, as required by Section
48 of Article IX of the General Appropriations Act of 1995. Lifemark Texas
shall comply with Section 5.9 of the TDHS Contract, if applicable.
4.11 PROGRAM INTEGRITY. Lifemark Texas has not been excluded, debarred, or
suspended from participation in any program under Title XVII or Title XIX
under any of the provisions of section 1128(a) or (b) of the Social
Security Act (42 USC Section 1320 a-7), or Executive Order 12549. Lifemark
Texas must notify HMO within 3 days of the time it receives notice that
any action being taken against Lifemark Texas or any person defined under
the provision of section 1128 (a) or (b) or any subcontractor, which could
result in exclusion, debarment or suspension of Lifemark Texas or a
subcontractor from the Medicaid program, or any program listed in
Executive Order 12549.
4.12 FRAUD CONTROL. Lifemark Texas must submit to HMO within sixty (60) days
after the effective date of this Agreement a copy of the Lifemark Texas's
fraud control program. Lifemark Texas's fraud control program must contain
the same standards and requirements as the HMO's fraud and abuse
compliance plan as required by the TDHS Contract, Section 5.3. HMO
acknowledges that Lifemark Texas has submitted a fraud control plan to
HMO.
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4.13 SAFEGUARDING INFORMATION.
4.13.1All Member information, records and data collected or provided to
Lifemark Texas by HMO, TDHS or another State agency is protected
from disclosure by State and federal law and regulations. Lifemark
Texas may only receive and disclose information which is directly
related to establishing eligibility, providing services and
conducting or assisting in the investigation and prosecution of
civil and criminal proceedings under State or federal law.
4.13.2Lifemark Texas shall be responsible for informing Members and
providers regarding the provisions of 42 CFR 431, Subpart F,
relating to Safeguarding Information on Applicants and Recipients,
and Lifemark Texas must ensure that confidential information is
protected from disclosure except for authorized purposes.
4.13.3Lifemark Texas must assist network in policies for protecting the
confidentiality of AIDS and HIV-related medical information and an
anti-discrimination policy for employees and Members with
communicable diseases in compliance with Health and Safety Code,
Chapter 85, Subchapter E. relating to the Duties of State Agencies
and State Contractors.
4.13.4Lifemark Texas must require that Participating Physicians and
Participating Providers have mechanisms in place to ensure Member's
(including minor's) confidentiality for family planning services.
4.14 NON-DISCRIMINATION.
Lifemark Texas agrees to comply with, and to include in all subcontracts a
provision that the subcontractor will comply with, each of the following
requirements:
4.14.1Title VI of the Civil Rights Act of 1964, Section 504 of the
Rehabilitation Act of 1973, the Americans with Disabilities Act of
1990, and all requirements imposed by the regulations implementing
these acts and all amendments to the laws and regulations. The
regulations provide in part that no person in the United States
shall, on the grounds of race, color, national origin, sex, age,
disability, political beliefs or religion, be excluded from
participation in, or denied, any aid, care, service or other
benefits, or be subjected to any discrimination under any program or
activity receiving federal funds.
4.14.2Texas Health and Safety Code Section 85.113 (relating to workplace
and confidentiality guidelines regarding AIDS and HIV).
4.14.3The provisions of Executive Order 11246, as amended by 11375,
relating to Equal Employment Opportunity.
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4.15 HISTORICALLY UNDERUTILIZED BUSINESSES (HUBS).
4.15.1TDHS is committed to providing procurement and contracting
opportunities to historically underutilized businesses (HUBs), under
the provisions of Texas Government Code, Title 10, Subtitle D,
Chapter 2161 and 1 TAC Section 111.11(b) and 111.13(c)(7). Lifemark
Texas is required to make a good faith effort to assist HUBs in
receiving a portion of the total contract value of this Agreement.
4.16 REQUEST FOR PUBLIC INFORMATION.
4.16.1This Agreement and all network Provider and subcontractor contracts
are subject to public disclosure under the Public Information Act
(Texas Government Code, Chapter 552). TDHS may receive Public
Information requests related to the TDHS Contract, information
submitted as part of the compliance of the TDHS Contract and the
HMO's application upon which the TDHS Contract was awarded.
4.16.2TDHS may, in its sole discretion, request a decision from the
Office of the Attorney General (AG opinion) regarding whether the
information requested is excepted from required public disclosure.
TDHS may rely on the HMO's written representations in preparing any
AG opinion request, in accordance with Texas Government Code Section
552.305. TDHS is not liable for failing to request an AG opinion or
for releasing information which is not deemed confidential by law,
if the HMO fails to provide TDHS with specific reasons why the
requested information is exempt from the required public disclosure.
TDHS or the Office of the Attorney General will notify all
interested parties if an AG opinion is requested.
4.16.3If Lifemark Texas believes that the requested information qualifies
as a trade secret or as commercial or financial information,
Lifemark Texas must notify HMO within two (2) working days of
Lifemark Texas's receipt of the request of the specific text, or
portion of text, which Lifemark Texas claims is excepted from
required public disclosure. The Lifemark Texas is required to
identify the specific provisions of the Public Information Act which
the Lifemark Texas believes are applicable, and is required to
include a detailed written explanation of how the exceptions apply
to the specific information identified by the Lifemark Texas as
confidential and excepted from required public disclosure.
4.17 NOTICE AND APPEAL.
4.17.1For acute care services, Lifemark Texas must comply with the notice
requirements contained in 25 TAC Section 36.21, and the maintaining
benefits and services contained in 25 TAC Section 36.22, whenever
the HMO or Lifemark Texas intends to take an action affecting the
Member benefits and services under the TDHS Contract and the Member
appeal requirements contained in Article 8.7 of the TDHS Contract.
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4.17.2For Long Term Care services, Lifemark Texas must comply with the
notice requirements contained in 40 TAC, Section 79.1204, and the
appeal requirements of 40 TAC ch.79, whenever HMO or Lifemark Texas
intends to take an adverse action affecting Member benefits and
services under this Contract. Lifemark Texas agrees to provide
information regarding fair hearings to TDHS within fifteen (15) days
of the date of appeal and agrees to provide a Lifemark Texas staff
member to represent HMO and Lifemark Texas at the hearing. Lifemark
Texas shall comply with the Member appeal requirements containing in
paragraph 8.7 of the TDHS Contract.
4.18 ACCREDITATION. Lifemark Texas shall comply with the standards of
accreditation organizations in its performance of this Agreement if HMO
pursues accreditation, or is accredited, by an accreditation organization.
5 OBLIGATIONS OF LIFEMARK TEXAS
5.1 SCOPE OF HEALTH CARE SERVICES.
Lifemark Texas, through the Participating Providers, shall provide or
arrange the Covered Services to Members in accordance with the TDHS
Contract, Article VI, Scope of Services. All Covered Services provided or
arranged by Lifemark Texas shall be provided or arranged by duly licensed,
certified or otherwise authorized Participating Providers in accordance
with (i) the generally accepted medical and surgical practices and
standards prevailing in the applicable professional community at the time
of treatment, (ii) the provisions of the Utilization Management Program
and the Quality Improvement Program, and (iii) the requirements of State
and federal law.
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5.2 PROVIDER NETWORK REQUIREMENTS.
5.2.1 Lifemark Texas shall establish, provide, and administer a Provider
network comprising a sufficient number of Participating Providers to
provide or arrange Covered Services and meet the needs of the
Members in accordance with the TDHS Contract Article VII, Provider
Network Requirements. Lifemark Texas' Participating Providers shall
provide or arrange Covered Services, including Emergency Services,
to Members twenty-four (24) hours a day, three hundred sixty-five
(365) days per year. Participating Providers must meet credentialing
standards and have entered into a Provider contract before providing
or arranging Covered Services to Members. Lifemark Texas shall
establish, provide and administer a credentialing program in
accordance with the TDHS Contract, Section 7.8, and the Delegated
Credentialing Program, attached hereto as Addendum 1. In order to
assist Lifemark Texas with the establishment of a Provider network,
HMO hereby grants Lifemark Texas full use of and access to HMO's
Provider network established for the Program. Lifemark Texas shall
pay HMO [x]* each Contract Year for such use and access.
Notwithstanding this grant of full use and access to HMO's Provider
network, HMO retains its rights to restrict, suspend or terminate
Participating Providers. Notwithstanding the grant of full use of
and access to HMO's Provider network to Lifemark Texas, HMO shall
maintain its Provider network and Provider contracts in compliance
with the TDHS Contract.
5.2.2 All Participating Providers must have a written contract with HMO,
to participate in the Program. All standard formats of Provider
contracts shall be attached as addendum to this Agreement. Any
modifications to the standard formats of Provider contracts must be
approved by HMO and TDHS. The standard Provider contracts are the
following:
_Participating Primary Care Physician Agreement - Addendum 2
_Participating Specialist Physician Agreement - Addendum 3
_Participating Medical Group Agreement - Addendum 4 _Participating
Ancillary Healthcare Provider Agreement Addendum 5 _Participating
Hospital Agreement - Addendum 6 _Participating Nursing Home
Agreement - Addendum 7
5.3 MEMBER SERVICES REQUIREMENTS.
5.3.1 Lifemark Texas shall establish, provide and administer a Member
Services program, including member education, in accordance with
Section 3.4, Sections 6.5 - 6.14, Article VIII and Article XIV of
the TDHS Contract.
5.4 MARKETING AND PROHIBITED PRACTICES.
Lifemark Texas shall comply with Article IX of the TDHS Contract in the
production and distribution of marketing materials and marketing practices
5.5 MIS REQUIREMENTS.
Lifemark Texas shall establish, provide and administer a management
information system ("MIS") in accordance with Article X of the TDHS
Contract.
5.6 QUALITY ASSURANCE AND QUALITY IMPROVEMENT PROGRAM.
Lifemark Texas shall establish, provide and administer a Quality
Assurance and Quality Improvement Program ("QIP.") in accordance with
Article XI of the TDHS Contract and the QIP. Delegation Requirements
attached hereto as Addendum 8.
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5.7 UTILIZATION MANAGEMENT PROGRAM.
Lifemark Texas shall establish, provide and administer a Utilization
Management Program in accordance with the TDHS Contract and the
Utilization Management Delegation Requirements attached hereto as
Addendum 9.
5.8 REPORTING REQUIREMENTS. Lifemark Texas shall establish, provide and
administer a reporting system which produces the reports required in
Article XII of the TDHS Contract in the format and with the information
required by TDHS. All reports shall be simultaneously submitted to HMO and
TDHS. HMO reserves the right to require that any report be submitted to
HMO for approval prior to submission to TDHS, and the right to file
corrected reports.
5.9 MEDICAL DIRECTOR.
Lifemark Texas shall provide the equivalent of one full-time Medical
Director licensed as a physician by the Texas State Board of Medical
Examiners for the STAR and STAR+PLUS programs. Lifemark Texas shall
prepare a written job description describing the Medical Director's
authority, duties and responsibilities as described in Section 3.3 of the
TDHS Contract. Lifemark Texas agrees that the Medical Director must
exercise independent medical judgment in all medical necessity decisions.
Lifemark Texas must assure that medical necessity decisions are not
adversely influenced by fiscal management decisions. Lifemark Texas shall
permit the State to conduct reviews of medical necessity decisions by the
Medical Director at any time. If the medical director's time spent on
duties exceeds a standard full-time equivalent employee, then such excess
time shall be charged to the STAR program.
5.10 CLAIMS PROCESSING REQUIREMENTS.
5.10.1Lifemark Texas and/or its claims processing subcontractor(s) must
comply with the Texas Managed Care Claims Manual (Claims Manual),
which contains claims processing requirements. Lifemark Texas and/or
its claims processing subcontractor(s) must comply with any changes
to Claims Manual with appropriate notice of changes from the State.
5.10.2Lifemark Texas must not pay or authorize HMO to pay any claim
submitted by a Provider who has been excluded or suspended from the
Medicare or Medicaid programs for fraud and abuse when the Lifemark
Texas has knowledge of the exclusion or suspension.
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5.10.3All Provider Clean Claims must be adjudicated (finalized as paid or
denied adjudicated) within [x]* days from the date the claim is
received by Lifemark Texas. Claims ordered to be paid by TDHS shall
be paid immediately. Lifemark Texas must pay Providers interest on a
Clean Claim which is not adjudicated within [x]* days from the date
the claim is received by the Lifemark Texas or becomes clean at a
rate of [x]* for each month the Clean Claim remains unadjudicated.
Lifemark Texas will be held to a minimum performance level of [x]*
of all Clean Claims paid or denied within [x]* days of receipt and
[x]* of all Clean Claims paid or denied within [x]* days of receipt.
Failure to meet these performance levels is a default under this
Agreement. Lifemark Texas shall pay all damages or penalties
assessed by TDHS if TDHS determines Lifemark Texas or its
subcontractor is responsible for failure to meet performance levels.
The performance levels are subject to changes if required to comply
with federal and State laws or regulations. Lifemark Texas shall not
have to spend its own funds to pay claims.
5.10.4All claims and appeals submitted to Lifemark Texas and/or its
claims processing subcontractors must be paid-adjudicated (Clean
Claims), denied-adjudicated (Clean Claims), or denied for additional
information (unclean claims) to Providers within [x]* days from the
date the claim is received by Lifemark Texas. Providers must be sent
a written notice for each claim that is denied for additional
information (unclean claims) identifying the claim, all reasons whey
the claim is being denied, the date the claim was received by
Lifemark Texas, all information required from the Provider in order
for the Lifemark Texas to adjudicate the claim, and the date by
which the requested information must be received from the Provider.
Lifemark Texas shall comply with the Member notice, appeal and fair
hearing requirements as described in the TDHS Contract, Sections
5.11 and 8.7.
5.10.5Claims that are suspended (pended internally) must be subsequently
paid-adjudicated, denied-adjudicated, or denied for additional
information (pended externally) within [x]* days from date of
receipt. No claim can be suspended for a period exceeding [x]* days
from date of receipt of the claim.
5.10.6Lifemark Texas must identify each data field of each claim form
that is required from the Provider in order for the HMO to
adjudicate the claim. Lifemark Texas must inform all network
Providers about the required fields no later than 30 days prior to
the effective date of this Agreement or as a provision within the
Provider contract. Out of network Providers must be informed of all
required fields if the claim is denied for additional information.
The required fields must include those required by the HMO and TDHS.
5.10.7Lifemark Texas is subject to the Remedies and Sanctions Article of
the TDHS Contract for claims that are not processed on a timely
basis as required by this Agreement and the Claims Manual.
Notwithstanding the provisions of Sections 5.10.3, 5.10.4, and
5.10.5, sanctions will be applied if at least [x]* of all claims are
not adjudicated (paid, denied, or external pended) [x]* days of
receipt and [x]* within [x]* days of receipt of for the Contract
Year to date. HMO shall not apply sanctions against Lifemark Texas
unless sanctions are imposed by TDHS against HMO.
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5.10.8Lifemark Texas agrees that when it receives written notification
from TDHS or HMO that a Provider's funds be held because the
Provider has changed ownership, has an unpaid judgment, sanction,
monetary penalty or audit exception or has failed to meet some other
legal requirement, Lifemark Texas will place the Provider's funds on
hold unit it receives further notification from TDHS or HMO. Upon
notification to Lifemark Texas, Lifemark Texas must either pay the
claim or remit the held funds to TDHS.
5.10.9Lifemark Texas must comply with the standards adopted by the U.S.
Department of Health and Human Services under the Health Insurance
Portability and Accountability Act of 1996 submitting and receiving
claims information through electronic data interchange (EDI) that
allows for automated processing and adjudication of claims within
two or three years, as applicable, from the date the rules
promulgated under HIPAA are adopted.
5.11 THIRD PARTY RECOVERY. Lifemark Texas shall assist HMO in Third Party
Liability recovery efforts and pursue recovery for expenses related to
acute care services and long-term care services. Lifemark Texas shall not
exceed the limited authority granted to HMO by TDHS for Third Party
Liability recovery, and Lifemark Texas shall comply with Section 1.5 and
4.9 of the TDHS Contract in such efforts. If a subcontractor is engaged
for Third Party Liability recovery efforts, such subcontractor shall be
paid from Revenue deposited for the payment of claims.
6 INSURANCE
6.1 Lifemark Texas must maintain or cause to be maintained general liability
insurance in the amounts of at least $1,000,000 per occurrence and
$5,000,000 in the aggregate.
6.2 Lifemark Texas must maintain or require professional liability insurance
on each of the Providers in the network in the amount of $100,000 per
occurrence and $300,000 in the aggregate, or the limits required by the
hospital at which the network Provider has admitting privileges.
6.3 Lifemark Texas must maintain an umbrella professional liability insurance
policy for the greater of $3,000,000 or an amount (rounded to the next
$100,000) which represents the number of STAR+PLUS Members enrolled in HMO
in the first month of the Contract Year multiplied by $150, not to exceed
$10,000,000.
6.4 If the professional liability policy (or policies) is canceled or not
renewed and coverage is provided on a claims-made basis, Lifemark Texas
agrees to exercise any option contained in the policy (or policies) to
extend the reporting period to the maximum period permitted under the
policy (or policies); provided, however, Lifemark Texas need not exercise
such option if the superseding insurer will accept all prior claims.
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6.5 All insurance required under this Agreement shall be provided by insurer
who meet HMO and TDHS standards. A copy of certificate of insurance shall
be issued to HMO prior to the effective date of this Agreement and upon
the renewal of the insurance coverage specified in this Article 6. The
certificate shall provide that HMO shall receive thirty (30) days prior
written notice of cancellation or material reduction in coverage. Failure
to provide the certificate of insurance shall be grounds for immediate
termination of this Agreement.
7 INDEMNIFICATION.
Lifemark Texas shall indemnify, defend and hold harmless, and shall cause
each of the Participating Providers to indemnify, defend and hold
harmless, HMO and its directors, officers, employees, affiliates and
agents against any claim, loss, damage, cost expense, money damages or
civil monetary penalties imposed by TDHS or other government agency,
forfeiture of HMO's performance bond, or liability, including reasonable
attorneys' fees and expenses (except for jointly shared legal fees and
expenses for investigations under Section 4.8 below) arising out of or
related to the performance or nonperformance by Lifemark Texas,
Participating Providers, their employees and agents, of any services to be
performed or arranged under this Agreement, or arising out of or related
to the grant of full use of and access to Lifemark Texas of HMO's Provider
network.
8 GOVERNING LAW AND REGULATORY REQUIREMENTS.
8.1 GOVERNING LAW. This Agreement and the rights and obligations of the
parties hereunder shall be construed, interpreted, and enforced in
accordance with, and governed by, the laws of the State of Texas and the
United States of America, including, without limitation, the Texas Human
Resources Code, Chapter 32 and the Texas Health Maintenance Organization
Act, as amended, and the regulations adopted thereunder by the Texas
Department of Insurance (the "Texas HMO Act"). Any provisions required to
be in this Agreement by the Texas HMO Act or any other State and federal
law or by the Texas Department of Insurance ("TDI") or any other State
agencies shall bind HMO and Lifemark Texas whether or not expressly
provided in this Agreement.
8.2 NON-BILLING OF MEMBER (MEMBER HOLD HARMLESS PROVISION - HMO INSOLVENCY AND
HMO NON-PAYMENT). With the exception of copayments and charges for
non-Covered Services delivered on a fee-for-service basis to Members,
Lifemark Texas and its Participating Providers shall in no event,
including, without limitation, non-payment by HMO, insolvency of HMO or
Lifemark Texas, or breach of this Agreement, bill, charge, collect a
deposit from, or attempt to bill, charge, collect or receive any form of
payment, compensation or reimbursement from, or have any recourse against,
any Member or any person (other than HMO) acting on behalf of any Member
for Covered Services provided pursuant to this Agreement.
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Lifemark Texas shall not maintain any action at law or equity against a
Member to collect sums owed by HMO to Lifemark Texas. Upon notice of any
such action, HMO may terminate this Agreement as provided above and take
all other appropriate action consistent with the terms of this Agreement
to eliminate such charges.
Lifemark Texas's obligations under this Section shall survive the
termination of this Agreement with respect to Covered Services provided
during or after the term of this Agreement, regardless of the cause giving
rise to such termination and shall be construed to be for the benefit of
the Member. This Section supersedes any oral or written contrary agreement
now existing or hereafter entered into between Lifemark Texas or any of
its Participating Providers or Members or persons acting on Member's
behalf. All Provider contracts shall contain a provision similar to this
Section in which the Provider shall hold harmless the Member for HMO or
Lifemark Texas's insolvency or nonpayment.
Any modification, addition or deletion to the provisions of this Section
shall become effective on a date earlier than fifteen (15) days after the
Commissioner of the Texas Department of Insurance has received written
notice of such proposed changes.
8.3 PROVISIONS REQUIRED BY "PATIENT PROTECTION RULES". The provisions set
forth below are required to be included in this Agreement pursuant to the
"Patient Protection Rules" adopted by the Texas Department of Insurance,
as set forth in Chapter 11 of Title 28 of the Texas Administrative Code.
Lifemark Texas shall include the provisions set forth in this Section in
all subcontracts with its Participating Physicians and Participating
Providers.
8.3.1 PRE-TERMINATION NOTICE. Before terminating Lifemark Texas or any of
the Participating Providers, HMO shall provide a written explanation
to Lifemark Texas or the Participating Provider of the reason(s) for
termination. Before terminating any of its Participating Providers,
Lifemark Texas shall provide a written explanation to the
Participating Provider of the reason(s) for termination.
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8.3.2 PRE-TERMINATION REVIEW FOR PHYSICIAN. Within sixty (60) days of
receipt of written notice of termination from HMO or Lifemark Texas,
any of Participating Providers may submit a request in writing to
HMO or Lifemark Texas for a review of the proposed termination. Any
review requested hereunder will be conducted by an advisory panel
consisting of Providers including at least one representative in the
Provider's same or similar specialty, if available, appointed to
serve on the standing quality improvement committee or utilization
management committee. The recommendation of the advisory review
panel shall be considered by HMO or Lifemark Texas but shall not be
binding on HMO or Lifemark Texas. A copy of the recommendation of
the advisory review panel and HMO's or Lifemark Texas's
determination following review shall be provided to the affected
Provider upon request. Not withstanding the foregoing, a Provider
shall not be entitled to a review in any case in which there is
imminent harm to patient health or an action by a State medical, or
other physician licensing board or other governmental agency that
effectively impairs the Provider's ability to practice medicine or
another profession or in cases of fraud or malfeasance.
8.3.3 NOTICES TO MEMBERS OF TERMINATION OF AGREEMENT. HMO shall provide at
least thirty (30) days prior written notice to Members of the
impending termination of this Agreement or the impending termination
of any of Participating Providers who is providing ongoing treatment
to such Members on the effective date of termination, so that such
Members may select another Participating Provider or request
continued ongoing treatment through Lifemark Texas or the
Participating Provider following termination as provided in Section
8.3.5 below.
8.3.4 PROHIBITION AGAINST RETALIATION. Lifemark Texas and its
Participating Providers shall not be terminated or non-renewed by
HMO in retaliation against Lifemark Texas or any Participating
Provider for reasonably filing a complaint against HMO or appealing
a decision of HMO on behalf of a Member.
8.3.5 CONTINUING CARE FOR MEMBERS OF SPECIAL CIRCUMSTANCE. Following the
termination of this Agreement or of any of Participating Providers
for any reason other than medical competence or professional
behavior, Lifemark Texas or such Participating Provider shall
continue to provide treatment to any Member of special circumstance,
such as a Member who has a disability, acute condition,
life-threatening illness or is past the twenty-four (24th) week of
pregnancy, who is receiving ongoing Covered Services from Lifemark
Texas or its Participating Provider on the effective date of
termination, and HMO shall reimburse Lifemark Texas or its
Participating Provider for the Member's continuing ongoing treatment
at the rates set forth in this Agreement, in accordance with the
dictates of medical prudence and the provisions of this Section.
For purposes of this Section, "special circumstance" shall mean a
condition such that Lifemark Texas or its Participating Provider
reasonably believes that discontinuing care by Lifemark Texas'
Participating Provider could cause harm to the Member. Lifemark
Texas or its Participating Provider shall identify a Member of
special circumstance to HMO and request that such Member be
permitted to continue treatment under Lifemark Texas or its
Participating Provider's care, and Lifemark Texas or its
Participating Provider shall not seek payment from such Member of
any amounts for which the Member is not responsible under the
Program. The obligations of Lifemark Texas and its Participating
Providers and HMO under this Section shall extend for at least
ninety (90) days from the effective date of termination of this
Agreement or beyond nine months in the case of a Member who at the
time of termination has been diagnosed with a terminal illness. Any
dispute arising between HMO and Lifemark Texas or any of its
Participating Providers regarding the necessity for continued
treatment by Lifemark Texas Participating Provider shall be resolved
pursuant to the dispute resolution procedure as provided herein.
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8.3.6 NO INDEMNIFICATION. This Agreement may not contain any provision
purporting to indemnify the HMO for any tort liability resulting
from acts or omissions of the HMO.
8.3.7 EXPEDITED REVIEW. A physician or provider who is terminated or
deselected shall be entitled to an expedited review process by HMO
or Lifemark Texas on request by the physician or provider. If the
physician or provider is deselected for reasons other than at the
physician's or provider's request, HMO or Lifemark Texas may not
notify patients of the physician's or provider's deselection until
the effective date of the termination or the time a review panel
makes a formal recommendation. If a physician or provider is
deselected for reasons related to imminent harm, HMO or Lifemark
Texas may notify patients immediately.
8.3.8 POSTED NOTICE OF COMPLAINT PROCESS. HMO, Lifemark Texas and each
Participating Provider shall post in its facility of facilities a
notice to Members of the process for resolving complaints with the
HMO. The notice must include TDI's toll-free telephone number for
filing complaints.
8.4 REQUIREMENTS FOR CONTRACT BETWEEN PRIMARY HMO AND LIFEMARK TEXAS. The
provisions set forth below are required to be included in this Agreement,
as an agreement between the parties, pursuant to Section 11.1604 of Title
28 of the Texas Administrative Code ("Section 11.1604"). For purposes of
this Agreement, "Primary HMO" is HMO, as defined in Section 11.2(b)(20) of
Title 28 of the Texas Administrative Code. For purposes of this Agreement,
Lifemark Texas is acting as an "Approved Non Profit Health Corporation"
providing "health care services" within the meaning of Section 11.1604 for
purposes of determining Primary HMO regulatory contractual requirements.
8.4.1 LIFEMARK TEXAS'S ACKNOWLEDGMENTS AND AGREEMENTS. Lifemark Texas
acknowledges and agrees that:
(i) HMO, acting in the role of the Primary HMO under this
Agreement, is required under the Texas HMO Act and
regulations of the Texas Department of Insurance ("TDI")
and the Texas Department of Health ("TDH") to establish,
operate and maintain a health care delivery system, quality
assurance system, provider credentialing system and other
systems and programs meeting TDI and Texas Health Care
Council standards and is directly accountable for
compliance with such standards.
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(ii) The role of Lifemark Texas, acting as an "Approved Non Profit
Health Corporation" within the meaning of Section 11.1604, is
limited to implementing certain systems of utilizing standards
approved by HMO and subject to HMO's oversight and monitoring
of Lifemark Texas's performance.
(iii) HMO may take whatever action deemed necessary by HMO, to
assure that all HMO system and program functions which are
delegated or assigned to Lifemark Texas under this Agreement
are performed in full compliance with all applicable
regulatory requirements of TDI.
8.5 HMO'S RESPONSIBILITY AS PRIMARY HMO. Nothing contained in this Agreement
shall be construed to in any way limit HMO's authority and responsibility
for compliance with the provisions of the Texas HMO Act and all regulatory
requirements of TDI. HMO shall submit a monitoring plan to TDI setting
out:
a) how HMO will ensure Lifemark Texas has an effective administrative
system for providing timely and accurate reimbursement to all physicians
and providers under contract with Lifemark Texas or HMO; and
b) how HMO will ensure that all HMO functions which are delegated or
assigned under contract with Lifemark Texas are consistent with full
compliance by HMO with all regulatory requirements of TDI.
8.6 PROVIDER CONTRACTS. Lifemark Texas shall make available to HMO all
contracts with Participating Providers so as to ensure compliance with the
following:
(a) a Provider contract cannot be terminated by Lifemark Texas without
ninety (90) days written notice;
(b) a hold harmless provision is included providing that Lifemark Texas
and its contracted physicians and Providers are prohibited from billing or
attempting to collect from HMO Members (except for authorized co-payments
and deductibles) for Covered Services under any circumstance, including
the insolvency of HMO or the Lifemark Texas; and
c) the Provider contract contains a provision that nothing in this
Agreement shall be construed in any way to limit the HMO's authority or
responsibility to comply with all TDI regulatory requirements.
8.7 FINANCIAL SOLVENCY. Lifemark Texas shall provide HMO with evidence of
Lifemark Texas's financial solvency and financial ability to perform, such
as a certified financial audit of the Lifemark Texas by independent
certified public accountants, utilizing generally accepted accounting and
auditing principles.
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8.8 PROVISION OF DATA. Lifemark Texas shall provide to HMO on at least a
monthly basis, in a usable form necessary for audit purposes, the data
necessary for HMO to comply with the TDI and Texas Health Care Council
reporting requirements with respect to any Covered Services provided
pursuant to this Agreement, including, without limitation, the following
data:
(i) number of Members served or assigned to Lifemark Texas (including
number added and terminated since the last reporting period);
(ii) form of contracts with the Participating Providers who will be
providing Covered Services to the Members and any material changes
to such contracts;
(iii) Copayments received by Lifemark Texas;
(iv) summary of amounts paid by Lifemark Texas to physicians and
providers;
(v) description of Lifemark Texas's payment methods for Participating
Providers (i.e., capitation, fee-for-service or other risk sharing);
(vi) utilization data;
(vii) summary of the amounts paid by Lifemark Texas for administrative
services relating to HMO;
(viii)time period that claims and debts related to claims owed by the
Lifemark Texas have been pending;
(ix) information required by HMO to file its own claims for reinsurance,
coordination of benefits and subrogation;
(x) Member satisfaction data;
(xi) Member complaint data;
(xii) documentation of any regulatory inquiries or investigations
regarding Lifemark Texas or any Participating Provider; and
(xiii)any other data necessary to assure proper monitoring and control of
delivery network, by HMO.
8.9 ON-SITE AUDIT. HMO shall conduct an on-site audit of Lifemark Texas no
less frequently than annually or more frequently upon indication of any
material non-compliance, to obtain information necessary to verify
Lifemark Texas's compliance with all regulatory requirements of TDI. HMO
shall make written documentation of such audits available to the TDI upon
request.
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8.10 CORRECTIVE ACTION. HMO shall take prompt action to correct any failure by
Lifemark Texas to comply with regulatory requirements of the TDI relating
to any systems or functions delegated by HMO to Lifemark Texas under this
Agreement and necessary to ensure HMO's full compliance with all
applicable regulatory requirements.
9 REVENUE, ACCOUNTS, ADMINISTRATIVE FEES AND RISK SHARING.
9.1 OPERATIONAL PHASE. Lifemark Texas shall be paid an Administrative Fee as
set forth in Exhibit A of this Agreement.
Lifemark Texas will estimate and be paid the monthly Administrative Fee
before the fifteenth day of the month. Any adjustments based on the actual
membership figures will be made to the subsequent months payment. Lifemark
Texas will produce a monthly Administrative Services Fee Reconciliation
Report setting forth estimated payment of that month and reconciliation
for prior periods. In no event shall the total Administrative Fee paid to
Lifemark Texas in any Contract [x]* of that Contract Year's Revenue (as
defined below).
In return for receiving the Administrative Fee, Lifemark Texas shall be
responsible for all costs associated with the administration of the
Program, except for the following expenses, which shall be the
responsibility of the HMO:
9.1.1 claims costs for Covered Services;
9.1.2 legal services of the HMO;
9.1.3 actuarial services of the HMO;
9.1.4 all insurance premiums for the HMO;
9.1.5 directors' fees and expenses related to HMO Board of
Director meetings;
9.1.6 expenses relating to the corporate existence of the HMO;
9.1.7 audit and tax services of the HMO;
9.1.8 advertising and marketing expenses of the HMO;
9.1.9 any income, property, premium or other taxes of the HMO and
any assessments or license fees;
9.1.10other expenses clearly related to the business of the
HMO as an independent corporate entity;
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9.1.11costs associated, including preparation of proposals, for the
expansion of the HMO into additional service areas.
9.2 REVENUE AND ACCOUNTS.
9.2.1 PROGRAM CONTRACT YEAR 2000. For the partial Program Contract Year
beginning December 1, 1999 and ending August 31, 2000, HMO shall
deposit [x]* of Revenue into the HMO's Contract Depository Account
("CDA") and the remaining [x]* of Revenue into an account designated
by HMO to pay for HMO's oversight, reinsurance and recovery of
initial Program start-up costs. "Revenue" means the monthly payments
and all subsequent adjustment payments, made to the HMO under the
TDHS Contract.
9.2.2 PROGRAM CONTRACT YEAR 2001. For the Program Contract Year beginning
September 1, 2000 and ending August 31, 2001, HMO shall deposit [x]*
of Revenue into the CDA, and the remaining [x]* of Revenue into an
account designated by HMO to pay for HMO's oversight, reinsurance
and recovery of initial Program start-up costs.
9.2.3 PROGRAM CONTRACT YEAR 2002. If this Agreement is extended for
Program Contract Year beginning September 1, 2001 and ending August
31, 2002, HMO shall deposit [x]* of Revenue into the CDA and the
remaining [x]* of Revenue into an account designated by HMO to pay
for HMO's oversight, reinsurance and recovery of
initial Program start-up costs.
9.2.4 PROGRAM CONTRACT YEAR 2003. If this Agreement is extended for the
Program Contract Year beginning September 1, 2002 and ending August
31, 2003, the parties shall agree as part of such extension as to
the division of the Revenue.
9.3 RISK SHARING.
9.3.1 SHARING OF NET INCOME BEFORE TAXES. Commencing on the effective date
of this Agreement, and for each Contract Year thereafter, HMO and
Lifemark Texas shall share equally in the "HMO Share" of the excess
of allowable HMO STAR+PLUS revenues over allowable HMO STAR+PLUS
expenses as measured by any positive amount for Net Income Before
Taxes of the final Managed Care Financial Statistical Report
("Report"). The amount for Net Income Before Taxes of the Report
shall include, or be combined with, any interest earned or
investment income on Revenue. No amount shall be paid to Lifemark
Texas until TDHS has been paid its experience rebate, if any, under
the TDHS Contract. Lifemark Texas's participation in the "HMO Share"
is contingent upon Lifemark Corporation's repayment in full of any
outstanding notes or loans from HMO. If Net Income Before Taxes of
the Report for any Contract Year is a negative number, HMO and
Lifemark Texas shall each contribute an equal amount to HMO's CDA
sufficient to eliminate the deficit within fifteen (15) days of the
filing of the Report with TDHS. Lifemark Texas and HMO shall be
paid within fifteen (15) days after filing of the Report their equal
shares, if any, of a positive "HMO Share". Claims incurred during
a Contract Year but paid after the determination of "HMO Share"
shall be considered in the risk sharing settlement for the following
Contract Year.
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9.3.2 ADJUSTMENT. HMO and Lifemark Texas acknowledge that TDHS may make
adjustments to Net Income Before Taxes after payment of the amounts
in Section 9.3.1. HMO and Lifemark Texas shall repay amounts to the
CDA which may be due to such adjustment within fifteen (15) days of
the determination of the adjustment.
9.3.3 SECURITY FOR DEFICITS. As security for Lifemark Texas's payment of
any deficits is described in Section 9.3.1 above, Lifemark Texas
shall purchase a Certificate of Deposit instrument ("Collateral") in
an amount determined annually by the parties. Such Collateral shall
be assigned to HMO and pledged in writing for the HMO's benefit.
Such pledge shall be in the form of the agreement attached hereto as
Addendum 10. The Collateral amount shall be agreed upon by both
parties annually within ninety (90) days after commencement of a
Contract Year. If the parties cannot agree, then an independent
actuarial firm shall be selected by mutual agreement to determine
the Collateral amount. The parties shall share equally the cost of
the actuarial firm. The actuarial firm's recommendation for the
Collateral amount shall be binding upon the parties. The Collateral
amount for Contract year 2000 is [x]*. The Collateral amount shall
not be changed until any deficits for the previous Contract Year
have been paid by Lifemark Texas. The Collateral shall be
established within thirty (30) days of the execution of this
Agreement. If the Collateral is not established by such date,
Lifemark Texas shall forfeit the Additional Administrative Fee
provided in EXHIBIT A until the Collateral is established. This
provision shall survive the termination of this Agreement.
9.3.4 SECURITY EXCEPTION. If Lifemark Texas obtains a Texas health
maintenance organization license, or if Lifemark Corporation or one
of its affiliates obtains a Texas health maintenance organization
license and this Agreement is assigned to such entity, the parties
shall determine, in consultation with TDI, if the Collateral may be
used to jointly satisfy the requirements of Section 9.3.3 and TDI's
minimum net worth requirements for health maintenance organizations.
If TDI rejects such proposal, such entity shall maintain the
Collateral solely for the purposes of this Agreement. If TDI accepts
such proposal, TDI must agree that HMO will have a first priority
lien on the Collateral.
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10 TERM AND TERMINATION.
10.1 TERM. This Agreement shall be effective on December 1, 1999, (though
it may be finally executed and delivered on a subsequent date) or
the first day of the month following TDHS approval of this Agreement
if TDHS must approve the effective date, through August 31, 2001.
The parties may extend the Agreement by mutual written agreement for
additional one (1) year periods, not to exceed two (2) extensions.
Each such extension shall be effective on September 1, or the
effective date of the Contract Year between TDHS and the HMO. If a
party does not desire to extend this Agreement, such party must
provide the other party at least one hundred twenty (120) days
written notice prior to the expiration of the current term. Such
extensions of this Agreement shall be of no force and effect if TDHS
and HMO do not agree to a Program contract for the extension periods
of this Agreement.
10.2 TERMINATION. This Agreement may be terminated upon the following:
10.2.1 at any time upon the written mutual consent of both parties.
10.2.2either party may terminate this Agreement for a material
breach or upon the failure of either party to obtain and
maintain any license, registration or approval required under
State or federal law that is material to the operation of the
Plan Program which has not been cured within 30 days after the
"Cure Period". The Cure Period is defined as sixty (60) days
from the date on which one party receives notice of a material
breach from the other party. Provided however, if the material
breach involves failure to pay Administration Fees when due,
the Cure Period shall be (10) days. If this Agreement is
assigned to Lifemark Corporation or an affiliate during a Cure
Period, such assignee shall be subject to the breach notice
and the remaining portion of the Cure Period.
10.2.3In the event the contract between TDHS and the HMO is
terminated for any reason or the HMO's participation in the
Program is otherwise terminated, in which case termination
shall be effective as of the termination date of the HMO's
participation in the Program.
10.2.4Immediately upon the filing of a bankruptcy petition by either
party.
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10.3 OBLIGATIONS IN EVENT OF TERMINATION.
10.3.1Upon termination of this Agreement for reasons other than those
described in Section 10.2.2 of this Agreement, HMO shall purchase
those fixed assets and leasehold improvements acquired and used by
Lifemark Texas (or its subcontractor Lifemark Corporation) to
administer the HMO at a price equal to the book value of such assets
as determined by Lifemark Texas (or its subcontractor Lifemark
Corporation) at the termination date. Lifemark Texas (or its
subcontractor Lifemark Corporation) shall use Generally Accepted
Accounting Principles (GAAP) for depreciation of fixed assets and
leasehold improvements. HMO shall also agree to assume and/or be
fully financially responsible for any lease of office space or
equipment being utilized for HMO operations and to indemnify
Lifemark Texas (or its subcontractor Lifemark Corporation) against
any liability therefor. The purpose of this reimbursement is to
allow the recovery of those costs normally covered over the life of
a contract.
10.3.2In the event of termination of this Agreement for any reason,
Lifemark Texas and its subcontractors shall fully cooperate with the
person or entity selected by HMO to assume administration of the
Program.
10.3.3In the event of termination of this Agreement, Lifemark Texas shall
provide HMO with all copies of records in Lifemark Texas's or its
subcontractor's Program and which are necessary for the continued
operation of the Program, or shall forward such records to a
successor administrator as directed by HMO.
10.3.4Upon termination of this Agreement for any reason, Lifemark Texas,
at HMO's option, shall continue to adjudicate all incurred claims
that had not been paid as of the termination date. HMO shall pay
Lifemark Texas a fee of [x]* of the paid claim amount for each claim
adjudicated. Lifemark Texas shall have no obligation to expend its
own funds to adjudicate such claims, but shall deliver such claims
to the HMO pursuant to the HMO's instructions. Lifemark Texas shall
have no obligation to adjudicate claims incurred after the
termination date of this Agreement.
10.3.5NOTICE OF WITHDRAWAL. If HMO determines to withdraw from or limits
involvement in the Program, HMO shall give Lifemark Texas ninety
(90) days prior written notice. To "withdraw" shall mean an action
by HMO to terminate the TDHS Contract, or HMO's failure or decision
not to extend or renew the TDHS Contract. To "limit involvement"
shall mean an action by HMO not to expand its service area in the
Program if the HMO is presented such an opportunity. HMO agrees that
if HMO withdraws or limits its involvement in the Program, Lifemark
Texas may pursue such opportunity independently of HMO.
11 MISCELLANEOUS.
11.1 CONFIDENTIALITY. Lifemark Texas agrees to safeguard the confidentiality of
all data pertaining to this Agreement and Covered Services rendered to
Members in accordance with TDHS requirements.
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11.2 RELATIONSHIP OF THE PARTIES. In the performance of the work, duties and
obligations of the parties pursuant to this Agreement, the parties shall,
at all times, be acting and performing as independent contractors. No
relationship of employer and employee, or partners or joint venturers
created by this Agreement, and neither party may therefore, make any claim
against the other party for social security benefits, workers'
compensation benefits, unemployment insurance benefits, vacation pay, sick
leave or any other employee benefit of any kind. In addition, neither
party shall have any power or authority to act for or on behalf of, or to
bind the other except as herein expressly granted, and no other or greater
power or authority shall be implied by the grant or denial of power of
authority specifically mentioned herein.
11.3 ASSIGNMENT/SUBCONTRACTING. Neither party shall have the right to assign,
delegate or subcontract any of its rights or obligations hereunder without
the prior written consent of the other party. The parties agree that this
Agreement shall be assigned by HMO to Lifemark Corporation or to an
affiliate of Lifemark Corporation if Lifemark Corporation or the affiliate
obtains a Texas health maintenance organization license. HMO hereby
consents to the assignment of the Amended and Restated Administrative
Services Agreement attached hereto as Addendum 11 whereby Lifemark
Corporation shall perform certain administrative services for and on
behalf of Lifemark Texas.
11.4 NOTICES. Except as set forth herein, all notices require or permitted to
be given hereunder, shall be in writing and shall be sent by United States
mail, certified or registered, return receipt requested, postage prepaid,
to the parties hereto at their respective addresses set forth on the
signature page hereto, or such other address as may be fixed in accordance
with the provisions hereof. Except as set forth herein, if mailed in
accordance with the provisions of this paragraph, such notice shall be
deemed to be received three (3) business days after mailing.
11.5 HEADINGS. The headings of the various sections of this Agreement are
inserted merely for the purpose of convenience and do not expressly or by
implication limit, define or extend the specific terms of the section so
designated.
11.6 WAIVER OF BREACH. The waiver by either party of a breach or violation of
any provision of this Agreement shall not operate as, nor be construed to
be, a waiver of any subsequent breach thereof.
11.7 APPLICABLE LAW. This Agreement shall be governed in all respects by
the laws of the State of Texas.
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11.8 INVALID PROVISIONS. If, for any reason, any provision of this Agreement is
or shall be hereafter determined by law, act, decision, or regulation of a
duly constituted body or authority, to be in any respect invalid, such
determination shall not nullify any of the other terms and provisions of
this Agreement and, unless otherwise agreed to in writing by the parties,
then, in order to prevent the invalidity of such provision or provisions
of this Agreement, the said provision or provisions shall be deemed
automatically amended in such respect as may be necessary to conform this
entire Agreement with such applicable law, act, decision, rule or
regulation.
11.9 NO THIRD-PARTY BENEFICIARY. This Agreement is entered into by and between
HMO and Lifemark Texas and for their benefit. There is no intent by either
party to create or establish third-party beneficiary status or rights or
their equivalent in any Member, subcontractor, or other third party, and
no such third party shall have any right to enforce any right or enjoy any
benefit created or established under this Agreement.
11.10 COMPLAINT AND APPEAL PROCESS. In the event that any dispute relating to
this Agreement arises between Lifemark Texas and HMO, the parties will
make a good faith effort to resolve the dispute informally. If the dispute
cannot be resolved informally, Lifemark Texas must submit a written
complaint to which clearly states the basis of the complaint and a
proposed resolution. HMO shall respond to a written complaint to HMO
within thirty (30) days of receipt, either accepting, rejecting, or
modifying Lifemark Texas's proposed resolution. This will be HMO's final
determination. If the parties are unable to resolve the dispute through
the complaint process, the dispute shall be resolved by binding
arbitration in accordance with the Rules of Commercial Arbitration of the
American Arbitration Association. In no event may the arbitration be
initiated more than one year after the date one party first gave written
notice of the dispute to the other party. The arbitration shall be held in
Dallas, Texas or in such other location as the parties may mutually agree
upon. The arbitrator shall have no power to award punitive or exemplary
damages or vary the terms of this Agreement and shall be bound by
controlling law.
11.11 REVIEW AND AUDIT. Upon reasonable notice, or such notice as is permitted
by federal or State authorities, Lifemark Texas will at all times make
available for review and audit by either the HMO or its designee its
files, books, procedures and records (including computer terminal access
to same) pertaining to the Program or the services provided by Lifemark
Texas or Lifemark Corporation under this Agreement. In addition, Lifemark
Texas shall make available for interview with HMO's auditor those
personnel with material involvement or responsibility with respect to the
services provided by Lifemark Texas or Lifemark Corporation under this
Agreement.
11.12 ENTIRE AGREEMENT: AMENDMENT. This Agreement and all exhibits and addendums
hereto shall constitute the entire agreement relating to the subject
matter hereof between the parties hereto, and supersedes all other
agreements, written or oral, relating to the subject matter hereof. This
Agreement may be amended by mutual agreement of the parties, provided that
such amendment is reduced to writing and signed by both parties.
11.13 EXHIBITS. Any exhibits or addendums attached to this Agreement are an
integral part of this Agreement and are incorporated herein by reference.
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11.14 STATE GOVERNMENT APPROVALS. The parties acknowledge and agree that this
Agreement is subject to review and approval by TDI and TDHS.
12 RIGHT OF FIRST REFUSAL. HMO hereby grants a right of first refusal to
Lifemark Texas, Lifemark Corporation, or a Lifemark Corporation affiliate
to be the administrative services manager and health services Provider if
HMO expands its service area in the Program. Further, HMO hereby grants a
right of first refusal to Lifemark Texas, Lifemark Corporation, or a
Lifemark Corporation affiliate, to enter into an arrangement of equal
sharing of medical risk in the Program, or any other form of relationship
in which such risk is shared equally by the parties. The parties agree to
negotiate with each other in good faith as to the allocation of start-up
expenses and administrative services fees related to the expansion. If HMO
declines to pursue the expansion, Lifemark Texas, Lifemark Corporation, or
a Lifemark Corporation affiliate may pursue the opportunity independently
of HMO.
13 NON-COMPETE. During the term of this Agreement, Lifemark Texas, Lifemark
Corporation, or a Lifemark Corporation affiliate may not compete with HMO
in the Program, or enter into a contract with an entity that competes with
HMO in the Program without obtaining HMO's prior written consent;
provided, however, this restrictive covenant does not apply to service
area expansion in the Program which HMO has declined or failed to pursue.
Except as set forth above, HMO and Lifemark Texas, Lifemark Corporation,
or a Lifemark Corporation affiliate may pursue independently of each other
business opportunities which are unrelated to the Program.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the day and year first set forth above.
RIO GRANDE HMO, INC.
By: /S/DAVID G. BICK Its VICE PRESIDENT
--------------------- --------------
Date: JANUARY 19, 2000
ADDRESS FOR NOTICES:
901 S. Central Expressway
Richardson, Texas 75080
LIFEMARK OF TEXAS, INC.
By: /S/MICHAEL J. KENNEDY Its VICE PRESIDENT
--------------------- --------------
Date: JANUARY 19, 2000
ADDRESS FOR NOTICES:
7600 North 16th Street, Suite 150
Phoenix, Arizona 85020
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EXHIBIT A
ADMINISTRATIVE FEE SCHEDULE
RIO GRANDE HMO - HARRIS COUNTY, TEXAS
EFFECTIVE DECEMBER 1, 1999
ABD / SSI MANAGEMENT FEE SCHEDULE FOR MEMBERS DETERMINED BY TDHS AS "OTHER
COMMUNITY CLIENTS (DUAL ELIGIBLE AND MEDICAID ONLY, COMBINED)"
Tier Membership Fees
The Greater of:
I. First [x]* [x]* PMPM or [x]*
II. Next [x]* [x]* PMPM or [x]*
[x]*
III. Members in Excess of [x]* PMPM or [x]*
If membership for ABD lives falls below [x]* members, Plan will reimburse
Lifemark Texas at its actual costs (as determined by a Plan-approved budget)
plus [x]* per month. This maximum reimbursement amount applies to ABC/SSI and
LTC, combined, if both groups are under the minimum memberships for the month.
Costs will be determined by allocating total costs based on membership. For
allocation purposes, [x]* member will equal [x]* members.
LTC MANAGEMENT FEE SCHEDULE FOR ALL OTHER MEMBER RISK GROUPS COMBINED
Tier Membership Fees
The Greater of:
I. First [x]* [x]* PMPM or [x]*
II. Next [x]* [x]* PMPM or [x]*
III. Members in Excess of [x]* [x]* PMPM or [x]*
If membership for LTC lives falls [x]* members, Plan will reimburse Lifemark
Texas at its actual costs (as determined by a Plan-approved budget) plus [x]*.
This maximum reimbursement amount applies to ABC/SSI and LTC, combined, if both
groups are under the minimum memberships for the month. Costs will be determined
by allocating total costs based on membership. For allocation purposes, [x]*
member will equal [x]* members.
Lifemark Texas shall be paid the following Administrative Fees in addition to
the Base Fees above:
CONTRACT YEAR ADDITIONAL ADMINISTRATIVE FEE
(% of Revenue)
12/01/99 - 08/31/00 [x]*
09/01/00 - 08/31/01 [x]*
09/01/01 - 08/31/02 (if extended) [x]*
09/01/02 - 08/31/03 (if extended) (Subject to negotiation)
* CONFIDENTIAL TREATMENT REQUESTED
32
Exhibit 10.2
AMENDED AND RESTATED
ADMINISTRATIVE SERVICES AGREEMENT
This Amended and Restated Administrative Services Agreement (this
"Agreement") is made and entered into by and between Rio Grande HMO, Inc., a
Texas corporation (the "Plan"), and, Lifemark Corporation, a Delaware
corporation ("Lifemark").
WITNESSETH:
WHEREAS, the Plan is a qualified health plan under a managed care
program administered by the Texas Department of Human Services ("TDHS") of the
State of Texas.
WHEREAS, Lifemark is the successor organization to Managed Care
Solutions, Inc., a Delaware corporation("MCS");
WHEREAS, the Plan engaged MCS to provide administrative and management
services in connection with the operation of the Plan Program (defined below)
pursuant to an Administrative Services Agreement (the "Original Agreement") and
an Amendment to Administrative Services Agreement (the "First Amendment"), both
effective on March 31, 1997;
WHEREAS, The Plan and Lifemark desire to enter into the Amended and
Restated Administrative Services Agreement which accurately restates and
integrates the Original Agreement and First Amendment and as further amended by
this Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. DEFINITIONS.
-----------
1.1 THE PLAN PROGRAM. "The Plan Program" shall mean all
administrative and medical care delivery components and
systems available through the Plan as necessary for the Plan
to provide or arrange for the provision of Covered Services to
those Program eligible Members who receive coverage through
the Plan.
1.2 THE PROGRAM. "The Program" shall mean the State of Texas
STAR+PLUS Program for the provision of medical, dental,
vision, behavioral, approved home and community based, and
other health services to Medicaid recipients in a managed care
delivery setting as described in the STAR+PLUS portion of the
Request For Application by the Texas Department of Health,
dated January 7, 1997.
1.3 COVERED SERVICES. "Covered Services" shall mean health care
services or products, including medical, dental, vision,
behavioral, approved home and community based care, and other
health services to which Members are entitled under the
Program as described in the TDH Request for Application dated
January 7, 1997. "Covered Services" shall also include all
value-added services as described in the Plan response dated
April 7, 1997 to the Texas Department of Health Request for
Application.
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1.4 IMPLEMENTATION DATE. "Implementation Date" shall mean the
later of (1) October 1, 1997 or (2) the date the Plan Program
becomes operational and the Plan is obligated to commence the
provision of Covered Services to Members.
1.5 PARTICIPATING PROVIDER. "Participating Provider" shall mean a
duly licensed (if subject to licensure) physician, hospital,
health professional, facility, and other health care provider
that have entered into a contract with the Plan for the
provision of Covered Services to Members.
1.6 PRE-OPERATIONAL PHASE. "Pre-Operational Phase" shall mean the
period beginning May 7, 1997 and ending on the Implementation
Date.
1.7 REQUEST FOR APPLICATION ("RFA"). "RFA" or "Request for
Application" shall mean the TDH/TDHS Request for Application
for the Program dated January 7, 1997 and any amendments
thereto.
1.8 RECIPIENTS OR MEMBERS. "Recipients" or "Members" shall mean
those individuals who are eligible for coverage under the
Program and who have enrolled in the Plan.
1.9 TDH. "TDH" shall mean the Texas Department of Health, an
agency, division or department of State government responsible
for administration of its State Medicaid Program pursuant to
Title XIX of the Social Security Act and applicable State law.
1.10 TDHS. "TDHS" shall mean the Texas Department of Human
Services, an agency, division or department of State
government responsible for administration of its State
Medicaid Program pursuant to Title XIX of the Social Security
Act and applicable state law.
1.11 TDI. "TDI" shall mean the Texas Department of Insurance.
1.12 MEDICAL EXPENDITURES. "Medical Expenditures" shall mean all
expenses for Covered Services incurred in a specific contract
year and paid during the specific contract year and up to 120
days after the end of the contract year.
1.13 MEDICAL BUDGET. "Medical Budget" shall mean an accounting
process whereby a gross amount of funds is set aside by Plan
to cover costs associated with medically necessary covered
services for Members of the Plan.
1.14 STATE. "State" shall mean the State of Texas.
2. LIFEMARK RESPONSIBILITIES: INSURANCE REQUIREMENTS
-------------------------------------------------
2.1 PRE-OPERATIONAL PHASE.
2.1.1 GENERALLY. On behalf of, and after consulting with
the Plan, Lifemark shall respond in a timely manner
to TDHS requests for additional information or
clarification of the terms of the RFA and shall
provide assistance and support to the Plan in its
negotiations with TDHS concerning the Program.
2
<PAGE>
2.1.2 SPECIFIC PRE-OPERATIONAL DUTIES. Pre-operational
duties are those activities that are performed by
Lifemark on behalf of the Plan during the
Pre-Operational Phase of this Agreement. Services
performed during the Pre-Operational Phase in many
instances will extend beyond the Implementation Date
as necessary to conduct day to day operations of the
Plan. In consideration of the reimbursement of all
pre-operational costs in accordance with Section 3.1
of this Agreement, during the Pre-Operational Phase,
Lifemark shall assist the Plan with the establishment
of the following services.
2.1.2.1 Location of an office site and in selection
of office equipment;
2.1.2.2 Installation of computer hardware, software
and related equipment;
2.1.2.3 Staff selection and training;
2.1.2.4 Development of marketing programs if
directed by the Plan;
2.1.2.5 Development of Plan policy and procedures;
2.1.2.6 Provider network development, including
negotiating, credentialing, and contracting;
2.1.2.7 Education of participating providers and
their staff regarding Plan programs;
2.1.2.8 Establishment of utilization and quality
assurance programs;
2.1.2.9 In coordination with the Plan, act as a
liaison with TDHS and assist in the
negotiation of contracts;
2.1.2.10 Preparation of member handbooks;
2.1.2.11 Preparation of provider handbooks; and
2.1.2.12 Obtain necessary State of Texas Third Party
Administrator (TPA) and/or Utilization
Review Agent (UR) licenses.
2.2 OPERATIONAL PHASE ADMINISTRATIVE SERVICES. Lifemark shall
provide the following administrative and management services
necessary to the Plan:
2.2.1 GENERAL MANAGEMENT DUTIES. Lifemark shall be
responsible for the day-to-day operational management
of the Plan as it relates to the Program consistent
with and in compliance with the provisions of this
Agreement, the RFA, and any contract between TDHS and
the Plan. All amendments to the contract between the
Plan and TDHS that relate to the provision of
administrative services, including requirements for
information services, shall be incorporated into this
agreement and Lifemark shall carry out such
requirements following reasonable written notice from
Plan.
3
<PAGE>
2.2.2 CONTRACTING WITH PROVIDERS. Lifemark shall assist the
Plan in recruiting, negotiating, and contracting on
behalf of the Plan with providers of medical, dental,
vision, behavioral and other health services to
provide Covered Services to Members as required by
the contract between TDHS and the Plan. Provider
contracts shall be between the Plan and the
Participating Providers.
All contracts with Participating Providers shall be
in a form and contain such provisions as are
acceptable to the Plan, set forth the method and
amount of reimbursement to Participating Providers,
and specify that the Participating Providers shall be
subject to all requirements contained in the RFA, any
contract between TDHS and the Plan, and all
applicable provisions of this Agreement.
2.2.3 CLAIMS PROCESSING AND PAYMENT. Lifemark shall pay
claims to Participating Providers for all approved
Covered Services rendered to Members in accordance
with the contracts entered into between Participating
Providers and the Plan, the RFA, any contract between
TDHS and the Plan, and this Agreement. Lifemark shall
have the authority and discretion to interpret the
requirements of the RFA, the contract between TDHS
and the Plan, and the contracts between the Plan
and providers with respect to payment of claims
to Participating Providers. Claims payments shall
be made by checks or drafts signed by Lifemark as the
Plan's dispersing agent out of the account
established in accordance with Section 2.2.4 hereof,
and Lifemark shall provide the Plan with a copy of
all check registers for claims payment checks.
Lifemark shall notify the Plan by facsimile or
electronic transmission within the greater of
forty-eight (48) hours or two (2) business days
prior to releasing a check from such account in an
amount equal to or greater than [x]*. The Plan
shall not unreasonably withhold its approval of
such expenditure, and, the Plan shall provide a
written explanation to Lifemark of any disapproval
of such an expenditure. The Plan's failure to
disapprove the issuance of such check within the
notice period shall be deemed to be approval of the
issuance.
2.2.4 BANK ACCOUNT; ACCOUNTING AND FINANCE DUTIES. Two
separate bank accounts shall be established and
controlled by the Plan. The first shall be a control
depository account ("CDA")for premium deposits from
TDHS. The second account will be a Zero Balance
Account ("ZBA") used solely for disbursements
initiated by Lifemark for payment of Covered Services
and Lifemark administrative services fees. Lifemark
shall be responsible for performing all day to day
financial and accounting functions of the Plan,
including preparation of financial statements,
accounts payable/receivable administration, and
banking arrangements. Lifemark shall provide the
Plan with monthly financial statements and support.
It is understood that during the first six months
of operations certain data may not be available to
conduct comprehensive financial and operational
analyses. Lifemark shall prepare for the Plan's
review, signature and submission, any financial and
regulatory reports required by TDHS or TDH in
connection with the Program and/or the Texas
Department of Insurance. The Plan agrees to transfer
and maintain sufficient funds in the ZBA to meet all
Plan obligations as presented. Under no circumstances
is Lifemark required to expend Lifemark's own funds
to pay claims.
4
<PAGE>
2.2.5 PLAN BENEFITS LITIGATION. If a demand is asserted or
a litigation/arbitration proceeding is commenced
("Plan Benefits Litigation") by a Member or health
care provider to recover benefits against Lifemark,
the Plan or both parties, the following shall apply:
2.2.5.1 If either Lifemark or the Plan becomes aware
of the asserted Plan Benefits Litigation, it
shall promptly notify the other party. The
Plan shall, with Lifemark's advice and
input, determine whether to pay the disputed
claims or proceed with Plan Benefits
Litigation.
2.2.5.2 In the event the Plan determines to
proceed with Plan Benefits Litigation, the
Plan shall retain counsel and direct the
response to the Plan Benefits Litigation.
The Plan shall be responsible for assuming
the cost attributable to Plan Benefits
Litigation. Lifemark shall fully cooperate
with such Plan Benefits Litigation.
2.2.6 COORDINATION OF BENEFITS; THIRD PARTY LIABILITIES;
REINSURANCE. Lifemark shall be responsible for the
following activities in connection with coordination
of benefits and third-party recoveries as required
under the provisions of the RFA and under any
contract between TDHS and the Plan:
2.2.6.1 Recovering or coordinating medical expenses
incurred by Members from all third-party
liability resources on behalf of the Plan
and depositing any amounts recovered in the
Plan's designated bank account;
2.2.6.2 Establishing and maintaining files of
Members' third-party liability information;
2.2.6.3 Receiving third-party liability information
from TDHS and updating the Members' files on
a timely basis;
2.2.6.4 Informing TDHS and the Plan of third-party
liability information discovered during the
course of business operations;
2.2.6.5 Providing TDHS and the Plan with required
reports relating to amounts recovered from
third-parties;
2.2.6.6 Recovering reinsurance revenues payable to
the Plan from TDHS and/or other reinsurers.
5
<PAGE>
2.2.7 CASE MANAGEMENT. Lifemark shall be responsible for
performing case management services in accordance
with the RFA and in accordance with the contract
between TDHS and the Plan. Lifemark shall ensure
that each Member has chosen or is assigned a
primary care provider who shall assess the Member's
health care needs and shall provide services to
meet those needs either directly or through
referrals to other Participating Providers. Lifemark
shall implement a system for the directing,
coordinating, monitoring and tracking of the Covered
Services rendered to each Member.
2.2.8 FACILITATION OF SERVICES. Lifemark shall provide the
Plan and Participating Providers with Member
enrollment and eligibility information letter and
maintain telephone lines as required by the contract
with TDHS for the purpose of determining enrollment
and eligibility information upon admission to an
emergency facility or hospital emergency room.
2.2.9 PROGRAM COVERAGE INFORMATION. Lifemark shall prepare
and forward to all Participating Providers a summary
of Covered Services including schedules of Covered
Service and applicable exclusions or limitations
thereto, and applicable co-payments, co-insurance and
deductibles.
2.2.10 QUALITY ASSURANCE. Lifemark shall be responsible for
developing and maintaining a Quality Assurance
Program in compliance with the requirements of the
RFA, and with any contract between TDHS and the Plan.
2.2.11 UTILIZATION MANAGEMENT. Lifemark shall be responsible
for developing and maintaining a Utilization
Management Program in compliance with the
requirements of the RFA, and with any contract
between TDHS and the Plan. The Utilization
Management Program shall determine whether the
level, type, and cost of benefits provided are
appropriate to the health care needs of Members on
an ongoing basis.
2.2.12 CREDENTIALING. Lifemark shall be responsible for the
process of credentialing and recredentialing each
Participating Provider in accordance with applicable
Plan policies and procedures.
2.2.13 INFORMATION SYSTEMS.
2.2.13.1 Lifemark shall develop and maintain as of
the Implementation Date an automated
management information system as required by
the contract with TDHS, any contract between
TDHS and the Plan, and this Agreement.
6
<PAGE>
2.2.13.2 The parties acknowledge that Lifemark will
use its proprietary software program,
Managed Care One, which includes all
documentation thereof and amendments and
revisions thereto, as the information system
implemented pursuant to this Agreement. The
program, source and object codes and
databases, the trade secrets related
thereto, the copy right of Managed Care One,
the trademark of the name, all intellectual
property rights associated with the program,
the technical information, design concepts,
processes, formulae and algorithms and all
other rights and aspects pertaining thereto
are highly confidential and the exclusive
property of Lifemark. Nothing in this
Agreement shall be construed to be an
assignment, transfer, purchase, lease or
license of such rights. Lifemark is using
Managed Care One strictly for its own
purposes in fulfilling its duties under this
Agreement and may elect at any time in its
sole discretion to use a different
information system; provided however that no
disruption of Plan Program functions will
result from such decision. The Plan
acknowledges that certain features of
Managed Care One are highly confidential and
proprietary and agrees, even after the
termination of this Agreement, to maintain
the strict confidentiality of all
information obtained about all of the above
described aspects and all features of the
program, regardless of how such information
was obtained, until such information becomes
public information. The Plan waives all
claim, right or interest whatsoever in
Managed Care One, or any of the above
described aspects and features thereof, and
all amendments or revisions thereto.
2.2.13.3 All data entered into Managed Care One after
the Implementation Date and until the
termination of this Agreement that pertain
to the Plan Program, is owned by the Plan
and Lifemark shall provide such data to the
Plan upon request of the Plan. In the event
the contract between Lifemark and the Plan
is terminated, within five (5) working days
thereafter, such data will be transferred to
the Plan by Lifemark using industry standard
electronic media. The Plan shall be entitled
to no other information from Managed Care
One.
2.2.14 REPORTS TO AND LIAISON WITH TDHS AND TDI. Lifemark
shall be responsible for making reports to TDHS and
TDI and the Plan which are required by contract with
TDHS and to act as a liaison to TDHS for the general
purpose of regulatory compliance. Reports shall be
made at such times as are required by TDHS and TDI
and such report shall be in format acceptable to TDHS
and TDI. Lifemark shall furnish copies of such
reports to the Plan contemporaneously with submission
to TDHS and TDI.
7
<PAGE>
2.2.15 REPORTS TO THE PLAN. Lifemark shall report to the
designated Plan executive on a regular basis and at
such times as are reasonably requested. Lifemark
shall report to the designated Plan executive on any
and all matters relating to the administration of the
Plan Program. Lifemark shall provide reasonable
advance notice to the Plan of any meeting with TDHS,
TDI or other State regulatory personnel so as to
allow a Plan representative to attend the meeting in
person or by teleconference. If either party is
unable to attend the meeting, the other party agrees
to fully inform the other of the information gained
or decisions made.
2.2.16 MEMBER SERVICES. Lifemark shall be responsible for
providing all Member services and functions as are
required by the RFA, any and all contracts between
TDHS and the Plan, and this Agreement, including a
Member call center for STAR and STAR+PLUS if required
by the contract between TDHS/TDH and the Plan.
2.2.17 COMPLAINT RESOLUTION PROCEDURE. Lifemark shall
maintain a complaint resolution procedure to process
Member and provider complaints.
2.2.18 PROVIDER AND MEMBER SATISFACTION. Lifemark shall
administer periodically, but not less frequently than
annually, Participating Provider and Member
satisfaction surveys as required by TDHS.
2.2.19 INSURANCE REQUIREMENTS.
2.2.19.1 PROFESSIONAL LIABILITY INSURANCE. During the
term of this Agreement, the Plan shall
maintain, at its sole expense, a policy of
HMO-type professional liability insurance
acceptable to Lifemark with coverage limits
in the minimum amount of $1,000,000 per
incident and $3,000,000 in the annual
aggregate. In addition, the Plan shall
purchase a "tail policy" with the same
policy limits following the effective date
of termination of the foregoing policy in
the event the policy is a "claims made"
policy. Lifemark at its own expense shall
obtain a professional liability insurance
policy acceptable to the Plan with coverage
limits in the minimum amount of $1,000,000
per incident and $3,000,000 in the annual
aggregate for Lifemark employees for such
items as credentialing, care coordination
and utilization review related activities.
2.2.19.2 COMPREHENSIVE LIABILITY INSURANCE. Lifemark
and the Plan each shall maintain, at the
sole expense of each, throughout the term of
this Agreement, a policy of general
liability insurance, with terms and
conditions acceptable to the other party in
the minimum amount of $1,000,000 per
occurrence and $3,000,000 in the annual
aggregate.
8
<PAGE>
2.2.19.3 PROOF OF INSURANCE. Each party shall furnish
the other with evidence of such insurance,
including certificates of insurance and
complete copies of insurance policies, upon
the other's request. Each party shall
provide the other with a minimum of 30 days
prior written notice in the event any of the
insurance policies required by this
Agreement are canceled, materially changed
or restricted in any way.
2.2.20 MEDICAL DIRECTOR. Lifemark shall provide the
equivalent of a full-time medical director licensed
by the Texas State Board of Medical Examiners for the
STAR and STAR+PLUS programs. Lifemark must have a
written job description for the medical director who
shall perform such duties as are required by TDHS
in its contract with the Plan. If the medical
director's time spent on these duties exceeds
a standard full-time equivalent Lifemark employee,
then such excess time shall be charged to the STAR
program. The medical director must exercise
independent medical judgment in all medical necessity
decisions. Lifemark must ensure that medical
necessity decisions are not adversely influenced by
fiscal management decisions. Lifemark acknowledges
that the Plan and agencies of the State of Texas may
conduct reviews of medical necessity decisions by
the medical director at any time.
3. REVENUE, ACCOUNTS AND ADMINISTRATIVE FEES
-----------------------------------------
3.1 PRE-OPERATIONAL PHASE ADVANCE. The Plan shall pay Lifemark an
amount equal [x]* as an advance for services provided to the
Plan related to pre-operational activities. Payment will be
made in three equal installments with the first payment due to
Lifemark no later than May 15, 1997. Subsequent payments will
be due no later than June 15, 1997 and August 15, 1997
respectively.
3.2 REIMBURSEMENT FOR PRE-OPERATIONAL PHASE. The Plan will pay
Lifemark an amount equal [x]* in connection with
pre-operational activities during each month of the
Pre-Operational Phase. After the advance funds described in
Section 3.1 have been applied, any remaining amount due shall
be PAID TO LIFEMARK NO LATER THAN THE 15TH day of the
following month. Lifemark will provide Plan with a detailed
listing of actual expenses incurred.
3.3 OPERATIONAL PHASE. Lifemark shall be paid an Administrative
Fee following the Implementation Date as set forth in Exhibit
A of this Agreement.
9
<PAGE>
Lifemark will estimate and be paid the monthly Administrative
Fee before the fifteenth day of the month. Any adjustments
based on the actual membership figures will be made to the
subsequent months payment. Lifemark will produce a monthly
Administrative Services Fee Reconciliation Report setting
forth estimated payment of that month and reconciliation for
prior periods. In no event shall the total Administrative Fee
paid to Lifemark in any contract year [x]* of that contract
year's Revenue (as defined below).
In return for receiving the Administrative Fee, Lifemark shall
be responsible for all costs associated with the
administration of the Plan Program, except for the following
expenses, which shall be the responsibility of the Plan:
3.3.1 Claims costs for Covered Services;
3.3.2 Legal services of the Plan;
3.3.3 Actuarial services of the Plan;
3.3.4 All insurance premiums for the Plan;
3.3.5 Board fees and expenses related to Board meetings;
3.3.6 Expenses relating to the corporate existence of the
Plan;
3.3.7 Audit and tax services of the Plan;
3.3.8 Advertising and marketing expenses of the Plan;
3.3.9 Any income, property, premium or other taxes of the
Plan and any assessments or license fees;
3.3.10 Other expenses clearly related to the business of the
Plan as an independent corporate entity;
3.3.11 Costs associated, including preparation of proposals,
for the expansion of the Plan into additional service
areas.
3.4 PERFORMANCE FEE/PERFORMANCE PENALTY. At least annually, Plan
and Lifemark shall determine a set of performance goals and
objectives for Lifemark and the performance of its duties
under this agreement. Such goals and objectives may include,
among other things, the reduction of HMO administrative and
similar expenditures from budgeted targets or the achievement
of other Plan Program operating efficiencies. Based on
Lifemark' achievement of specified goals and objectives,
Lifemark shall be paid a performance fee (the "Performance
Fee"). The Performance Fee shall be paid as set out in Exhibit
B of this Agreement. Under certain instances as described in
Exhibit B, Lifemark may be subject to a Penalty (the
"Performance Penalty"). Any Performance Penalty shall be
offset against Lifemark' base Administrative Fee paid by Plan
as provided under Section 3.3 and Exhibit A of this Agreement
and under the terms as set forth in EXHIBIT B. THE
MINIMUM/MAXIMUM amount of any Performance Fee and the
Performance Penalty shall in no instance exceed [x]* by the
Plan in a given contract year commencing on the Implementation
Date. This Section 3.4 shall be null and void upon Plan
entering into a risk sharing arrangement with Lifemark of
Texas, Inc. and the assignment of this Agreement to Lifemark
of Texas, Inc.
10
<PAGE>
3.5 REVENUE AND ACCOUNTS.
3.5.1 PROGRAM CONTRACT YEAR 2000. For the Partial Program
contract year beginning December 1, 1999 and ending
August 31, 2000, the Plan shall deposit [x]* of
Revenue into the CDA, and the remaining [x]* of
Revenue into an account designated by Plan to pay for
Plan's oversight, reinsurance and recovery of initial
Plan Program start-up costs. "Revenue" means the
monthly payments and all subsequent adjustment
payments, made to the Plan by TDHS under the Program
contract.
3.5.2 PROGRAM CONTRACT YEAR 2001. For the Program contract
year beginning September 1, 2000 and ending August
31, 2001, the Plan shall deposit [x]* of Revenue into
the CDA, and the remaining [x]* of Revenue into an
account designated by Plan to pay for Plan's
oversight, reinsurance and recovery of initial Plan
Program start-up costs.
3.5.3 PROGRAM CONTRACT YEAR 2002. If this Agreement is
extended for Program contract year beginning
September 1, 2001 and ending August 31, 2002, the
Plan shall deposit [x]* of Revenue into the CDA, and
the remaining [x]* of Revenue into an account
designated by Plan to pay for Plan's oversight,
reinsurance and recovery of initial Plan Program
start-up costs.
3.5.4 PROGRAM YEAR 2003. If this Agreement is extended for
the Program contract year beginning September 1, 2002
and ending August 31, 2003, the parties shall agree
as part of such extension as to the division of the
Revenue.
4. TERM AND TERMINATION
--------------------
4.1 TERM. This Agreement shall be effective on December 1, 1999,
or the first day of the month following TDHS approval of this
Agreement if TDHS must approve the effective date, though it
may be finally executed and delivered on a subsequent date.
The Agreement shall be effective during the period necessary
to complete the Plan's preoperational activities and shall
then be in full force and effect through August 31, 2001.
The parties may extend the Agreement by mutual written
agreement for additional one (1) year periods, not to exceed
two (2) extensions. Each such extension shall be effective on
September 1, or the effective date of the contract year
between TDHS and the Plan. If a party does not desire to
extend this Agreement, such party must provide the other party
at least one hundred twenty (120) days written notice prior
to the expiration of the current term. Such extensions of
this Agreement shall be of no force and effect if TDHS and
Plan do not agree to a Program contract for the extension
periods of this Agreement.
11
<PAGE>
4.2 TERMINATION. This Agreement may be terminated upon the
following:
4.2.1 At any time upon the written mutual consent of both
parties.
4.2.2 Either party may terminate this Agreement for a
material breach or upon the failure of either party
to obtain and maintain any license, registration or
approval required under state or federal law that is
material to the operation of the Plan Program which
has not been cured within 30 days after the "Cure
Period". The Cure Period is defined as sixty (60)
days from the date on which one party receives notice
of a material breach from the other party. Provided
however, if the material breach involves failure to
pay Administrative Fees when due, the Cure Period
shall be (10) days.
4.2.3 In the event the contract between TDHS and the Plan
is terminated for any reason or the Plan's
participation in the Program is otherwise terminated,
in which case termination shall be effective as of
the termination date of the Plan's participation in
the Program.
4.2.4 Immediately upon the filing of a bankruptcy petition
by either party.
4.3 OBLIGATIONS IN EVENT OF TERMINATION.
4.3.1 Upon termination of this Agreement for reasons other
than those described in Section 4.2.2 of this
Agreement, the Plan shall purchase those fixed
assets and leasehold improvements acquired and used
by Lifemark to administer the Plan at a price equal
to the book value of such assets as determined by
Lifemark at the termination date. Lifemark shall use
Generally Accepted Accounting Principles (GAAP) for
depreciation of fixed assets and leasehold
improvements. The Plan shall also agree to assume
and/or be fully financially responsible for any
lease of office space or equipment being utilized
for Plan operations and to indemnify Lifemark
against any liability therefor. The purpose of this
reimbursemen is to allow the recovery of those costs
normally covered over the life of a contract.
4.3.2 In the event of termination of this Agreement for any
reason, Lifemark shall fully cooperate with the
person or entity selected by the Plan to assume
administration of the Plan.
4.3.3 In the event of termination of this Agreement,
Lifemark shall provide the Plan with all copies of
records in Lifemark' possession directly and
specifically relating to the Plan Program and which
are necessary for the continued operation of the Plan
Program, or shall forward such records to a successor
administrator as directed by the Plan.
12
<PAGE>
4.3.4 If this Agreement is terminated by the Plan for
reasons other than those stated in Section 4.2.2
within one year of the Implementation Date, the Plan
will reimburse Lifemark for [x]* of all Program
related expenses incurred by Lifemark.
4.3.5 Upon termination of this Agreement for any reason,
Lifemark, at Plan's option, shall continue to
adjudicate all incurred claims that had not been paid
as of the termination date. Plan shall pay Lifemark a
fee of [x]* of the paid claim amount for each claim
adjudicated. Lifemark shall have no obligation to
expend its own funds to adjudicate such claims, but
shall deliver such claims to the Plan pursuant to
the Plan's instructions. Lifemark shall have no
obligation to adjudicate claims incurred after the
termination date of this Agreement.
4.4 NOTICE OF WITHDRAWAL. If the Plan determines to withdraw from
or limits involvement in the Program, the Plan shall give
Lifemark ninety (90) days prior written notice. To "withdraw"
shall mean an action by the Plan to terminate the contract
with TDHS, or the Plan's failure or decision not to extend or
renew the TDHS contract. To "limit involvement" shall mean an
action by Plan not to expand its service area in the Program
if the Plan is presented such an opportunity. The Plan agrees
that if Plan withdraws or limits its involvement in the
Program, Lifemark may pursue such opportunity independently of
the Plan.
5. MISCELLANEOUS
5.1 CONFIDENTIALITY. Lifemark agrees to safeguard the
confidentiality of all data pertaining to this Agreement and
Covered Services rendered to Members in accordance with TDHS
requirements.
5.2 RELATIONSHIP OF THE PARTIES. In the performance of the work,
duties and obligations of the parties pursuant to this
Agreement, the parties shall, at all times, be acting and
performing as independent contractors. No relationship of
employer and employee, or partners or joint venturers created
by this Agreement, and neither party may therefore, make any
claim against the other party for social security benefits,
workers' compensation benefits, unemployment insurance
benefits, vacation pay, sick leave or any other employee
benefit of any kind. In addition, neither party shall have any
power or authority to act for or on behalf of, or to bind the
other except as herein expressly granted, and no other or
greater power or authority shall be implied by the grant or
denial of power or authority specifically mentioned herein.
13
<PAGE>
5.3 ASSIGNMENT/SUBCONTRACTING. Neither party shall have the right
to assign, delegate or subcontract any of its rights or
obligations hereunder without the prior written consent of the
other party. The parties agree that this Agreement may be
assigned at any time by Plan to Lifemark of Texas, Inc.
5.4 NOTICES. Except as set forth herein, all notices require or
permitted to be given hereunder, shall be in writing and shall
be sent by United States mail, certified or registered, return
receipt requested, postage prepaid, to the parties hereto at
their respective addresses set forth on
the signature page hereto, or such other address as may be
fixed in accordance with the provisions hereof. Except as set
forth herein, if mailed in accordance with the provisions of
this paragraph, such notice shall be deemed to be received
three (3) business days after mailing.
5.5 HEADINGS. The headings of the various sections of this
Agreement are inserted merely for the purpose of convenience
and do not expressly or by implication limit, define or extend
the specific terms of the section so designated.
5.6 WAIVER OF BREACH. The waiver by either party of a breach or
violation of any provision of this Agreement shall not operate
as, nor be construed to be, a waiver of any subsequent breach
thereof.
5.7 APPLICABLE LAW. This Agreement shall be governed in all
respects by the laws of the State of Texas.
5.8 INVALID PROVISIONS. If, for any reason, any provision of
this Agreement is or shall be hereafter determined by law,
act, decision, or regulation of a duly constituted body or
authority, to be in any respect invalid, such determination
shall not nullify any of the other terms and provisions of
this Agreement and, unless otherwise agreed to in writing by
the parties, then, in order to prevent the invalidity of such
provision or provisions of this Agreement, the said provision
or provisions shall be deemed automatically amended in such
respect as may be necessary to conform this entire Agreement
with such applicable law, act, decision, rule or regulation.
5.9 NO THIRD-PARTY BENEFICIARY. This Agreement is entered into by
and between the Plan and Lifemark and for their benefit. There
is not intent by either party to create or establish
third-party beneficiary status or rights or their equivalent
in any Member, subcontractor, or other third party, and no
such third party shall have any right to enforce any right or
enjoy any benefit created or established under this Agreement.
14
<PAGE>
5.10 COMPLAINT AND APPEAL PROCESS. In the event that any dispute
relating to this Agreement arises between Lifemark and Plan,
the parties will make a good faith effort to resolve the
dispute informally. If the dispute cannot be resolved
informally, Lifemark must submit a written complaint to Plan
which clearly states the basis of the complaint and a proposed
resolution. Plan shall respond to a written complaint within
thirty (30) days of receipt, either accepting, rejecting, or
modifying Lifemark's proposed resolution. This will be Plan's
final determination. If the parties are unable to resolve the
dispute through the complaint process, the dispute shall be
resolved by binding arbitration in accordance with the Rules
of Commercial Arbitration of the American Arbitration
Association. In no event may the arbitration be initiated more
than one year after the date one party first gave written
notice of the dispute to the other party. The arbitration
shall be held in Dallas, Texas or in such other location as
the parties may mutually agree upon. The arbitrator shall have
no power to award punitive or exemplary damages or vary the
terms of this Agreement and shall be bound by controlling law.
5.11 REVIEW AND AUDIT. Lifemark will at all times make available
for review and audit by either the Plan or its designee its
files, books, procedures and records (including computer
terminal access to same) pertaining to the Plan Program or the
services provided by Lifemark under this Agreement. In
addition, Lifemark shall make available for interview with the
auditor those personnel with material involvement or
responsibility with respect to the services provided by
Lifemark under this Agreement.
5.12 ENTIRE AGREEMENT: AMENDMENT. This Agreement and all exhibits
hereto shall constitute the entire agreement relating to the
subject matter hereof between the parties hereto, and
supersedes all other agreements, written or oral, relating to
the subject matter hereof. This Agreement may be amended by
mutual agreement of the parties, provided that such amendment
is reduced to writing and signed by both parties.
5.13 EXHIBITS. Any exhibits attached to this Agreement are an
integral part of this Agreement and are incorporated herein by
reference.
5.14 TEXAS DEPARTMENT OF INSURANCE. The parties acknowledge and
agree that this Agreement is subject to review and approval by
TDI and TDHS.
5.15 PLAN INSOLVENCY. Lifemark understands and agrees that Plan has
the sole responsibility for payment of services rendered by
Lifemark under this Agreement. In the event of Plan insolvency
or cessation of operations, Lifemark' sole recourse shall be
against Plan through the bankruptcy or receivership estate of
Plan. Lifemark understands and agrees that neither the State
of Texas nor the Plan Member is liable or responsible for
payment for any services provided under this Agreement.
5.16 MODIFICATION TO AGREEMENT. Lifemark agrees that any
modification, addition, or deletion of the provisions to this
Agreement will become effective no earlier than thirty (30)
days after Plan notifies the TDHS of the change. If TDHS does
not provide written approval within thirty (30) days from
receipt of notification from the Plan such changes may be
considered provisionally approved.
15
<PAGE>
5.17 FRAUD AND ABUSE. This Agreement and Lifemark are subject to
state and federal fraud and abuse statutes. Lifemark will be
required to cooperate in the investigation and prosecution of
any suspected fraud or abuse, and must provide any and all
requested originals and copies of records and information,
free of charge, on request, to any state or federal agency
with authority to investigate fraud and abuse in the Medicaid
program.
5.18 FUNDING. Lifemark understands that services provided under
this contract are funded by State and federal funds under
the Texas Medical Assistance Program (Medicaid). Lifemark
is subject to all State and federal laws, rules and
regulations that apply to persons or entities receiving State
and federal funds. Lifemark understands that any violation
by Lifemark of a State or federal law relating to the delivery
of services under this contract, or any violation of the
TDHS/HMO contract could result in liability for contract money
damages, and/or civil and criminal penalties and sanctions
under State and federal law.
6. RIGHT OF FIRST REFUSAL. The Plan hereby grants a right of first
refusal to Lifemark to be the administrative services manager if Plan
expands its service area in the Program. Further, the Plan hereby
grants a right of first refusal to Lifemark or its affiliates,
including but not limited to, Lifemark of Texas, Inc., to enter into an
arrangement of equal sharing of medical risk in the Program, or any
other form of relationship in which such risk is shared equally by the
parties. The parties agree to negotiate with each other in good faith
as to the allocation of start-up expenses and administrative services
fees related to the expansion. If the Plan declines to pursue the
expansion, Lifemark may pursue the opportunity independently of the
Plan.
7. NON-COMPETE. During the term of this Agreement, Lifemark may not
compete with Plan in the Program, or enter into a contract with an
entity that competes with Plan in the Program without obtaining Plan's
prior written consent; provided, however, this restrictive covenant
does not apply to service area expansion in the Program which the Plan
has declined or failed to pursue. Except as set forth above, the Plan
and Lifemark may pursue independently of each other business
opportunities which are unrelated to the Program.
16
<PAGE>
8. SETTLEMENT OF PERFORMANCE FEE. Plan agrees to pay Lifemark the sum of
$600,000.00 ("Settlement Amount") in full and final settlement of the
Performance Fee from the Implementation Date through and including
November 30, 1999. Lifemark accepts the Settlement Amount and does
completely and generally release, remise, and forever discharge Plan
from any and all claims for Performance Fee for such time period. This
release shall become effective and binding upon: a) the execution of
this Agreement, and b) the receipt of the Performance Fee by Lifemark.
Plan shall pay the Performance Fee within thirty (30) days of the
assignment of this Agreement to Lifemark of Texas, Inc.
9. PARTIAL PAYMENT OF PERFORMANCE FEE. Within 30 days from the execution
hereof Plan agrees to pay the sum of $600,000 as an initial payment
against the amount finally determined to be owed to Lifemark as a
Performance Fee for the period from the Implementation Date through and
including November 30, 1999. The parties anticipate the final amount of
the Performance Fee to be settled as Managed Care Financial Statistical
Reports are filed with TDHS for the relevant time periods.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the day and year first set forth above.
RIO GRANDE HMO, INC.
BY: /S/ DAVID G. BICK ITS VICE PRESIDENT
--------------------------------
David G. Bick
DATE: JANUARY 19, 2000
ADDRESS FOR NOTICES:
901 S. Central Expressway
Richardson, Texas 75080
LIFEMARK CORPORATION
BY: /S/ MICHAEL KENNEDY ITS VICE PRESIDENT
--------------------------------
DATE: JANUARY 19, 2000
ADDRESS FOR NOTICES:
7600 NORTH 16TH Street, Suite 150
Phoenix, Arizona 85020
17
<PAGE>
EXHIBIT A
ADMINISTRATIVE FEE SCHEDULE
RIO GRANDE HMO - HARRIS COUNTY, TEXAS
EFFECTIVE DECEMBER 1, 1999
ABD / SSI MANAGEMENT FEE SCHEDULE FOR MEMBERS DETERMINED BY TDHS AS "OTHER
COMMUNITY CLIENTS (DUAL ELIGIBLE AND MEDICAID ONLY, COMBINED)"
Tier Membership Fees
The Greater of:
I. First [x]* [x]* PMPM or [x]*
II. Next [x]* [x]* PMPM or [x]*
III. Members in Excess of [x]* [x]* PMPM or [x]*
If membership for ABD lives falls below [x]* members, Plan will reimburse
Lifemark Texas at its [x]* per month. This maximum reimbursement amount applies
to ABC/SSI and LTC, combined, if both groups are under the minimum memberships
for the month. Costs will be determined by allocating total costs based on
membership. For allocation purposes, [x]* member will equal [x]* members.
LTC MANAGEMENT FEE SCHEDULE FOR ALL OTHER MEMBER RISK GROUPS COMBINED
Tier Membership Fees
The Greater of:
I. First [x]* [x]* PMPM or [x]*
II. Next [x]* [x]* PMPM or [x]*
III. Members in Excess of [x]* [x]* PMPM or [x]*
If membership for [x]* lives falls below [x]* members, Plan will reimburse
Lifemark Texas at its [x]* per month. This maximum reimbursement amount applies
to ABC/SSI and LTC, combined, if both groups are under the minimum memberships
for the month. Costs will be determined by allocating total costs based on
membership. For allocation purposes, [x]* member will equal [x]* members.
18
<PAGE>
Lifemark Texas shall be paid the following Administrative Fees in addition to
the Base Fees above:
CONTRACT YEAR ADDITIONAL ADMINISTRATIVE FEE
(% of Revenue)
12/01/99 - 08/31/00 [x]*
09/01/00 - 08/31/01 [x]*
09/01/01 - 08/31/02 (if extended) [x]*
09/01/02 - 08/31/03 (if extended) (Subject to negotiation)
19
<PAGE>
EXHIBIT B
PERFORMANCE GOALS AND OBJECTIVES
I. After 120 days but before 180 days after the end of each of the
periods, the first of which beginning January 1, 1998 through
December 31, 1998, and the next period beginning January 1, 1999
through November 30, 1999 ("Performance Goal Periods"), Plan will
calculate the Performance Fee/Penalty. Plan will set a gross medical
budget which is defined as the sum of the products of the per member
per month (pmpm) medical cost target times the actual member months
for each category. The pmpm medical cost targets for FY 1998 are shown
in Exhibit C and will be updated annually. In the event that Medical
Expenditures fall below [x]* of the gross medical budget, Plan will pay
Lifemark a Performance Fee in the amount equal to [x]* by Plan for the
next contract month, then Lifemark may elect to pay the Performance
Penalty to up to twelve (12) equal monthly installments.
II. In the event that Plan incurs financial penalties imposed by TDH, TDHS
or the Texas Department of Insurance with respect to the operation of
the Plan Program and is a direct result of the failure of Lifemark to
fulfill its duties under this Agreement, Plan will pay such penalties
from its own funds, but may deduct the amount of such penalties from
Lifemark' Administrative Fee; provided however, the amount of the
deduction shall not exceed [x]*.
III. This Exhibit B shall be null and void if Lifemark of Texas, Inc. and
Plan have entered into a risk sharing arrangement and this Agreement
has been assigned to Lifemark of Texas, Inc.
20
<PAGE>
EXHIBIT C
PER MEMBER PER MONTH MEDICAL COST BUDGET TARGETS FOR
FY 1998 - OCTOBER 1, 1997 THROUGH AUGUST 31, 1998.
CBA Waiver - Dual Eligible [x]*
CBA Waiver - Medicaid Only [x]*
Other Community Clients- Dual Eligible [x]*
Other Community Clients - Medicaid Only [x]*
New Nursing Facility Clients (MAO) - Dual Eligible [x]*
New Nursing Facility Clients (MAO) - Medicaid Only [x]*
Voluntary Nursing Facility Clients - Dual Eligible [x]*
Voluntary Nursing Facility Clients - Medicaid Only [x]*
In the event that Plan capitation rates from TDHS are supplemented, modified or
changed, Plan and Lifemark agree to review medical cost targets as described in
this Exhibit.
* CONFIDENTIAL TREATMENT REQUESTED
21
<PAGE>
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