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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 (FEE REQUIRED)
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM
____________________ TO ____________________
COMMISSION FILE NUMBER: 0-22392
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PRIME MEDICAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2652727
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1301 CAPITAL OF TEXAS HIGHWAY, AUSTIN, TEXAS 78746
(Address of principal executive offices) (Zip Code)
(512) 328-2892
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $.01 par value NASDAQ National Market
Securities registered pursuant to Section 12(g) of the Act:
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Title of class
Indicate by checkmark 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 .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. X .
---
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
(See definition of affiliate in Rule 405).
AGGREGATE MARKET VALUE AT MAY 31, 1996: $341,141,638
Indicate the number of shares outstanding of each of the registrants' classes of
common stock, as of the latest practicable date.
NUMBER OF SHARES OUTSTANDING AT
TITLE OF EACH CLASS MAY 31, 1996
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Common Stock, $.01 par value 17,784,003
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the registrant's definitive proxy material for the
1996 annual meeting of shareholders are incorporated by reference into Part III
of the Form 10-K.
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1. The undersigned registrant hereby amends Item 1, Part I of its Annual
Report on Form 10-K for the calendar year ended December 31, 1995 by
deletion of the original Item 1 in its entirety and the substitution of the
following in its place:
ITEM 1. BUSINESS.
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Prime Medical Services, Inc., a Delaware corporation ("Prime" or the
"Company"), through its direct and indirect wholly-owned subsidiaries, provides
lithotripsy services to hospitals and provides non-medical management services
to cardiac rehabilitation centers.
The Company's predecessor corporation was organized in April 1972. The
Company maintains its principal executive office at 1301 Capital of Texas
Highway, Austin, Texas 78746, and its telephone number is (512) 328-2892.
Unless the context indicates otherwise, "Prime" or the "Company" includes
Prime, Old Prime, and all of the other direct and indirect wholly-owned
subsidiaries of Prime on a consolidated basis.
Lithotripsy Operations
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The Company provides lithotripsy services through six wholly-owned
subsidiaries: Prime Lithotripsy Services, Inc. ("Prime Lithotripsy"), Prime
Lithotripter Operations, Inc. ("Prime Lithotripter"), Ohio Litho, Inc. ("Ohio"),
R. R. Litho, Inc. ("R. R. Litho"), Texas Litho, Inc. ("Texas") and Sun Medical
Technologies, Inc. ("Sun"). Lithotripsy is a non-invasive procedure that
utilizes shock waves to fragment kidney stones. The procedure is conducted on
an outpatient basis after the patient receives a local anesthetic. Once the
kidney stone is located using an x-ray device, the lithotripter bombards the
kidney stone with ultrasonic shock waves that pulverize the stone into small
fragments, which can then be passed by the body. Lithotripsy is the only
approved alternative to surgery for kidney stones. Kidney stone surgery involves
the risks of a general anesthetic, a lengthy hospital stay, an extensive
recovery period and the associated patient discomfort and expense. For these
reasons, lithotripsy is now the preferred treatment for kidney stones and is
suitable for the treatment of over 90% of the patients with kidney stones.
As of March 15, 1996, through its six subsidiaries, the Company operated
nineteen mobile lithotripters which served hospitals and health care facilities
in Alabama, Arizona, Arkansas, California, Georgia, Illinois, Indiana,
Kentucky, Louisiana, Maryland, Montana, New Mexico, Ohio, Oklahoma,
Pennsylvania, Tennessee, Texas, West Virginia, Washington, Wisconsin and
Wyoming. Generally, each contract requires the Company to provide to the
hospital or health care facility on an agreed upon schedule the mobile
lithotripter, housed in a custom-built trailer, and a technician to assist the
urologist with the lithotripsy procedures. The hospital or health care facility
normally pays Prime on a per procedure basis. These contracts generally have
terms of one to three years.
The Company also operates or owns an interest in four fixed site
lithotripters located at health care facilities in Alabama, California (2) and
Florida.
The Company is identifying and evaluating additional lithotripsy
acquisitions.
Diagnostic Imaging Services
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During 1994, Prime Diagnostic Services, Inc. and Prime Diagnostic Corp. of
Florida, two wholly-owned subsidiaries of the Company, provided non-medical
management services to diagnostic imaging centers. The Company had terminated
its involvement in all of these operations as of December 31, 1994.
Prime Cardiac Rehabilitation Services, Inc.
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Prime Cardiac Rehabilitation Services, Inc. ("Prime Cardiac"), a wholly-
owned subsidiary of the Company, provides non-medical management services for
six cardiac rehabilitation centers, pursuant to agreements with physicians,
clinics and hospitals ("Medical Providers") for initial terms of up to ten
years. The Medical Providers have absolute authority over the medical services
provided at the centers, fees charged to patients and the collection practices
of the facility. Prime Cardiac's fees are generally based on collected revenues
of the centers.
Acquisitions/Divestitures
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In October 1993, the Company acquired substantially all of the assets of
three partnerships based in Nashville, Tennessee, which owned in the aggregate
one stationary lithotripter located in Nashville and three mobile lithotripters
which operated in Alabama, Arkansas, Kentucky and Tennessee. In connection with
this transaction, the partnerships received approximately 4,400,000 shares of
common stock of the Company. Concurrently, with the consummation of the
acquisition of the assets of these three partnerships, a wholly-owned subsidiary
of the Company was merged with and into Prime Medical Operating, Inc. (formerly
named Prime Medical Services, Inc.) ("Old Prime"). In connection with the
merger, each of the approximately 10,000,000 outstanding shares of Old Prime was
converted into one share of common stock of the Company and the name of the
Company was changed to Prime Medical Services, Inc.
In January 1994, the Company acquired all of the outstanding capital stock
of Fazio Consulting, Inc. ("FCI"), a New Jersey corporation, which owns two
mobile lithotripters operating in Delaware, Illinois, Indiana, Maryland,
Pennsylvania, West Virginia, and Wisconsin. The purchase price for this
acquisition was $950,000 in cash, the repayment of two promissory notes of FCI
in the aggregate amount of $1,100,000 and an earnout for the next five years
based on 50% of the annual net income of FCI. In March, 1995, the Company paid
an additional $559,676 for the 1994 earnout. In January, 1996, the Company
terminated the earnout agreement for $500,000 in cash.
Effective April 1, 1994, the Company acquired a 60% interest in Metro
Atlanta Stonebusters, G.P., a Texas general partnership, which operates a mobile
lithotripter operating in the Atlanta, Georgia area. The purchase price for
this acquisition was $2,040,000 in cash and a Promissory Note issued by the
Company in an original principal amount of $3,700,000 bearing interest at 6% per
year.
In July, 1994, the Company purchased all of the outstanding capital stock
of Alabama Renal Stone Institute, Inc., an Alabama corporation, which operates a
fixed site lithotripter located in Birmingham, Alabama. The Company previously
operated this lithotripter through a license agreement which was canceled
concurrent with the acquisition. The purchase price for this acquisition was
$3,000,000 cash paid in 1994, along with an option issued in 1992 for 210,000
shares of the Company's common stock, and an additional payment of $895,000 in
August, 1995.
Effective August 1, 1994, the Company acquired substantially all of the
assets of Alabama Lithotripsy Joint Venture, an Alabama general partnership.
The partnership operated a mobile lithotripter in Alabama which it leased from
Baptist Medical Center-Montclair. In a related transaction, the Company
purchased the lithotripter for a promissory note in the principal amount of
$316,000. The purchase price for the assets of the joint venture was $2,862,780
in cash, a promissory note in the principal amount of $2,304,220, a stock
purchase warrant covering 724,597 shares of common stock of the Company
exercisable at $3.18 per share and the assumption of certain liabilities of the
joint venture.
Effective August 15, 1994, the Company sold substantially all of the assets
of Tower Diagnostic Center located in Tampa, Florida. The sales price for the
assets was $2,350,000 in cash, a promissory note in the principal amount of
$500,000 and the assumption of certain specified liabilities.
On August 31, 1994, Shasta Diagnostic Center J.V., in which the Company
owns a 50% interest, sold substantially all of the assets of Shasta Diagnostic
Center located in Redding, California. The sales price for the assets was
$450,000 in cash, a promissory note in the principal amount of $450,000, and the
assumption of certain specified liabilities.
Effective December 1, 1994, the Company purchased all of the common stock
of Texas Litho, Inc., Ohio Litho, Inc. and R. R. Litho, Inc. from Maxum Health
Corp. Texas Litho, Inc. is the sole managing general partner and owns a 20%
interest in Texas ESWL/Laser Lithotripter, Ltd. which operates a mobile
lithotripter in Texas, Arkansas and Oklahoma. Ohio Litho, Inc. is the sole
managing general partner and owns a 21.085% interest in Ohio Mobile
Lithotripter, Ltd. which operates a mobile lithotripter in Ohio. R. R. Litho,
Inc. is the sole managing general partner of and owns a 20% interest in Arklatx
Mobile Lithotripter Limited which operates a mobile lithotripter in Louisiana.
The purchase price paid for the common stock was $5,006,715 in cash.
Effective December 30, 1994, the Company sold all of its assets located at
an imaging center in Hemet, California for $260,000 in cash.
Effective December 31, 1994, the Company sold substantially all of its
assets located at an imaging center in Rancho Cucamonga, California for two
promissory notes with principal amounts totaling $1,155,000 and the assumption
of certain contractual obligations.
Effective June 1, 1995, the Company acquired a 32.5% interest in Southern
California Stone Center, L.L.C., which operates a fixed-site lithotripter and a
mobile laser lithotripter in the Los Angeles, California area. The Company paid
$1,569,000 in cash for this interest.
Effective July 1, 1995, the Company acquired a 70% interest in Kidney Stone
of South Florida, L.L.C. which operates a fixed site lithotripter in the Miami,
Florida area. The purchase price for this interest was $3,885,000 in cash and a
promissory note with a principal amount of $1,665,000. The promissory note
includes a provision that permits the noteholder to convert all of the unpaid
principal balance into common stock of the Company at the quarterly payment
dates.
Effective October 1, 1995, the Company acquired all of the outstanding
stock of Sun Medical Technologies, Inc. which operates eight lithotripters in
California, Arizona, Montana, New Mexico, Washington and Wyoming. The purchase
price of $16,150,000 consisted of cash paid at closing equal to $9,438,000,
seven notes payable in three years with original principal amounts totaling
$4,025,000, and $2,687,000 cash paid in January, 1996. Additionally, the Company
issued warrants to purchase 200,000 shares of the Company's common stock at an
exercise price of $5.99. The notes include provisions that permit the
noteholders to convert a portion or all of the unpaid principal balance into the
common stock of the Company at $5.99 per share at each payment date.
The Company had a 1% ownership interest in American Physicians Service
Group, Inc. ("APS") at December 31, 1995 and a 22% interest at December 31,
1994. The Company intends to divest the remaining 1% ownership interest in
1996.
Potential Liabilities-Insurance
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All medical procedures are performed at the centers directly by, or under
the supervision of, urologists, cardiologists and other physicians, who are not
employees of the Company. The Company does not provide medical services to any
patients. However, patients being treated at centers at which the Company
provides non-medical management services could suffer a medical emergency
resulting in serious injury or death, which could subject the Company to the
risk of a lawsuit seeking substantial damages.
The Company currently maintains general and professional liability
insurance with a total limit of $5,000,000 per loss event and $5,000,000 policy
aggregate, with a deductible of $100,000 per occurrence. In addition, the
Company requires medical professionals at the centers to maintain professional
liability insurance. All of these insurance policies are subject to annual
renewal by the insurer. If these policies were to be canceled or not renewed, or
failed to provide sufficient coverage for the Company's liabilities, the Company
might be forced to self-insure against the potential liabilities referred to
above. In that event, a single incident might result in an award of damages
which might have a material adverse effect on the operations of the Company.
Governmental Regulation and Associated Risks
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The Company is subject to extensive regulation by both the federal
government and the states in which the Company conducts its business. The
Company is subject to Section 1128B of the Social Security Act (known as the
"Illegal Remuneration Statute"), which imposes civil and criminal sanctions on
persons who solicit, offer, receive or pay any remuneration, directly or
indirectly, for referring, or arranging for the referral of, a patient for
treatment that is paid for in whole or in part by Medicare, Medicaid or similar
government programs. The federal government has published regulations that
provide exceptions or "safe harbors" for certain business transactions.
Transactions that are structured within the safe harbors are deemed not to
violate the Illegal Remuneration Statute. Transactions that do not satisfy all
elements of a relevant safe harbor do not necessarily violate the illegal
remuneration statute, but may be subject to greater scrutiny by enforcement
agencies. The arrangements between the Company and the partnerships and other
entities in which it owns an indirect interest and through which the Company
provides most of its lithotripsy services (and the corresponding arrangements
between such partnerships and other entities and the treating physicians who own
interests therein and who use the lithotripsy facilities owned by such
partnerships and other entities) could potentially be questioned under the
illegal remuneration prohibition and may not fall within the protection afforded
by these safe harbors. Many states also have laws similar to the Federal Illegal
Remuneration Statute. While failure to fall within the safe harbors may subject
the Company to scrutiny under the Illegal Remuneration Statute, such failure
does not constitute a violation of the Illegal Remuneration Statute.
In addition to the Illegal Remuneration Statute, Section 1877 of the Social
Security Act ("Stark II") imposes certain restrictions upon
referring physicians and providers of certain designated health services under
the Medicare and Medicaid programs. Subject to certain exceptions, Stark II
provides that if a physician (or a family member of a physician) has a financial
relationship with an entity; (i) the physician may not make a referral to the
entity for the furnishing of designated health services reimbursable under the
Medicare and Medicaid programs, and (ii) the entity may not bill Medicare,
Medicaid, any individual or any third-party payor for designated health services
furnished pursuant to a prohibited referral. Entities and physicians committing
an act in violation of Stark II are subject to civil money penalties and
exclusion from the Medicare and Medicaid programs. Although lithotripsy services
are not specifically identified as a designated health service in Stark II,
the restrictions do apply to inpatient and outpatient hospital services.
Lithotripsy services provided by the Company to Medicare and Medicaid patients
are billed by the contracting hospital in its name and under its Medicare and
Medicaid program provider numbers. Therefore, while the lithotripsy services
could be considered inpatient/outpatient hospital services subject to the self-
referral restrictions contained in Stark II, the Company believes that the
language and legislative history of Stark II indicate that Congress did not
intend for the restrictions contained therein to apply to ownership of interests
in the partnerships and other entities through which the Company's lithotripsy
services are provided.
The Stark Law provides an exception for personal services furnished to an
entity that bills the Medicare and Medicaid programs for designated health
services, such as a hospital. Although physician investors provide a service in
conjunction with the lithotripsy services provided by the Company, the services
provided by the Company to the hospitals that bill the Medicare and Medicaid
programs constitute the nonphysician component of the lithotripsy services.
These services are furnished by technicians employed by the Company, utilizing
Company equipment. It is unclear whether the personal services exception is
limited to services personally furnished by a physician or whether the exception
would apply to services furnished by employees of a physician-owned entity.
Although regulations interpreting certain provisions of the Stark Law have been
published, these regulations do not address the application of the personal
services exception to employees of physician-owned entities. Additional
regulations are expected to be published that will address this issue.
Publication of these regulations could affect the Company's relationships with
physician investors and have a materially adverse effect upon the Company.
In addition, many states have enacted similar legislation.
Some states require approval, usually in the form of a certificate of need
("CON"), prior to the purchase of major medical equipment exceeding a
predesignated capital expenditure threshold or for the commencement of certain
clinical health services. Such approval is generally based upon the anticipated
utilization of the service and the projected need for the service in the
relevant geographical area of the state where the service is to be provided.
CON laws differ in many respects, and not every state's CON law applies to the
Company. Most of the Company's operations originated in states which did not
require a CON for lithotripsy services, and the Company has obtained a CON in
states where one is required. Some states also require registration of
lithotripters with the state agency which administers its CON program. Such
registration is not subject to any required approval, but rather is an
administrative matter imposed so that the state will be aware of all existing
clinical health services. The Company registers in those states which require
these filings.
All states in which the Company operates require registration of the
flouroscopic x-ray tubes which are utilized to locate the kidney stones treated
with the Company's lithotripters. The registration requirements are imposed in
order to facilitate periodic inspection of the flouroscopic tubes.
Some states have regulations that require facilities such as mobile
lithotripters to be licensed and to have appropriate emergency care resources
and qualified staff meeting the stated educational and experience criteria. The
Company's lithotripsy equipment is subject to regulation by the U.S. Food & Drug
Administration, and the motor vehicles utilized to transport the Company's
mobile lithotripsy equipment are subject to safety regulation by the U.S.
Department of Transportation and the states in which the Company conducts its
mobile lithotripsy business. The Company believes that it is in material
compliance with these regulations.
While the Company believes it complies in all material respects with the
foregoing laws and regulations, and all other applicable regulatory
requirements, these laws are complex and have been broadly construed by courts
and enforcement agencies. Thus, there can be no assurance that the Company will
not be required to change its practices (or its relationships with treating
physicians holding minority interests in partnerships and other entities through
which the Company provides most of its lithotripsy services), or that the
Company will not experience material adverse effects as a result of any
investigations or enforcement actions by a federal or state regulatory agency.
A number of proposals for health care reform have been made in recent
years, some of which have included radical changes in the health care system.
Health care reform could result in material changes in the financing and
regulation of the health care business, and the Company is unable to predict the
effect of such changes on its future operations. It is uncertain what
legislation on health care reform, if any, will ultimately be implemented or
whether other changes in the administration or interpretation of governmental
health care programs will occur. There can be no assurance that future health
care legislation or other changes in the administration or interpretation of
governmental health care programs will not have a material adverse effect on the
results of operations of the Company.
Equipment
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The Company purchases its lithotripsy equipment and maintenance is
generally provided pursuant to service contracts with the manufacturer or local
service companies. The lithotripsy equipment for a given center is generally
purchased from one of several suppliers. The cost of a new lithotripter is
approximately $1,500,000. For mobile lithotripsy, the Company either purchases
or leases the tractor, usually for a term up to five years, and purchases the
trailer.
Employees
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As of March 15, 1996, the Company employed approximately 86 full-time
employees and approximately 15 part-time employees.
Competition
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Prime Lithotripsy competes with other firms, hospitals and physician groups
which provide lithotripsy treatments through the use of mobile and stationary
lithotripters. The primary competitive factors are location, price, quality of
service and equipment.
There are numerous physicians, hospitals, clinics, and other groups that
own, operate and manage cardiac rehabilitation centers. The primary competitive
factors in this industry are price, professional services offered, and the
equipment located at the facility.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Form 10-K/A,
amending the registrant's Form 10-K for the fiscal year ended December 31,
1995, to be signed on its behalf by the undersigned, thereunto duly
authorized.
PRIME MEDICAL SERVICES, INC.
By /s/ CHERYL WILLIAMS
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Cheryl Williams
Vice President of Finance, Secretary
and Chief Financial Officer
(Principal Financial and Accounting
Officer)
Date: June 4, 1996
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