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 September 30, 1998
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 No. 0-21684
THE WELLCARE MANAGEMENT GROUP, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 14-1647239
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
PARK WEST/HURLEY AVENUE EXTENSION, KINGSTON, NY 12401
(Address of principal executive offices) (Zip Code)
(914) 338-4110
(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
The number of the Registrant's shares outstanding on October 31, 1998 was
6,555,090 shares of Common Stock, $.01 par value, and 994,302 shares of Class A
Common Stock, $.01 par value.
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page
----
PART I - CONSOLIDATED FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets at
September 30, 1998 and December 31, 1997 3
Consolidated Statements of Operations for the
Three Months and Nine Months Ended
September 30, 1998 and 1997 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1998 and 1997 6
Consolidated Statements of Shareholders' Equity
for the Nine Months Ended September 30, 1998 8
Notes to Consolidated Financial Statements 10
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 23
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 31
Item 2 Changes in Securities 32
Item 3 Defaults Upon Senior Securities 32
Item 4 Submission of Matters to a
Vote of Security Holders 32
Item 5 Other Information 32
Item 6 Exhibits and Reports on Form 8-K 33
Signatures 34
Index to Exhibits 35
2
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
SEPTEMBER 30, DECEMBER 31,
1998 1997
---------- ----------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash $ 3,025 $ 3,368
Short-term investments -
available for sale 1 103
Accounts receivable (net
of allowance for doubtful
accounts of $2,808 in 1998
and $2,422 in 1997) 7,519 6,802
Notes receivable (net of
allowance for doubtful
accounts of $7,095 in 1998
and $5,441 in 1997) 274 679
Advances to participating providers 606 2,860
Other receivables (net of allowances
for doubtful accounts of $1,757 in
1998 and $1,137 in 1997) 1,384 4,873
Taxes receivable 284 284
Deferred tax asset 3,927 3,927
Prepaid expenses and other
current assets 655 522
------ ------
TOTAL CURRENT ASSETS 17,675 23,418
PROPERTY AND EQUIPMENT (net of
accumulated depreciation and
amortization of $7,470 in 1998
and $6,528 in 1997) 10,706 11,094
OTHER ASSETS:
Restricted cash 5,771 5,771
Notes receivable (net of allowance
for doubtful accounts of $1,568
in 1998 and $2,655 in 1997) 28 122
Preoperational costs (net of
accumulated amortization of
$3,456 in 1998 and $2,562 in 1997) 546 1,440
Other non-current assets (net of
allowance for doubtful accounts
of $1,010 in 1998 and $1,133 in 1997
and accumulated amortization of
$1,154 in 1998 and $869 in 1997) 3,408 3,302
Goodwill (net of accumulated
amortization of $2,819 in 1998
and $2,339 in 1997) 6,911 7,391
------- -------
TOTAL $45,045 $52,538
======= =======
3
<PAGE>
SEPTEMBER 30, DECEMBER 31,
1998 1997
---------- ----------
(Unaudited)
LIABILITIES AND SHAREHOLDERS'
EQUITY/(DEFICIENCY IN ASSETS)
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,292 $ 618
Medical costs payable 17,280 16,199
New York State demographic pool 709 1,122
Accounts payable 1,309 1,188
Accrued expenses 2,514 3,722
Unearned income 5,722 5,684
------- -------
TOTAL CURRENT LIABILITIES 28,826 28,533
LONG-TERM LIABILITIES -
Long-term debt 19,719 25,856
------- -------
TOTAL LIABILITIES 48,545 54,389
------- -------
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY/(DEFICIENCY IN
ASSETS)
Class A Common Stock ($.01 par
value; 1,119,015 and 1,199,015
shares authorized; 1,004,025
and 1,084,025 shares issued
and outstanding at
September 30, 1998 and December 31,
1997, respectively) 10 11
Common Stock ($.01 par value;
20,000,000 shares authorized,
6,558,217 and 5,228,217 shares
issued at September 30, 1998 and
December 31, 1997 respectively) 65 52
Additional paid-in capital 31,612 26,624
Accumulated deficit (41,636) (34,987)
Statutory reserve 6,656 6,656
------- -------
(3,293) (1,644)
Unrealized gain/(loss) on
short-term investments -- --
Less:
Notes receivable from shareholders 5 5
Treasury stock (at cost; 12,850
shares of Common Stock at
September 30, 1998 and
December 31, 1997, respectively) 202 202
------- -------
TOTAL SHAREHOLDERS' EQUITY/ (3,500) (1,851)
(DEFICIENCY IN ASSETS) ------- -------
TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY $45,045 $52,538
======= =======
See accompanying notes to consolidated financial statements.
4
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- ----------------
1998 1997 1998 1997
---- ---- ---- ----
REVENUE:
Premiums earned $ 35,838 $ 35,033 $ 108,863 $ 105,477
Interest and investment
income 295 372 884 927
Other income - net 58 132 485 387
--------- --------- --------- ---------
TOTAL REVENUE 36,191 35,537 110,232 106,791
--------- --------- --------- ---------
EXPENSES:
Medical expenses 30,303 29,412 91,438 94,129
General and administrative
expenses 7,598 9,259 21,535 25,990
Depreciation and
amortization expense 811 872 2,600 2,752
Interest expense 428 416 1,308 1,239
--------- --------- --------- ---------
TOTAL EXPENSES 39,140 39,959 116,881 124,110
--------- --------- --------- ---------
LOSS BEFORE INCOME TAXES (2,949) (4,422) (6,649) (17,319)
INCOME TAXES -- -- -- --
--------- --------- --------- ---------
NET LOSS ($2,949) ($4,422) (6,649) ($ 17,319)
========= ========= ========= =========
NET LOSS PER SHARE -
BASIC ($0.39) ($0.70) ($0.96) ($2.75)
========= ========= ========= =========
Weighted average shares
of Common Stock
outstanding 7,549 6,298 6,924 6,298
========= ========= ========= =========
NET LOSS PER SHARE -
DILUTED ($0.39) ($0.70) ($0.96) ($2.75)
========= ========= ========= =========
Weighted average shares
of Common Stock and
Common Stock equivalents
outstanding 7,549 6,298 6,924 6,298
========= ========= ========= =========
See accompanying noted to consolidated financial statements.
5
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1998 1997
---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss ($ 6,649) ($17,319)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depreciation and amortization 2,600 2,752
Loss on sale of assets and others 1 99
Changes in assets and liabilities:
(Increase)/decrease in accounts
receivable - net (716) 1,401
Decrease/(increase) in advances to
participating providers 2,254 (329)
Decrease in other receivables - net 3,296 1,119
Increase/(decrease) in medical
costs payable 1,081 (1,930)
(Decrease)/increase in New York
State demographic pool (412) 1,017
(Decrease)/increase in accounts
payable and accrued expenses (1,088) 46
Increase in unearned income 38 1,618
Increase in prepaid expenses
and other (133) (131)
Decrease in other non-current
assets - excluding preoperational
costs and accounts and other
receivables 79 162
Decrease in accounts receivable-
non-current - net 9 454
Decrease in taxes receivable -- 6,666
Other - net (282) (207)
------- -------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 78 (4,582)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (554) (243)
Decrease in notes receivable 500 607
Sale of investments 100 811
Other investing activities -- 16
------- -------
NET CASH PROVIDED BY INVESTING
ACTIVITIES 46 1,191
------- -------
6
<PAGE>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1998 1997
---- ----
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of Common Stock upon
conversion of long-term debt 5,000 --
Conversion of long-term debt into
Common Stock (5,000) --
Repayment of notes payable and
long-term debt (467) (529)
------- -------
NET CASH USED IN FINANCING ACTIVITIES (467) (529)
------- -------
NET DECREASE IN CASH (343) (3,920)
CASH, BEGINNING OF PERIOD 3,368 7,869
------- -------
CASH, END OF PERIOD $ 3,025 $ 3,949
======= =======
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Income taxes paid $ -- $ --
Interest paid 1,075 1,099
See accompanying notes to consolidated financial statements.
7
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Nine Months Ended September 30, 1998
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Class A Additional
Common Common Paid-In Accumulated Statutory
Stock Stock Capital Deficit Reserve
------- ------ ---------- --------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, $ 11 $ 52 $26,624 ($34,987) $ 6,656
DEC 31, 1997
Conversion of
Class A
Common Stock
to Common Stock (1) 1
Net loss (1,218)
BALANCE,
MARCH 31, 1998 10 53 26,624 (36,205) 6,656
Conversion of
Subordinated
Convertible Note
into Common Shares 12 4,988
Net loss (2,482)
BALANCE,
JUNE 30, 1998 $ 10 65 31,612 (38,687) 6,656
Net loss (2,949)
BALANCE,
SEP 30, 1998 $ 10 $ 65 $31,612 ($41,636) $ 6,656
</TABLE>
8
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Nine Months Ended September 30, 1998
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Total
Unrealized Shareholders
Gain/(Loss) Notes Equity/
On Short-term Receivables- Treasury Deficiency
Investments Shareholders Stock in Assets
------------- ------------ -------- ------------
<S> <C> <C> <C> <C>
BALANCE, $ -- ($5) ($202) ($1,851)
DEC 31, 1997
Conversion of
Class A
Common Stock
to Common Stock --
Net loss (1,218)
BALANCE,
MARCH 31, 1998 -- (5) (202) (3,069)
Conversion of
Subordinated
Convertible Note
into Common Shares 5,000
Net loss (2,482)
BALANCE,
JUNE 30, 1998 -- (5) (202) (551)
Net loss (2,949)
BALANCE,
SEP 30, 1998 $ -- ($5) ($202) ($3,500)
</TABLE>
9
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and, accordingly, do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements and should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1997, which have been audited by Deloitte & Touche, LLP, independent
auditors, as indicated in their report therein. The audit report includes an
explanatory paragraph regarding certain conditions which raise substantial doubt
about the Company's ability to continue as a going concern (refer to the
Company's audited consolidated financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997, Notes 9 and 10 herein and Management's Discussion and Analysis of
Financial Condition and Results of Operations for the quarter and nine months
ended September 30, 1998). In the opinion of management, the accompanying
unaudited interim financial statements contain all adjustments necessary to
present fairly the financial position at September 30, 1998, and the results of
operations and cash flows for the interim periods presented. Operating results
for the interim period may not necessarily be indicative of results that may be
expected for the year ending December 31, 1998. Certain amounts in the 1997
financial statements have been reclassified to conform to the 1998 presentation.
2. PREMIUM REVENUE
a. During the nine months ended September 30, 1998, the Company recorded
approximately $1.2 million of retroactive Medicaid premium revenue attributable
to fiscal 1997 ($.9 million) and fiscal 1996 ($.3 million). Approximately $.7
million is for cumulative rate adjustments; the additional approximately $.5
million is an adjustment of the estimates recorded in prior periods for the
collectibility of premiums under the guaranteed enrollment provisions afforded
to Certified Medical Plans.
b. During the nine months ended September 30, 1997, approximately $.7 million of
legislated Medicaid rate adjustments were recorded, which relate to 1996.
c. If the adjustments discussed in 2a and 2b were reflected in the periods to
which they apply, Medicaid revenues would have been as follows:
Quarter ended: As Reported Adjusted
-------------- ----------- --------
September 30, 1998 $ 8.2 million $ 8.0 million
June 30, 1998 10.3 million 9.0 million
March 31, 1998 8.3 million 8.6 million
September 30, 1997 7.0 million 8.0 million
June 30, 1997 8.3 million 7.4 million
March 31, 1997 5.2 million 6.0 million
10
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
d. Included in accounts receivable at September 30, 1998, is approximately $5.8
million attributable to the Medicaid program, with approximately $2.4 million
attributable to 1997 and approximately $1.4 million applicable to periods prior
to 1997.
e. On October 2, 1998, WellCare of New York, Inc. ("WCNY") announced that it
will not renew Medicare Risk contracts in four counties in New York, effective
January 1, 1999. As of October 1, 1998, Medicare Risk enrollment in WCNY was
approximately 10,300 members, of which approximately 4,200 are from counties
where the plan will be discontinued.
3. MEDICAL EXPENSE
a. Medical expense includes estimates for medical expenses incurred but not yet
reported ("IBNR") based on a number of factors, including hospital admissions
data and prior claims experience; adjustments, if necessary, are made to medical
expenses in the period the actual claims costs are ultimately determined. The
Company believes the IBNR estimates in the unaudited consolidated financial
statements are adequate; however, there can be no assurances that actual health
care claims will not exceed such estimates.
During the third quarter of 1998, the Company increased medical expense by
approximately $1.5 million for medical expenses of prior periods in excess of
the IBNR estimates previously recorded. If these expenses had been recorded in
the period to which they apply, medical expense for the first and second
quarters of 1998 would have been approximately $.4 million and $.9 million
higher, respectively, and medical expense for 1997 and 1996 would have been
approximately $.2 million higher. During the third quarter of 1997, the Company
increased medical expense by approximately $2.2 million for medical expenses of
prior periods in excess of the IBNR estimates previously recorded.
During the first nine months of 1998, the Company recorded medical expense of
approximately $2.5 million related to 1997 and 1996 medical claims in excess of
the IBNR estimates previously recorded. During the comparable period of 1997,
the Company recorded medical expense of approximately $2.8 million for 1996
medical expenses in excess of the IBNR estimates previously recorded.
b. In April 1998, The New York State Insurance Department ("NYSID") announced
the distribution of approximately $110 million in accumulated New York State
market stabilization pool funds to health plans to help offset losses resulting
from adverse selection of its products by high cost enrollees. These pools had
been established five years ago to reimburse health plans that covered a higher
than average number of sick people. The surplus relates to the years 1993 to
1996.
11
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
WCNY recorded an $800,000 reduction in medical expense in the quarter ended
March 31, 1998, with a corresponding reduction in liability to the New York
State demographic pool. As part of this distribution, NYSID has indicated its
intent to limit 1998 individual and small group rate increases to less than ten
percent (10%). WCNY has received approximately $737,000 of surplus disbursements
through September 30, 1998.
c. During the 1997 year, the Company charged to medical expense approximately
$1.7 million relating to the NYSID audit of the New York State market
stabilization pool for the audit years 1993, 1994 and 1995, and for additional
amounts due for the year 1996. The quarterly charge or credit to medical expense
reflected an estimate based on NYSID's preliminary assessment and the Company's
ongoing discussions with NYSID. Ultimately, it was determined that the final
expense was $1.7 million. The recording of this expense, by quarter in 1997, is
as follows:
Q1 1997 $ 4.3 million
Q2 1997 (1.1) million
Q3 1997 (1.5) million
Q4 1997 --
Net 1997 $ 1.7 million
d. In 1994, two entities which were predecessors to the regional health care
delivery networks (the "Alliances"/"IPAs") with which WCNY contracted to provide
health care services to WCNY's members, made payments of approximately
$2,879,000 to providers in connection with the close out of the 1993 group risk
accounts and to resolve certain disputed amounts between the Company and certain
providers, which payments might otherwise have been made by the Company.
Additionally, these entities paid approximately $1,833,000 directly to the
Company in payment of 1993 provider deficits which would otherwise have been due
to the Company directly from the providers. As originally reported in its 1994
consolidated financial statements, the Company recorded the $1,833,000 received
as a reduction of medical expense, and the Company did not record as medical
expense, the $2,879,000 paid directly to the providers by these entities.
Subsequently, in 1996, the Company's accounting personnel were informed that
Edward A. Ullmann, then Chairman of the Board, Chief Executive Officer and
President of the Company, had guaranteed, in his individual capacity, two loans
each in the amount of $2,700,000, made by banks to these two entities, the
proceeds of which were used to fund the aggregate payments of $4,712,000
referred to above.
The Company subsequently restated its 1994 consolidated financial statements to
reflect the higher medical expenses, and established a medical expense accrual.
As there were no specific accounts payable by the Company, this accrual is being
reduced concurrently with the pay down of the bank loans, with a simultaneous
reduction in medical expense. A reduction of medical expense of approximately
$435,000 was recorded in the first nine months of 1997. The remaining principal
balance, which is in default, is approximately $116,000 at November 16, 1998.
12
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Company's ability to reduce future medical expense by the remaining $116,000
is contingent on this amount being paid.
e. WCNY had arrangements with several medical practices owned by the principal
shareholder of the Buyer (see Note 4) for the promotion of WCNY's access to
primary care medical services at these sites. As explained in Note 2e of Notes
to Consolidated Financial Statements in the 1997 Annual Report on Form 10-K,
WCNY has made advances to the practices ($150,000 in 1997, $2,388,763 in 1996
and $710,000 in 1995), and as a result of operating losses at the practices and
the uncertainty of their ability to repay these advances, WCNY had previously
fully reserved these receivables.
During the second half of 1997, the principal shareholder of the Buyer entered
negotiations to sell these medical practices to unrelated third parties. Due to
the continuing losses at these medical practices and their importance in
providing medical services to a significant number of WCNY members, WellCare
determined that it was in the best interests of WCNY's members and WellCare to
continue to subsidize the practices to avoid service disruptions to WCNY's
members. As a result, WellCare made advances to these practices, to meet
operating expenses, of approximately $583,000 in the second half of 1997, and
approximately $166,000 in the first quarter of 1998, which amounts have been
expensed in 1997 and 1998, respectively, as bad debt expense. All but one of
these practices have been sold in 1998 and it is anticipated that the remaining
medical practice will be sold in the near future, although there can be no
assurance that such transaction will close.
As of September 30, 1998, WCNY has unpaid notes receivable from these medical
practices of approximately $246,000 (approximately $1,443,000 less a reserve of
approximately $1,197,000, which includes an increase of $500,000 in the third
quarter of 1998). Management anticipates that the proceeds from the sale of
these practices plus the collection of outstanding practice receivables will be
applied toward the payment of these notes, and additional reserves, should any
be required, will not be material.
4. SALE OF WELLCARE MEDICAL MANAGEMENT, INC.
In June 1995, the Company contributed approximately $5.1 million to its then
wholly-owned subsidiary, WellCare Medical Management, Inc. ("WCMM"), which was
engaged in managing physician practices, and then sold the assets of WCMM for
cash of $.6 million and note receivable of $5.1 million. The buyer (the
"Buyer"), which had been newly formed to acquire WCMM, is in the business of
managing medical practices and providing related consultative services, and
entered into agreements to manage the Alliances. The Company also received a
five-year option to acquire the Buyer, which option was canceled in 1996. The
note receivable bears interest at a rate equal to prime plus 2% (10.5% at
September 30, 1998), with interest payable monthly through July 31, 2000. The
Buyer has paid only interest through January 1996.
13
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Company also advanced $3.4 million to the Buyer ($.6 million in 1997, $2.1
million in 1996 and $.7 million in 1995) for operating expenses and unpaid
interest, which obligations are documented by notes of $215,000 and $2.1 million
and interest receivable of $1.1 million. The note for $215,000, which is dated
February 26, 1996, bears interest at a rate equal to prime plus 2% (10.5% at
September 30, 1998) and was due December 31, 1996. No payments of principal have
been made on this note, nor payments of interest beyond May 1996.
In February 1997, the Buyer executed a promissory note for $2.1 million, bearing
interest at the rate of prime plus 2% (10.5% at September 30, 1998), with
repayment of the principal over 36 months, starting upon the occurrence of
certain events explained below (no interest has been paid on this obligation).
Subsequently, in February 1997, the Buyer entered into an Option Agreement with
a potential investor (the "Investor"), whereby the Investor loaned the Buyer
$4,000,000 and received an option to merge with the Buyer, exercisable through
June 30, 1998. Concurrently, WellCare entered into an agreement with the Buyer
whereby WellCare agreed to forebear on the collection of principal and interest
on the note for $5.1 million, and on the collection of principal of the $2.1
million note, in exchange for the right to convert the $5.1 million note into
43% of the Common Stock of the company if the Investor were to exercise its
option to merge and immediate repayment of the $2.1 million note upon
effectiveness of such merger. At June 30, 1998, the Investor's option to merge
expired without being exercised. As a result, forebearance of the debt has been
rescinded and the original payment terms of the $5.1 million note reinstated.
The Buyer is obligated to continue paying monthly interest on the $2.1 million
note, with principal payments over a thirty-six month period to commence July 1,
1998. The Buyer has not made any of the interest payments due under the $2.1
million note. The notes are subordinated to the Investor's security interest.
In view of the Buyer's operating losses and advances to the Alliances, the
Company had obtained from certain of the Buyer's equity holders personal
guarantees of the original note and pledges of collateral to secure these
guarantees. In April 1997, the Company's Board of Directors agreed to release
these guarantees and related collateral pledged by the guarantors to secure the
guarantees in exchange for the Buyer's stock options that such guarantors
originally received from the Buyer and a release from the guarantors for any
potential claims against WellCare associated with the transactions. In view of
the Buyer's financial condition and difficulties inherent in the collection of
personal guarantees and realization of collateral, and the Buyer's default on
the payments of the notes, the Company had fully reserved in 1995 the original
$5.1 million note receivable, plus the $.7 million advanced in 1995. In 1996,
the Company established an additional net reserve of $1.9 million for the
$215,000 note, interest accrued on the notes, and advances receivable, net of
the deferred gain of $144,000 on the original sale. In 1997, the Company
established a reserve of $.8 million for 1997 accrued interest not paid by the
Buyer and for advances made in 1997. In 1998, the Company established a reserve
of $.6 million for 1998 accrued interest not paid. As of September 30,
14
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1998, all amounts due to the Company from the Buyer, net of the deferred gain on
the original sale, are fully reserved.
In addition, the Buyer has entered into a letter of intent to sell its business,
including the contracts with the Alliance/IPAs, to a third party. In connection
therewith, it is contemplated that WellCare will receive repayment of a portion
of the indebtedness owed to it by the Buyer as payment in full of such debt (all
of which has been previously reserved) and additional consideration for the
amendment of the Alliance/IPA service contracts. That transaction is anticipated
to be consummated in December 1998, though there can be no assurance that the
transaction will be so consummated or on the terms described herein.
5. LONG-TERM DEBT
Although the Company was current on all its mortgage obligations, in July 1997,
Key Bank (the "Bank") notified the Company that it considered the Company not in
compliance with the Target Loan to Value Ratio provided for in two of its
mortgages, with outstanding balances of approximately $4.9 million. According to
the Bank's calculations, the outstanding Loan Amount exceeded the corresponding
Lendable Property Value, as defined, based on appraisals prepared for the Bank,
by approximately $1.7 million. The Bank had requested that the Company either
reduce the outstanding obligation, or provide additional collateral for $1.7
million, otherwise the Bank would consider the Company in default of the
mortgage notes. A default would require the Company to pay a higher interest
rate on the outstanding obligations, among other potential penalties. The
Company disagreed with the Bank's valuation methodology and has informed the
Bank in writing of this disagreement.
On July 2, 1998, the Bank notified the Company that it was not in compliance
with certain financial ratio requirements included in certain notes and related
loan documents. The Bank has expressed a willingness to pursue a resolution, and
has not exercised its rights or remedies. The Company is reviewing the Bank's
calculations and has had initial discussions with the Bank. The Company is and
has been current in the payments of its obligations with the Bank. Although
there can be no assurances that the Bank will grant the Company a waiver, the
Company continues to classify the debts in accordance with their original terms
in anticipation of a waiver.
6. SUBORDINATED CONVERTIBLE NOTE
In January 1996, the Company completed a private placement of a subordinated
convertible note in the principal amount of $20 million (the "Note"), with The
1818 Fund II, L.P. (the "Fund"), a private equity fund managed by Brown Brothers
Harriman & Co. ("BBH & Co"). The Note and underlying terms were amended in
February 1997 (the "1997 Amendment") by the Company and the Fund. In January
1998, the Fund agreed to convert $5 million of the Note into Common Stock of the
Company, at a conversion price of $4 per share (the "1998 Amendment"), subject
to approval by the New York State Department of Health ("DOH"). In May 1998, the
DOH advised the Company that such approval was not required, and the conversion
into 1,250,000 shares was effected on May 15, 1998.
The remaining $15 million principal is payable in December 2002. Interest was
initially at the rate of 6% per annum, amended in 1997 to 5.5% per annum, and
amended in 1998 to 8% per annum, and is payable quarterly. The Note is
subordinated to all senior indebtedness.
15
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Note is subject to certain mandatory redemption at the option of the Fund
upon a Change of Control (as defined in the Note) of the Company. The redemption
price was initially equal to 115% of the principal amount of the Note, amended
to 130% by the 1997 Amendment and to 150% by the 1998 Amendment, together with
all accrued and unpaid interest. If a Change of Control occurs within 24 months
of a redemption of the Note, the Company may also be required to pay the Fund an
amount equal to 50% of the principal amount of the redeemed Note. Under certain
conditions, the Note is redeemable at the option of the Company after the fourth
anniversary of the date of the Note.
After the 1998 Amendment, the Fund has the right to convert the remaining
outstanding principal into shares of Common Stock of the Company at a conversion
price of $8 per share, subject to an anti-dilution adjustment. Previously,
pursuant to the 1997 Amendment, the conversion price had been $10.37 per share,
subject to adjustments for certain dilutive events. Initially, the conversion
price was $29 per share. The conversion price granted to the holder of the Note
is adjusted, if the Company issues shares of its Common Stock or options,
warrants or other rights to acquire shares of Common Stock of the Company at a
price per share less than the current market price or the conversion price at
the time.
As part of the 1998 Amendment, the Fund agreed to waive any existing defaults
known to it. The Company also has the right to purchase one half of the shares
of the Common Stock and the debt held by the Fund, for $12 million plus accrued
interest, if consolidated earnings before taxes are positive for either the
second or third quarter of 1998. The Company has reported a consolidated loss
before taxes for each of these two quarters, respectively.
7. INCOME TAXES
In 1996, the Company recorded a deferred tax asset of approximately $5.4 million
giving recognition to the future tax benefit of reversing temporary differences
and state net operating loss carryovers ("NOL"). No valuation allowance was
established for the deferred tax asset since realization was determined by
management to be more likely than not based upon the Company's internal budget.
Continuing operating losses in the first nine months of 1998 and for the year
1997, resulted in additional deferred tax benefits of approximately $2.7 million
and $7.8 million, respectively, against which a 100% valuation allowance was
provided. The maximum utilization period for the NOLs are fifteen (15) and five
(5) years for New York and Connecticut, respectively.
The ability to realize the tax benefits associated with these losses is
dependent upon the Company's ability to generate future taxable income from
operations and/or to effectuate successful tax planning strategies. Although
management believes that profitable operations will be achieved in future years,
the Company has provided a 100% valuation allowance with respect to the
additional 1997 and 1998 deferred tax assets in view of their size and length of
the expected recoupment period. Management will continue to closely monitor the
need for future adjustments to this valuation allowance.
16
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Company has also engaged Bear, Stearns & Co., Inc. to review available
strategic alternatives. The successful completion of a transaction could result
in future taxable income. The realization of the tax benefits could be achieved
upon the completion of any of these transactions.
8. STOCK OPTIONS
The Company's 1993 Incentive and Non-Incentive stock option plan (the "Plan"),
as amended, has 820,904 shares reserved for issuance, as of September 30, 1998,
upon exercise of options granted or to be granted.
Options to purchase 714,454 shares of Common Stock at exercise prices ranging
from $1.25 to $24.50 per share were outstanding under the Plan on September 30,
1998. Of the total options outstanding at September 30, 1998, options to
purchase 454,323 shares were exercisable.
The Company has adopted the disclosure-only provisions of the FASB's SFAS No.
123, "Accounting for Stock Based Compensation" ("FAS 123"). Accordingly, no
compensation cost has been recognized for grants of stock options.
9. STATUTORY REQUIREMENTS
New York State certified HMOs are required to maintain a restricted cash reserve
equal to the greater of 5% of expected annual medical costs or $100,000.
Additionally, except as described in the following paragraph, WCNY is required
to maintain a contingent reserve which must be increased annually by an amount
equal to at least 1% of statutory premiums earned limited, in total, to a
maximum of 5% of statutory premiums earned for the most recent calendar year and
which may be offset by the cash reserve. The cash reserve is calculated at
December 31 of each year and is maintained throughout the following calendar
year. At September 30, 1998, WCNY had required cash reserves of $5.8 million and
a contingent reserve requirement of approximately $6.7 million. In the event the
contingent reserve exceeds the required cash reserve, the excess of the
contingent reserve over the required cash reserve is required to be maintained.
Notwithstanding the above, NYSID has the authority to allow an HMO to maintain a
net worth of between 50% and 100% of the contingent reserve. During 1997 and for
the quarter ended March 31, 1998, WCNY, with the full knowledge of NYSID, had
been operating above 50% (or $3.3 million) of the contingent reserve
requirement. While WCNY has been unprofitable during that period, it has
utilized Section 1307 loans from the Company to maintain a contingent reserve of
at least 50% of the required amount. In June 1997 and November 1997, the Company
loaned $3.1 and $1.3 million, respectively, to WCNY under the provisions of
Section 1307. At December 31, 1997, and March 31, 1998, WCNY had a contingent
reserve of
17
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
$1,780,000 and $3,350,000 respectively. WCNY executed a Section 1307 loan in
March 1998, which brought WCNY's statutory net worth above the permitted 50%
contingent reserve requirement at that point, and at December 31, 1997 after
giving retroactive effect to the March 1998 Section 1307 loan. However, giving
effect to the reported results for the quarters ended September 30, 1998 and
June 30, 1998, WCNY's statutory net worth is approximately $1.2 million which is
under 50% (or $3.3 million) of the contingent reserve requirement at September
30, 1998. Management has had and will continue to have ongoing discussions and
meetings with NYSID regarding operating results and compliance with various
statutory requirements and has updated NYSID of the Company's plans to obtain
additional funds during the rest of 1998, which the Company's Board has
authorized to be contributed possibly in the form of additional Section 1307
loans, as needed, to WCNY's capital. Management intends to implement a remedial
action plan based upon capital to be contributed to WCNY following the
consummation of a strategic opportunity with respect to which the Company has
engaged the assistance of Bear, Stearns & Co., Inc., the sale of the remaining
medical practice and WCNY's projected return to profitability in 1999. There can
be no assurance NYSID will accept such a plan or, if accepted, that the plan
will be successful in enabling WCNY to fund the contingent reserve requirement
within the 50% to 100% discretionary requirement. Absent successful completion
of such transactions and/or failure to come into compliance with the reserve
requirements could cause NYSID to take action which could include restriction or
revocation of WCNY's license.
In the quarter ended September 30, 1998, the Company forgave the management fees
for WCNY for the nine months ended September 30, 1998 in the amount of
approximately $1.0 million. Additionally, WellCare has agreed to allow WCNY to
offset future management fees against such receivable. As a result, the
Company's future cash flow will be adversely impacted thereby necessitating the
need for additional capital.
In June 1997 and November 1997, the Company made capital contributions of
$350,000 and $425,000, respectively, to WCCT to bring its statutory net worth to
the required $1 million. On March 2, 1998, the Company made an additional
capital contribution of $368,000 to WCCT to bring its statutory net worth above
the $1 million requirement. WCCT was in compliance with the statutory net worth
requirement at September 30, 1998.
10. OTHER
In March 1998, the Company engaged Bear, Stearns & Co., Inc. to assist the
Company in exploring its strategic opportunities. This could include joint
venture, capital contributions, merger or sale of all or a portion of the
Company.
11. COMMITMENTS AND CONTINGENCIES
a. In October 1994, WCNY changed its capitation arrangements with the majority
of its providers from capitating primary care physicians with attendant
risk-sharing to capitating the IPAs comprised of the specialists and
18
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
previously-capitated primary care physicians. The Alliances have operated at an
accumulated deficit since inception but have instituted measures designed to
reduce this deficit and achieve profitability. The IPAs could request additional
funding beyond the contractual increases from the Company, which management does
not believe should be required and, if requested, by the Alliances the Company
does not intend to provide such funding. During 1997, the IPAs received a $4.0
million cash infusion from an unrelated third-party.
In an effort to improve the profitability of the Company and the Alliances,
effective September 1996, WCNY entered into a letter of understanding with the
Alliances to restructure the capitation arrangements. In April 1998, formal
contracts were finalized and executed. WCNY reassumed risk for certain
previously capitated services, with a corresponding reduction in rates. WCNY
capitated the Alliances for all physician services, both primary care and
specialty services, on a PMPM basis for each HMO member associated with an
Alliance except for physician services for certain diagnostics and mental
health, which are capitated through regional integrated delivery systems.
Management of the Alliances and WCNY believe that these measures will enable the
Alliances to achieve profitability and reduce their accumulated deficits.
The Company has been advised by counsel that it would have no financial
liability to providers with whom the Alliances/IPAs had contracted for services
rendered in the event the Alliances/IPAs were unable to maintain their
operations. Further, the Company has direct contracts with providers which would
require the providers to continue to provide medical care to members on
financial terms similar to those in the Alliances'/IPAs' agreement with
providers, in the event that the Alliances/IPAs were unable to maintain their
operations.
Nevertheless, in the event of continuing losses or increasing deficits by the
Alliances/IPAs, the Alliances could request increased capitation rates from the
Company.
Management of the Company does not believe that such additional financial or
increased contractual capitation rates should be required by the Alliances/IPAs
and has no intention to agree to such terms if requested by the Alliances/IPAs
beyond the negotiated contractual increases. However, as described in Note 2d of
Notes to Consolidated Financial Statements in the 1997 Annual Report on Form
10-K, the Company agreed to record charges to medical expense based on the
instructions of NYSID. Effective September 1996, the Company entered into a
letter of understanding with the Alliances/IPAs to restructure its capitation
arrangement. Under this understanding, the Company reassumed risk for certain
previously capitated services with a corresponding reduction in rates.
On July 31, 1998, the Company notified four (4) major IPAs of its intent to
renegotiate the contracts between the Company and the respective IPAs because
the Investor's option to merge with the Buyer that owns and manages the IPAs
expired on June 30, 1998. If a new agreement is not reached within 120 days
19
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
after June 30, 1998, either the Company or the respective IPA can thereafter
exercise its option to terminate the contract. The parties continue to negotiate
the terms of the new agreement and there can be no assurance that the contracts
will be successfully renegotiated and not terminated by either the Company or
the respective IPAs.
b. Between April and June 1996, the Company, its former President and Chief
Executive Officer, and its former Vice President of Finance and Chief Financial
Officer were named as defendants in twelve separate actions filed in Federal
Court (the "Securities Litigations"). An additional three directors were also
named in one of these actions. Plaintiffs sought to recover damages allegedly
caused by the Company's defendants' violations of federal securities laws with
regard to the preparation and dissemination to the investing public of false and
misleading information concerning the Company's financial condition.
In July 1996, the Securities Litigations were consolidated in the United States
District Court for the Northern District of New York, and an amended
consolidating complaint (the "Complaint") was served in August 1996. The
Complaint did not name the three additional directors. The Company's auditor,
however, was named as an additional defendant. In October 1996, the Company
filed a motion to dismiss the consolidated amended complaint against the Company
as well as the individual defendants. The Company's auditor likewise filed its
own motion to dismiss. By Memorandum Decision and Order (the "Order"), entered
in April 1997, the Court (i) granted the auditor's motion to dismiss and ordered
that the claims against the auditors be dismissed with prejudice; and (ii)
denied the motion to dismiss brought by the individual defendants. Because the
Order did not specifically address the Company's motion to dismiss, in May 1997,
the Company moved for reconsideration of its motion to dismiss and dismissal of
all claims asserted against it. On reconsideration, the judge clarified his
previous ruling expanding it to include a denial of the Company's motion as
well. Following the Court's decision, the Company filed its answer and defense
to the Complaint. In September 1997, the plaintiff's class was certified and
thereafter the parties commenced the discovery process of the litigation.
Although management is unable to predict the likelihood of success on the merits
of the consolidated class action, it has instructed its counsel to vigorously
defend its interests. To date, the Company has indemnified both former officers
who are defendants for costs incurred in defending the Securities Litigations.
The Company has insurance in effect which may, at least in part, offset any
costs to be incurred in these litigations.
c. The Company and certain of its subsidiaries, including WCNY, have responded
to subpoenas issued in April and August 1997 from the United States District
Court for the Northern District of New York through the office of the United
States Attorney for that District. These subpoenas sought the production of
various documents concerning financial and accounting systems, corporate
records, press releases and other external communications. While the United
20
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
States Attorney has not disclosed the purpose of its inquiry, the Company has
reason to believe that neither its current management nor its current directors
are subjects of or targets of the investigation. The Company has, however,
informed the government that it will continue to cooperate fully in any way that
it can in connection with the ongoing investigation.
d. On July 31, 1996 and October 3, 1996 the Securities and Exchange Commission
issued subpoenas to the Company for the production of various financial and
medical claims information. The Company fully complied with both of these
subpoenas on August 21, 1996 and October 31, 1996. It is management's
understanding that the Securities and Exchange Commission investigation is
continuing.
e. Effective at the close of market on September 9, 1998, Nasdaq delisted the
Company's Common Stock from the Nasdaq SmallCap Market because of the Company's
inability to maintain the net tangible assets requirement currently applicable
to companies for continued listing on the Nasdaq SmallCap Market. The Company's
Common Stock is now traded on the Nasdaq Bulletin Board system.
f. Other - The Company is involved in litigation and claims which are considered
normal to the Company's business. In the opinion of management, the amount of
loss that might be sustained, either individually or collectively, from these
actions, if any, would not have a material effect on the Company's consolidated
financial statements.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including short-term investments,
advances to participating providers, other receivables - net, restricted cash,
other non-current assets net, accounts payable and accrued expenses approximate
their fair values.
The fair value of notes receivable consisting primarily of advances to medical
practices, is not materially different from the carrying value for financial
statement purposes. In making this determination, the Company used interest
rates based on an estimate of the credit worthiness of each medical practice.
The Subordinated Convertible Note was issued in a private placement in January
1996, and amended with the holder in February 1997 and January 1998, as
described in Note 6. There is no public market for this instrument or other debt
of the Company and management believes it is not practicable to estimate its
fair value at this time. The carrying amount of other long-term debt, the
majority of which bears interest at floating rates, are assumed to approximate
their fair value.
21
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
13. NET INCOME/(LOSS) PER SHARE
Net income/(loss) per share - Basic is computed using weighted average number of
common shares outstanding for the applicable period. Net income/(loss) per share
- - - Diluted is computed using the weighted average number of common shares plus
common equivalent shares outstanding, except if the effect on the per share
amounts of including equivalents would be anti-dilutive.
22
<PAGE>
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto, included in the quarterly
report and with the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
The Company's financial statements have been prepared assuming that the Company
will continue as a going concern (refer to the auditors' report on the Company's
1997 financial statements). The Company's recurring losses from operations, cash
used in operations, deficiency in assets at September 30, 1998 and WCNY having a
statutory net worth of approximately $1.2 million which is below 50% (or $3.3
million) contingent reserve requirement at September 30, 1998 raise substantial
doubt about its ability to continue as a going concern as more fully discussed
in Notes 1, 9 and 10 and the Liquidity and Capital Resources section.
Certain statements in this Form 10-Q are forward-looking statements and are not
based on historical facts but are management's projections or best estimates.
Actual results may differ from these projections due to risks and uncertainties.
These risks and uncertainties include a variety of factors. The Company's
results of operations and projections of future earnings depend in large part on
accurately predicting and effectively managing medical costs and other operating
expenses. A variety of factors, including competition, changes in health care
practices, changes in federal or state laws and regulations or the
interpretations thereof, inflation, provider contract changes, new technologies,
government-imposed surcharges, taxes or assessments, reductions in provider
payments by governmental payors (including Medicare and Medicaid whereby such
reductions may cause providers to seek increased payments from private payors),
major epidemics, disasters and numerous other factors affecting the delivery and
cost of health care, such as major health care providers' being able to maintain
their operations and reduce or eliminate their accumulated deficits, may in the
future affect the Company's ability to control its medical costs and other
operating expenses. Governmental action (including downward adjustments to
premium rates, which could result in adjusted rates lower than premium rates
then in effect) or business conditions (including intensification of competition
and the other factors described above) could result in premium revenues not
increasing to thus offset any increases in medical costs and other operating
expenses. Once set, premiums are generally fixed for one year periods and,
accordingly, unanticipated costs during such periods cannot be recovered through
higher premiums. The expiration, suspension or termination of contracts to
provide health coverage for governmental entities or other significant customers
would also negatively impact the Company. Due to these factors and risks, no
assurance can be given with respect to the Company's premium levels or its
ability to control its medical costs.
Legislative and regulatory proposals have been made at the federal and state
government levels related to the health care system, including but not limited
to limitations on managed care organizations (including benefit mandates) and
reform of the Medicare and Medicaid programs. Such legislative or regulatory
action could have the effect of reducing the premiums paid to the Company by
23
<PAGE>
governmental programs or increasing the Company's medical costs. Specifically,
pending federal budgetary action could reduce the premiums payable to the
Company under the Medicare program as compared to previously announced and
projected levels. The Company is unable to predict the specific content of any
future legislation, action or regulation that may be enacted or when any such
future legislation or regulation will be adopted. Therefore, the Company cannot
predict the effect of such future legislation, action or regulation on the
Company's business.
The following table provides certain statement of operations data expressed as a
percentage of total revenue and other statistical data for the periods
indicated:
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
Revenue:
Premiums earned 99.0% 98.6% 98.8% 98.8%
Interest and other income 1.0 1.4 1.2 1.2
----- ----- ----- -----
Total revenue 100.0 100.0 100.0 100.0
Expenses:
Hospital services 27.9 24.9 26.7 24.3
Physician services 52.2 60.6 54.1 59.9
Other medical services 3.6 (2.8) 2.1 3.9
----- ----- ----- -----
Total medical expenses 83.7 82.7 82.9 88.1
General and administrative 21.0 26.0 19.5 24.4
Depreciation and amortization 2.2 2.5 2.4 2.6
Interest and other expenses 1.2 1.2 1.2 1.1
----- ----- ----- -----
Total expenses 108.1 112.4 106.0 116.2
Loss before income taxes (8.1) (12.4) (6.0) (16.2)
Income taxes -- -- -- --
----- ----- ----- -----
Net loss (8.1)% (12.4)% (6.0)% (16.2)%
----- ----- ----- -----
STATISTICAL DATA:
HMO member months enrollment 211,453 224,177 635,075 684,202
Medical loss ratio (1) 84.6% 84.0% 84.0% 89.2%
General and administrative
ratio (2) 21.0% 26.0% 19.5% 24.4%
- - ------------------------
(1) Total medical expenses as a percentage of premiums earned; reflects the
combined rates of commercial, Medicaid, Full- Risk Medicare and Medicare
supplemental members.
(2) General and administrative expenses as a percentage of total revenue.
24
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED
TO THREE MONTHS ENDED SEPTEMBER 30, 1997
Premiums earned in the third quarter of 1998 increased by 2.3%, or $.8 million,
to $35.8 million from $35.0 million in the third quarter of 1997. Commercial
premium revenue decreased 14.4% or approximately $2.8 million, as a result of a
12.8%, or approximately $2.5 million, decrease in member months and a 1.8%
decrease in average rates. Medicaid premium revenue increased 17.7% or
approximately $1.2 million, as a result of an increase in average rates of
19.7%, or $1.3 million, offset, in part, by a 1.6% decrease in member months.
Included in third quarter 1998 Medicaid revenue is approximately $.2 million of
rate increases attributable to prior periods of which approximately $.1 million
applies to the first six months and the remaining $.1 million applies to 1997.
Medicare premium revenue increased 29.3% or approximately $2.4 million, as a
result of an increase in member months of 23.3%, or approximately $1.9 million,
and a 4.9% increase in average rates. Total member months in the third quarter
of 1998 decreased 5.7% to 211,453 from 224,177 in the comparable period of 1997.
Interest and other income decreased 30.0%, or approximately $.1 million, to $.4
million in the third quarter of 1998, primarily due to a decrease in interest
income.
Medical expense increased 3.0% or $.9 million, to $30.3 million in the third
quarter of 1998, from $29.4 million in 1997. There was a 9.2% increase on a per
member per month ("PMPM") basis and an increase as a percentage of premiums
earned (the "medical loss ratio") from 84.0% in 1997 to 84.6% in 1998. The
increase in medical expense from 1997 is primarily due to the shift in the
percentage of member months attributable to Medicare, a higher cost program,
versus commercial membership, as well as higher medical costs overall.
The third quarter 1998 medical expense includes a $1.5 million charge for
adverse development relating to medical claims for the second quarter of 1998
($.9 million), the first quarter of 1998 ($.5 million) and 1997 ($.1 million); a
charge of approximately $.1 related to the New York State demographic pool
liability for the years 1994 and 1995; and a $.7 million reduction related to
the adjustment of the liability established in the first six months of 1998 for
amounts withheld from certain medical claim payments. The third quarter 1997
medical expense includes a charge of $2.2 million for adverse development
relating to medical claims reserves for 1996 and the first six months of 1997; a
reduction of $1.5 million to adjust for the estimated liability, recorded in the
first quarter of 1997, relating to NYSID's audit of the 1993-1995 demographic
pool; and a reduction of $.8 million for various adjustments related to prior
periods. The third quarter 1997 does not reflect $1.1 million of adverse
development expense recorded in subsequent periods, including the third quarter
of 1998. Before giving effect to the impact of these items, as well as the
premium revenue item above, 1998 medical expense would have been $29.4 million
and the medical loss ratio would have been approximately 82.5%. The 1997 medical
expense would have been $30.6 million and the medical loss ratio, would have
been approximately 85.2%.
25
<PAGE>
General and administrative ("G&A") expenses decreased 17.9%, or $1.7 million, to
$7.6 million in the third quarter of 1998 and decreased as a percentage of total
revenue to 21.0% in the third quarter of 1998 from 26.0% in the third quarter of
1997. The decrease in G&A expenses resulted primarily from reductions in bad
debt expense ($1.0 million), marketing related costs ($.3 million),
administrative fees paid ($.2 million) and payroll and payroll related expenses
($.2 million).
Depreciation and amortization decreased slightly in 1998 to $.8 million due to a
reduction in preoperational costs amortization.
Interest expense remained flat at $.4 million. The 1998 Amendment to "the Note"
(see Note 6) will result in an increase to annual interest expense on the Note
of $0.1 million.
NINE MONTHS ENDED SEPTEMBER 30, 1998
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1997
Premiums earned in the first nine months of 1998 increased by 3.2%, or $3.4
million, to $108.9 million from $105.5 million in the first nine months of 1997.
Commercial premium revenue decreased 22.4%, or $14.5 million, because of a
20.9%, or $13.5 million, decrease in membership and a 2.0% decrease in average
rates. Medicaid premium revenue increased 30.9%, or $6.3 million, because of a
21.7%, or $4.8 million, increase in average rates, and a 7.6% increase in member
months. The 1998 Medicaid premium revenue includes $1.2 million of retroactive
rate increases attributable to 1997 and 1996; the nine months in 1997 includes
approximately $.7 of such increases related to 1996. Medicare premium revenue
increased 57.5% or $11.6 million, because of a 51.4% or $10.4 million, increase
in member months and an increase in average member rates of 4.0%.
Interest and other income increased by 4.2%, or $.1 million, to $1.4 million in
the first nine months of 1998, primarily due to an increase in third party
reimbursements.
Medical expense decreased 2.9%, or $2.7 million, to $91.4 million in the first
nine months of 1998, increased 4.7% on a PMPM basis, and decreased as a
percentage of premiums earned from 89.2% in the first nine months of 1997 to
84.0% in the first nine months of 1998. The 1998 medical expense includes a $2.5
million charge for adverse development relating to 1997 and 1996 medical claims,
including $1.3 attributable to the first nine months in 1997, and a $0.8 million
credit relating to the unaudited pools fund distribution announced by NYSID in
the first quarter of 1998. In the absence of these items and the premium item
above, the 1998 medical expense would have been $89.8 million, and the medical
loss ratio would have been 83.4%. Medical expense for the nine months in 1997
included a charge of $2.8 million for adverse development relating to medical
claims reserves for 1996; a $1.7 million charge for the estimated liability
related to NYSID's audit of the demographic pool payments and assessments for
the years 1993-1996; and a reduction of $.2 million for various adjustments
related to prior periods. The 1997 medical expense does not reflect the $2.6
million of adverse development expense recorded in subsequent periods. Before
giving effect to the above items, including the premium revenue item above, 1997
medical expense would have been $92.4 million, and the medical loss ratio would
have been 87.1%.
26
<PAGE>
General and administrative expenses decreased 17.1% or $4.5 million, to $21.5
million in the first nine months of 1998 from $26.0 million for the same period
in 1997, and decreased as a percentage of total revenue to 19.5% in the nine
months of 1998 from 24.4% in the nine months of 1997. The decrease in G&A
expenses resulted primarily from reductions in bad debt expense ($2.6 million),
administrative fees paid ($.6 million), payroll and payroll related costs
resulting from staff reductions in January 1998 ($.6 million), marketing related
costs ($.5 million) and consulting and professional services ($.2 million).
Depreciation and amortization decreased $0.2 million due to reduced amortization
of preoperational costs. Interest and other expenses remained relatively
constant.
LIQUIDITY AND CAPITAL RESOURCES
In January, 1996, the Company completed a private placement of a subordinated
convertible note in the principal amount of $20,000,000 (the "Note") due
December 31, 2002, with The 1818 Fund II, L.P., a private equity fund managed by
Brown Brothers Harriman & Co. The Company utilized a part of the net proceeds of
this private placement to retire a portion of its debt. The Note, was amended in
February 1997, and subsequently in January 1998, and is convertible into shares
of WellCare Common Stock. In January 1998, the Fund agreed to convert $5 million
of the Note into 1,250,000 shares of Common Stock of the Company at a conversion
price of $4 per share, subject to an anti-dilution adjustment. The conversion
was completed in May 1998. The Note initially accrued interest at 6.0% per
annum, amended to 5.5% per annum in 1997 and amended to 8% per annum in 1998.
The conversion price after the 1998 amendment is $8 per share for the remaining
$15 million debt, and the mandatory redemption percentage is 150%. The Company
will also have the right to purchase one half of the shares of the Common Stock
and the debt held by the Fund, for $12 million plus accrued interest, if
consolidated earnings before taxes are positive for either the second or third
quarter of 1998. The Company has reported a consolidated net loss before taxes
for each of these two quarters, respectively.
The Company's requirements for working capital are principally to meet current
obligations, fund HMO operations and maintain necessary regulatory reserves. As
of September 30, 1998 the Company had negative working capital of $11.2 million
as compared to negative working capital of $8.7 million at June 30, 1998 and
negative working capital of $5.1 million at December 31, 1997, excluding cash
reserves. In order to eliminate this deficit the Company is dependent upon
achieving its projected return to profitability in 1999, and the successful
completion of a strategic alliance or other form of capital infusion as a result
of the Bear, Stearns & Co., Inc. activities (see Note 10). While the Company
anticipates that as a result of the successful completion of one or all of these
initiatives the working capital deficit will be resolved, there can be no
assurance that this will ultimately be achieved.
Net cash provided by operating activities during the first nine months of 1998
was approximately $.1 million as compared to approximately $4.6 million used for
the first nine months of 1997.
27
<PAGE>
Cash provided by 1998 operating activities was the net result of reductions of
advances to providers of $2.3 million and trade and other receivables of $2.6
million less a cash operating loss of $4.0 million and $.4 million decrease in
the amounts due the New York State demographic pool. Cash used for capital
expenditures was approximately $.6 million during the first nine months of 1998
as compared to $.2 million for the same period in 1997.
Legislation by New York State ("Prompt Pay" legislation) requires HMOs,
effective with claims submitted for services provided after January 22, 1998, to
pay undisputed ("clean") claims within 45 days of date of receipt. The Company
believes that it is substantially in compliance with the "Prompt Pay"
legislation and will continue to review its claims payment process to monitor
its compliance with this legislation.
New York State certified HMOs are required to maintain a cash reserve equal to
the greater of 5% of expected annual medical costs or $100,000. Additionally,
WCNY is required to maintain a contingent reserve which must be increased
annually by an amount equal to at least 1% of statutory premiums earned limited,
in total, to a maximum of 5% of statutory premiums earned for the most recent
calendar year and which may be offset by the cash reserve. The cash reserve is
calculated at December 31 of each year and is maintained throughout the
following calendar year. At September 30, 1998, WCNY had a cash reserve
requirement of $5.8 million and a contingent reserve of approximately $6.7
million. In the event the contingent reserve exceeds the required cash reserve,
the excess of the contingent reserve over the required cash reserve is required
to be maintained.
NYSID has the authority to allow an HMO to maintain a net worth of 50% to 100%
of the contingent reserve. WCNY executed a Section 1307 loan in March 1998,
which has brought WCNY's December 31, 1997 statutory net worth above the
permitted 50% contingent reserve requirement. WCNY has been operating above the
50% contingent reserve requirement during 1997 and for the quarter ended March
31, 1998, with the full knowledge of NYSID. In June 1997 and November 1997, the
Company loaned $3.1 and $1.3 million, respectively, to WCNY under the provisions
of Section 1307. However, giving effect to the reported results for the quarters
ended September 30, 1998 and June 30, 1998, WCNY's statutory net worth is
approximately $1.2 million which is under the 50% (or $3.3 million) contingent
reserve requirement at September 30, 1998. Management has had and will continue
to have ongoing discussions and meetings with NYSID regarding operating results
and compliance with various statutory requirements and has updated NYSID of the
Company's plans to obtain additional funds during the rest of 1998, which the
Company's Board has authorized to be contributed possibly in the form of
additional Section 1307 loans, as needed, to WCNY's capital. Management intends
to implement a remedial action plan based upon capital to be contributed to WCNY
following the consummation of a strategic opportunity with respect to which the
Company has engaged the assistance of Bear, Stearns & Co., Inc. and WCNY's
projected return to profitability in 1999. In addition, the Buyer (see Note 4)
has entered into a letter of intent to sell its business, including the
contracts with the Alliance/IPAs, to a third party. In connection therewith, it
is contemplated that WellCare will receive repayment of a portion of the
indebtedness owed to it by the Buyer as payment in full of such debt (all of
which has been previously reserved) and additional consideration for the
amendment of the Alliance/IPA service contracts. That transaction is anticipated
to be consummated in December 1998, though there can be no assurance that the
transaction will be so consummated or on the terms described herein. There can
be no assurance NYSID will accept such a plan or, if accepted, that the plan
will be successful in enabling WCNY to fund the contingent reserve requirement
within the 50% to 100% discretionary requirement.
28
<PAGE>
WCCT is subject to similar regulatory requirements with respect to its HMO
operations in Connecticut. In June and November 1997, the Company made capital
contributions of $350,000 and $425,000, respectively, to WCCT to bring its
statutory net worth to the required minimums of $1 million. The Company, on
March 2, 1998, made an additional capital contribution of $368,000 to WCCT to
bring its statutory net worth above the $1 million requirement. At September 30,
1998, WCCT was in compliance with the statutory net worth requirement.
The Company's Reinsurance and Insolvency coverage terminates on November 30,
1998. Management is actively negotiating replacement coverage and expects to
renew the reinsurance coverage. However, due to the Company's financial
position, the Company may not be able to obtain the insolvency coverage.
At September 30, 1998, the Company had a working capital deficit of $11.2
million, compared to a working capital deficiency of $8.7 million at June 30,
1998 and $5.1 million at December 31, 1997, excluding the cash reserve of $5.8
million required by New York State which is classified as a non-current asset.
The increased deficiency is attributable primarily to the cash operating loss
for the first nine months of 1998. The Company intends to finance its current
and future operations from the positive cash flow from its projected return to
profitability in 1999 via increased membership, rate increases and further
improvements in medical and general and administrative expenses and the
consummation of a strategic opportunity with respect to which the Company has
engaged Bear, Stearns & Co., Inc. The Company is also continuing to aggressively
pursue balances due for premium revenues, especially under the Medicaid program,
to more closely match the collection of premium with the payment of provider
capitation fees and fees for other services. Approximately $5.8 million of the
premiums receivable at September 30, 1998 is due from governmental agencies
relating to the Medicaid program, with approximately $2.4 million attributable
to 1997 and approximately $1.4 million applicable to periods prior to 1997. The
collection of these balances will have a positive impact on the Company's cash
flow.
In March 1998, the Company engaged Bear, Stearns & Co., Inc. to assist the
Company in exploring its strategic opportunities. This could include joint
venture, capital contributions, merger or sale of all or a portion of the
Company.
Management believes that the Company will have sufficient funds available from
the above sources to maintain its planned level of operations and programs for
1998. Actual results of operations may, however, differ from those projected and
there can be no assurance that the Company will be successful in consummating a
strategic transaction and failure to complete such a transaction could adversely
impact the Company's ability to continue as a going concern as referenced in
Notes 1 and 9.
On July 2, 1998, the Bank notified the Company that it was not in compliance
with certain financial ratio requirements included in certain notes and related
loan documents. The Bank has expressed a willingness to pursue a resolution, and
has not exercised its rights or remedies. The Company is reviewing the Bank's
calculations and has had initial discussions with the Bank. The Company is and
has been current in the payments of its obligations with the Bank. Although
there can be no assurances that the Bank will grant the Company a waiver, the
Company continues to classify the debts in accordance with their original terms
in anticipation of a waiver.
29
<PAGE>
At September 30, 1998, the Company had total mortgage indebtedness of $5.6
million outstanding on five of its office buildings, of which approximately $0.7
million is due February 1, 1999, approximately $3.9 million is due January 1,
2000, approximately $0.7 million is due March 1, 2000, and approximately $0.3
million is due March 1, 2001.
YEAR 2000 COMPLIANCE
The Company has assessed the requirements of modifying its computer systems to
accommodate the Year 2000 and anticipates that these modifications will be
completed in advance of the Year 2000 so as to not adversely affect its
operations. In most cases, the Company is dependent on outside vendors whose
software the Company uses. These vendors have advised the Company that the
required modifications are being made, and will be available to the Company in
the form of software release upgrades. The Company has developed plans for
implementing these release upgrades in a timely fashion. The Company will
expense the associated costs incurred to make these modifications and estimates
that the hardware and software costs will approximate $1.5 million. While the
Company anticipates that the Year 2000 modifications will be completed by the
Year 2000, in the event it is not completed the Company will outsource the
impacted services until such modifications are successfully completed. The
inability of the Company to complete timely its Year 2000 modifications, or the
inability of other companies with which the Company does business to complete
timely their Year 2000 modifications, could potentially have a material adverse
effect on the Company's operations. Further, while the Company has developed a
plan to achieve the modifications to accommodate the Year 2000 requirements, the
Company has a working capital deficit as of September 30, 1998. Funding to
successfully complete the necessary changes to accommodate the Year 2000 changes
depends to a degree on the Company achieving profitability in 1999, as well as
the consummation of a transaction involving a strategic opportunity for which
the Company has engaged the assistance of Bear, Stearns & Co., Inc.
INFLATION
Medical costs have been rising at a higher rate than consumer goods as a whole.
The Company believes its premium increases, capitation arrangements and other
cost controls measures mitigate, but may not entirely offset, the effects of
medical cost inflation on its operations and its inability to increase premiums
could negatively impact the Company's future earnings.
30
<PAGE>
PART II - OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
a. Between April and June 1996, the Company, its former President and Chief
Executive Officer, and its former Vice President of Finance and Chief Financial
Officer were named as defendants in twelve separate actions filed in Federal
Court (the "Securities Litigations"). An additional three directors were also
named in one of these actions. Plaintiffs sought to recover damages allegedly
caused by the Company's defendants' violations of federal securities laws with
regard to the preparation and dissemination to the investing public of false and
misleading information concerning the Company's financial condition.
In July 1996, the Securities Litigations were consolidated in the United States
District Court for the Northern District of New York, and an amended
consolidated complaint (the "Complaint") was served in August 1996. The
complaint did not name the three additional directors. The Company's auditor,
however, was named as an additional defendant. In October 1996, the Company
filed a motion to dismiss the consolidated amended complaint against the Company
as well as the individual defendants. The Company's auditor likewise filed its
own motion to dismiss. By Memorandum Decision and Order (the "Order"), entered
in April 1997, the Court (i) granted the auditor's motion to dismiss and ordered
that the claims against the auditors be dismissed with prejudice; and (ii)
denied the motion to dismiss brought by the individual defendants. Because the
Order did not specifically address the Company's motion to dismiss, in May 1997,
the Company moved for reconsideration of its motion to dismiss and dismissal of
all claims asserted against it. On reconsideration, the judge clarified his
previous ruling expanding it to include a denial of the Company's motion as
well. Following the Court's decision, the Company filed its answer and defense
to the Complaint. In September 1997, the plaintiff's class was certified and the
parties thereafter commenced the discovery process of the litigation.
Although management is unable to predict the likelihood of success on the merits
of the consolidated class action, it has instructed its counsel to vigorously
defend its interests. To date, the Company has indemnified both former officers
who are defendants for costs incurred in defending the Securities Litigations.
The Company has insurance in effect which may, at least in part, offset any
costs to be incurred in these litigations.
The Company and certain of its subsidiaries, including WellCare of New York,
Inc. have responded to subpoenas issued in April and August 1997 from the United
States District Court for the Northern District of New York through the office
of the United States Attorney for that District. These subpoenas sought the
production of various documents concerning financial and accounting systems,
corporate records, press releases and other external communications. While the
United States Attorney has not disclosed the purpose of its inquiry, the Company
has reason to believe that neither its current management nor its current
directors are subjects of or targets of the investigation. The Company has,
however, informed the government that it will continue to cooperate fully in any
way that it can in connection with the ongoing investigation.
31
<PAGE>
On July 31, 1996 and October 3, 1996 the Securities and Exchange Commission
issued subpoenas to the Company for the production of various financial and
medical claims information. The Company fully complied with both of these
subpoenas on August 21, 1996 and October 31, 1996. It is management's
understanding that the Securities and Exchange Commission investigation is
continuing.
Item 2 Changes in Securities
Not applicable
Item 3 Defaults Upon Senior Securities
On July 2, 1998, the Bank notified the Company that it was not in compliance
with certain financial ratio requirements included in certain notes and related
loan documents. The Bank has expressed a willingness to pursue a resolution, and
has not exercised its rights or remedies. The Company is reviewing the Bank's
calculations and has had initial discussions with the Bank. The Company is and
has been current in the payments of its obligations with the Bank. Although
there can be no assurances that the Bank will grant the Company a waiver, the
Company continues to classify the debts in accordance with their original terms
in anticipation of a waiver.
Item 4 Submission of Matters to a Vote of Security Holders
Not applicable
Item 5 Other Information
Effective at the close of market on September 9, 1998, Nasdaq delisted the
Company's Common Stock from the Nasdaq SmallCap Market because of the Company's
inability to maintain the net tangible assets requirement currently applicable
to companies for continued listing on the Nasdaq SmallCap Market. The Company's
Common Stock is now traded on the Nasdaq Bulletin Board system.
32
<PAGE>
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.16b Copy of Reinsurance Agreement Renewal between Preferred Life
Insurance Company of New York and WellCare of New York, Inc.
for Commercial and Point of Service Enrollees effective
November 1, 1996
10.16c Copy of Reinsurance Agreement Renewal between Preferred Life
Insurance Company of New York and WellCare of New York,
Inc.- Medicaid
10.16d Copy of Reinsurance Agreement Renewal between Preferred Life
Insurance Company of New York and WellCare of Connecticut,
Inc. effective November 1, 1996
10.16e Copy of Reinsurance Agreement Renewal between Preferred Life
Insurance Company of New York and WellCare of New York -
Medicare effective November 1, 1996
10.16f Copy of Amendment to Reinsurance Agreement Renewal between
Preferred Life Insurance Company of New York and WellCare of
New York, Inc. for Commercial and Point of Service Enrollees
effective November 1, 1996 and Reinsurance Agreement Renewal
between Preferred Life Insurance Company of New York and
WellCare of New York - Medicare effective November 1, 1996
10.16g Copy of Amendment to Reinsurance Agreement Renewal between
Preferred Life Insurance Company of New York and WellCare of
New York, Inc.- Medicaid
10.16h Copy of Amendment to Reinsurance Agreement Renewal between
Preferred Life Insurance Company of New York and WellCare of
Connecticut, Inc. effective November 1, 1996
10.16i Copy of Letter dated October 29, 1998 terminating coverage
under Reinsurance Agreement Renewal between Preferred Life
Insurance Company of New York and WellCare of New York, Inc.
for Commercial and Point of Service Enrollees effective
November 1, 1996, Reinsurance Agreement Renewal between
Preferred Life Insurance Company of New York and WellCare of
New York - Medicare effective November 1, 1996 and
Reinsurance Agreement Renewal between Preferred Life
Insurance Company of New York and WellCare of New York,
Inc.- Medicaid
10.16j Copy of Letter dated October 29, 1998 terminating coverage
under Reinsurance Agreement Renewal between Preferred Life
Insurance Company of New York and WellCare of Connecticut,
Inc. effective November 1, 1996
11 Computation of Net Income Per Share of Common Stock
27 Financial Data Schedule
(b) Reports on Form 8-K
Not Applicable
33
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1932, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The WellCare Management Group, Inc.
By: /s/ Joseph R. Papa
--------------------------------------
Joseph R. Papa
President, Chief Executive Officer
and Chief Operating Officer
(Principal Executive Officer)
By: /s/ Craig S. Dupont
--------------------------------------
Craig S. Dupont
Vice President of Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: November 16, 1998
34
<PAGE>
INDEX TO EXHIBITS
All exhibits below are filed with this Quarterly Report of Form 10-Q:
EXHIBIT NUMBER
- - --------------
10.16b Copy of Reinsurance Agreement Renewal between Preferred Life
Insurance Company of New York and WellCare of New York, Inc.
for Commercial and Point of Service Enrollees effective
November 1, 1996
10.16c Copy of Reinsurance Agreement Renewal between Preferred Life
Insurance Company of New York and WellCare of New York,
Inc.- Medicaid
10.16d Copy of Reinsurance Agreement Renewal between Preferred Life
Insurance Company of New York and WellCare of Connecticut,
Inc. effective November 1, 1996
10.16e Copy of Reinsurance Agreement Renewal between Preferred Life
Insurance Company of New York and WellCare of New York -
Medicare effective November 1, 1996
10.16f Copy of Amendment to Reinsurance Agreement Renewal between
Preferred Life Insurance Company of New York and WellCare of
New York, Inc. for Commercial and Point of Service Enrollees
effective November 1, 1996 and Reinsurance Agreement Renewal
between Preferred Life Insurance Company of New York and
WellCare of New York - Medicare effective November 1, 1996
10.16g Copy of Amendment to Reinsurance Agreement Renewal between
Preferred Life Insurance Company of New York and WellCare of
New York, Inc.- Medicaid
10.16h Copy of Amendment to Reinsurance Agreement Renewal between
Preferred Life Insurance Company of New York and WellCare of
Connecticut, Inc. effective November 1, 1996
10.16i Copy of Letter dated October 29, 1998 terminating coverage
under Reinsurance Agreement Renewal between Preferred Life
Insurance Company of New York and WellCare of New York, Inc.
for Commercial and Point of Service Enrollees effective
November 1, 1996, Reinsurance Agreement Renewal between
Preferred Life Insurance Company of New York and WellCare of
New York - Medicare effective November 1, 1996 and
Reinsurance Agreement Renewal between Preferred Life
Insurance Company of New York and WellCare of New York,
Inc.- Medicaid
10.16j Copy of Letter dated October 29, 1998 terminating coverage
under Reinsurance Agreement Renewal between Preferred Life
Insurance Company of New York and WellCare of Connecticut,
Inc. effective November 1, 1996
11 Computation of Net Income Per Share of Common Stock
27 Financial Data Schedule
35
[GRAPHIC OMITTED]
152 West 57th Street, 18th Floor
New York, New York 10019
REINSURANCE AGREEMENT
between
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
New York, New York
(hereinafter referred to as "Preferred Life")
and
WELLCARE OF NEW YORK
FOR COMMERCIAL AND POINT OF SERVICE ENROLLEES
Kingston, New York
(hereinafter referred to as "Plan")
November 1, 1996 RENEWAL
REINSURANCE POLICY NUMBER 17055-016
Tax I.D. # ___________________
<PAGE>
TABLE OF CONTENTS
TITLE ARTICLE
Reinsurance Coverage
Definitions I
Schedule of Reinsurance II
Premium Payment III
Notice of Claims and Reimbursement IV
Reports, Records and Audits V
Arbitration VI
Insolvency/Cessation of Operations VII
Limitations of Reinsurance Coverage VIII
Effective Date, Duration and Termination IX
General Provisions X
Document Execution
Endorsements:
Continuation of Benefits 1
Out of Area Conversion Provision 2
<PAGE>
Reinsurance Coverage
It is hereby agreed that in consideration of the promises, terms, and conditions
contained in this Reinsurance Agreement, Plan shall cede to, and Preferred Life
shall reinsure, the portion specified herein of the Membership Service
Agreements issued by the Plan.
ARTICLE I
Definitions
A. "Member Services Agreement" shall mean those contractual agreements to
provide services to Members of the Plan which are approved by the State of
New York and are for those Members for whom Plan has requested reinsurance
coverage from Preferred Life. Applicable Membership Service Agreements
shall be appended to this Reinsurance Agreement as Exhibit A.
B. "Service Area" shall mean the Service Area defined in the Member Services
Agreement.
C. "Member" shall mean any person or family dependent enrolled and eligible to
receive services under a Member Services Agreement.
D. "Reasonable and Customary" shall mean expenses generally incurred for cases
of comparable nature and severity in the geographical area involved.
E. "Contract Year" shall mean the twelve (12) month period which begins on the
Effective Date of this Reinsurance Agreement, or any anniversary of the
Effective Date.
F. "Acute Care Services" shall mean those services which are necessary to the
care and treatment of an unstable medical condition caused by the onset of
a severe illness or injury which places the patient's health in severe
jeopardy and requires immediate medical attention. Acute Care Services do
not include health care or other services which are for custodial care, or
services which assist in or are intended to improve the usual activities of
daily living.
G. "Approved Fixed Procedural Fee Hospital" shall mean a hospital with fixed
per diems or fixed case rates which have been reviewed and approved by
Preferred Life prior to any service being rendered. This does not include
any discounted fee-for-service arrangements, nor does it include per diems
or case rates which revert to a discount off actual charges for
fee-for-service once an outlier or stoploss threshold has been reached.
H. "Prior Approved Transplant Reimbursement Schedule" shall mean a
reimbursement schedule for a specific transplant procedure that is
approved, in writing, by Preferred Life prior to the transplant admission.
Instructions for obtaining prior approval are available from Preferred Life
upon request.
I. "Deductible" shall mean the Deductible amount shown in the Schedule of
Reinsurance. The Deductible will be applied to any Loss as follows:
1. If the Loss consists of Eligible Hospital Services incurred during a
period of continuous, uninterrupted confinement at one or more
facilities, charges from each facility will be applied to the
Deductible in an amount equal to the proportion of that facility's
Services to total Eligible Hospital Services.
<PAGE>
ARTICLE I
(Continued)
2. If the Loss consists of Eligible Hospital Services incurred during two
or more periods of noncontinuous confinement, Services will be applied
to the Deductible based on the date incurred beginning with charges
incurred earliest in the Contract Year and continuing in incurred date
order until the Deductible is satisfied.
J. "Eligible Hospital Services" shall mean those Acute Care Services for
Members who require Acute Care while registered bed patients, which are
generally and customarily provided by the Plan's participating hospitals or
other specialized institutions within the Service Area of the Plan and
which are prescribed, directed, or authorized by or on behalf of the Plan.
Eligible Hospital Services shall mean the lesser of:
1. The amount of the Plan's negotiated hospital rate; or
2. The amount of the Reasonable and Customary charges;
but in any event, Eligible Hospital Services shall be limited to an average
of $2,000 per day of each period of continuous hospital confinement.
Operating room charges are excluded from the calculation of the average
daily limit. Eligible Hospital Services shall also include Referral
Services, and the hospital portion of Emergency Out of Area Services, but
shall not include physician or surgeon charges.
K. "Referral Services" shall mean those Acute Care Services provided to a
Member by a non-participating hospital which, due to the specialized nature
of the service or facility required, cannot be provided by the Plan's
participating hospitals. Referral Services shall be considered Eligible
Hospital Services if such services are specifically authorized by the Plan.
Referral Services shall mean the lesser of:
1. The amount of the negotiated charges; or
2. The amount of the Reasonable and Customary charges;
but in any event Referral Services, to the extent they are Eligible
Hospital Services, shall be limited to an average of $2,000 per day of each
period of continuous hospital confinement. Operating room charges are
excluded from the calculation of the average daily limit. Referral Services
shall not include physician or surgeon charges, other professional fees, or
charges for take-home items or durable medical devices.
L. "Emergency Out of Area Services" shall mean those services provided to a
Member by a hospital, physician, or surgeon and which due to an emergency
are provided outside the Service Area covered by the Membership Service
Agreement. An emergency exists when there is a sudden onset of illness or
accidental injury requiring such immediate treatment that the life or
health of the Member might be jeopardized if taken to a hospital,
physician, or surgeon within the service area covered by the Membership
Service Agreement; or when the Member is incapable of making the decision
on treatment. Emergency Out of Area Services shall be limited to the lesser
of:
1. The amount of the negotiated charges; or
2. The amount of the Reasonable and Customary charges;
<PAGE>
ARTICLE I
(Continued)
but in any event Emergency Out of Area Services, to the extent they are
Eligible Hospital Services, shall be limited to an average of $2,000 per
day of each period of continuous hospital confinement, not including
operating room charges.
L. "Loss" shall mean only such eligible amounts as are incurred during the
Contract Year, or under the previous year's "carry forward" provision, as
defined in Article II, D., for treatment and services rendered to a Member
while this Reinsurance Agreement is in effect and provided such treatment
and services are covered by the Member Services Agreement. The word "Loss"
shall not include:
1. Compensation paid to salaried officers or employees of the Plan or any
other overhead expenses;
2. Any amount paid by the Plan for punitive or exemplary damages, or
compensatory damages awarded to any Member arising out of the conduct
of the Plan in the investigation, trial, or settlement of any claims
or failure to pay or delay in payment of benefits under its Member
Services Agreement;
3. Any Statutory penalty imposed upon the Plan on account of any unfair
trade practice or any unfair claims practice.
<PAGE>
ARTICLE II
Schedule of Reinsurance
A. The Effective Date for this Reinsurance Agreement shall be November 1,
1996.
B. The monthly premium for the Reinsurance Coverage defined in paragraph
C. below shall be $0.70 per Commercial Member and $0.86 per Point of
Service Member. This amount shall be guaranteed for a period of 3
years following the effective date of this Reinsurance Agreement,
provided, however, that Preferred Life shall have the authority to
review and revise rates at the beginning of the contract year.
C. The Reinsurance Coverage to be provided under this Reinsurance
Agreement shall be defined as follows:
1. For Eligible Hospital Services, the Deductible amount for such
Reinsurance Coverage shall be $85,000.00 of the Loss for each
Member for each Contract Year. Once the Deductible has been
satisfied, Preferred Life shall indemnify the Plan for:
a. The excess Loss for Eligible Hospital Services in that
Contract Year for any Member who is under one year of age at
the start of the Contract Year shall be reimbursed as
follows:
1) 90% if services are performed in a "per diem", DRG, or
approved fixed procedural fee hospital.
2) 70% if services are performed in any other hospital.
b. The excess Loss for Eligible Hospital Services in that
Contract Year for any Member who is one year of age or over
at the start of the Contract Year shall be reimbursed as
follows:
1) 90% if services are performed in a "per diem", DRG, or
approved fixed procedural fee hospital.
2) 80% if services are performed in any other hospital c.
The excess Loss for Eligible Hospital Services in that
Contract Year for expenses related to organ and bone
marrow transplant therapy shall be reimbursed as
follows:
1) 80% if services are performed in a hospital with a
Prior Approved Transplant Reimbursement Schedule for
that confinement.
2) 50% if services are performed in any other hospital.
3) 50% for organ and bone marrow Retransplantation
Services performed in any hospital. Retransplantation
Services shall mean retransplantation of the same
organ/bone tissue type performed within one year of the
date of the initial transplant procedure.
The acquisition cost of the "live" organ is not included as
a benefit in this Reinsurance Agreement for any organ
transplant procedure. .
<PAGE>
ARTICLE II
(Continued)
d. In the event an excess Loss could be indemnified under more
than one of the above subsections, the subsection providing
the least indemnity shall apply.
e. Non-Emergency admission into the following Philadelphia,
Pennsylvania hospitals shall have coinsurance of 50% of Loss
incurred: 1) Hospital of University Medical Center of
Pennsylvania; 2) Jefferson Hospital; 3) Children's Hospital.
f. Notwithstanding the above, the lifetime maximum reinsurance
indemnity payable under this Reinsurance Agreement for
Eligible Hospital Services for each Member shall be
$2,000,000.
D. Loss incurred by the Plan during the last thirty-one (31)
days of a Contract Year for which no benefits were payable
under this Reinsurance Agreement because such Loss was
applied to the Deductible for that Contract Year shall be
applied toward the Deductible for the succeeding Contract
Year.
E. The preceding Schedule of Reinsurance is subject to the
Limitations as defined in Article VIII.
<PAGE>
ARTICLE III
Premium Payment
A. The amount of premiums to be paid by the Plan to Preferred Life for
Reinsurance Coverage under this Reinsurance Agreement is set forth in
Article II herein.
B. Premiums shall be payable monthly and shall be based on the number of
Members enrolled and eligible to receive Eligible Hospital Services
during the month.
C. Premiums shall be due on the first day of the month for which
Reinsurance Coverage is provided and are payable to Preferred Life at
its office in New York, New York.
D. A grace period not to exceed one month shall be granted to the Plan
for the payment of every premium due.
E. If any premium is not paid before the expiration of the grace period,
this Reinsurance Agreement may terminate as of the expiration of the
period for which premium has been paid. Preferred Life shall give
written notification of such termination.
F. The premium payment by the Plan to Preferred Life shall be accompanied
by a statement signed by an authorized Plan official in which the
number of enrolled and eligible Members for that month is given.
G. Preferred Life shall have the right to change the premium at the end
of the third Contract Year of this Reinsurance Agreement and at any
time thereafter, provided this Reinsurance Agreement has not had the
premium changed within the preceding thirty six (36) months and
further provided that at least thirty-one (31) days written notice has
been given by Preferred Life to the Plan. The Plan must give Preferred
Life written notice of any change in coverage within thirty-one (31)
days. Upon notice of such change of coverage, Preferred Life may elect
to exclude the modification of coverage from Reinsurance Coverage or
charge additional premium therefore. Preferred Life shall not be
liable for any modification of coverage of the Reinsured Policy in the
event that the Plan fails to properly notify Preferred Life. Any
change in premium that is solely the result of a change in coverage
shall not be considered a change in premium requiring the thirty six
(36) month period of time before another change in premium can be
made.
<PAGE>
ARTICLE IV
Notice of Claims and Reimbursement
A. The Plan shall give Preferred Life timely written notice of any claim
or potential claim. The Plan shall use its best efforts to give
Preferred Life notice of claim or potential claim within thirty-one
(31) days from the date on which the claim or potential claim is
incurred.
B. Preferred Life shall furnish the Plan with a supply of claim forms to
be used in filing a claim.
C. The Plan shall file completed proof of Loss by sending to Preferred
Life the information requested on the claim form, along with copies of
the various bills and itemized expenses involved.
D. In accordance with the terms and conditions of this Reinsurance
Agreement, Preferred Life shall make payment to the Plan within thirty
(30) days of Preferred Life's receipt of complete written proof of
such Loss, subject to E. below.
E. Preferred Life shall not be liable with regard to any Loss for which
it has not received written notice within the twelve (12) months after
the end of the Contract Year in which the Loss was incurred, except in
the case of insolvency, as defined in Article VII.
<PAGE>
ARTICLE V
Reports, Records and Audits
A. The Plan shall submit a monthly report to Preferred Life listing the
names and amounts for those Members who have received Eligible
Hospital Services during the Contract Year which exceed seventy-five
(75) percent of the per Member Deductible as set forth in Article II.
B. The Plan shall report to Preferred Life any changes of a material
nature in its Membership Service Agreements. Such report shall be sent
to Preferred Life at least thirty-one (31) days before the Effective
Date of the change so that Preferred Life may evaluate the need for
any changes in this Reinsurance Agreement.
C. The Plan shall report to Preferred Life any investigation or request
for information of a material nature by a State Insurance Department
regarding the conduct of the Plan. Such report must be provided in
writing by the Plan to Preferred Life within thirty-one (31) days
following the date the Plan receives notice, written or otherwise, of
such investigation or request from the State Insurance Department.
D. The Plan shall keep a record of the monthly enrollment of Members
covered by its Membership Service Agreements and the Eligible Hospital
Services received by each Member while covered under this Reinsurance
Agreement. Such record shall be kept during the time this Reinsurance
Agreement is in effect and for a one (1) year period after its
termination date.
E. The Plan's books and records, to the extent permitted by law, shall be
made available to Preferred Life for inspection and audit at any time
during normal business hours during the time this Reinsurance
Agreement is in effect and for a one (1) year period after its
termination date. Preferred Life shall give reasonable notice prior to
the date of such audit.
F. All information disclosed to Preferred Life by the Plan or to the Plan
by Preferred Life, either in the course of conducting negotiations or
as the result of complying with the terms and conditions of this
Reinsurance Agreement, shall be considered to be privileged and
confidential information by both the Plan and Preferred Life.
G. The submission of this Reinsurance Agreement to any Department of
Insurance or any State or Federal agency shall not be considered a
violation of F above.
<PAGE>
ARTICLE VI
Arbitration
A. In the event of any dispute or difference of opinion arising out of
this Agreement which cannot be amicably resolved by the Plan and
Preferred Life, the Plan and Preferred Life agree that such dispute or
difference of opinion shall be submitted to and settled by
arbitration.
B. Except as otherwise provided herein, the arbitration shall be
conducted in accordance with the Commercial Arbitration Rules of the
American Arbitration Association (the "AAA" and the "AAA's Rules")
which shall be in effect on the date of delivery of demand for
arbitration. In the event that the AAA's Rules conflict with any
provisions of this Article, this Article shall govern.
C. The party that determines that a dispute should be resolved by
arbitration (the "Initiating Party") shall give written notice to the
other party (the "Responding Party") of its desire to compel
arbitration, which notice shall contain a statement setting forth the
nature of the dispute, the amount involved, if any, and the remedy
sought.
D. The arbitration tribunal shall consist of three arbitrators who must
be disinterested parties, unaffiliated with the Plan or Preferred
Life. The Plan shall appoint one arbitrator, and Preferred Life shall
appoint one arbitrator. The third arbitrator shall be appointed by the
previous two (2) arbitrators. If the two previous arbitrators cannot
agree on a third arbitrator, then the third arbitrator shall be
appointed by AAA.
E. If either party refuses or neglects to appoint an arbitrator within
sixty (60) days after receipt of written notice from the other party
requesting it to do so, the requesting party shall instruct AAA to
appoint a neutral second arbitrator. The two appointed arbitrators can
then appoint the third.
F. For the purposes of arbitration, this Reinsurance Agreement shall be
considered an honorable engagement rather than a mere legal
obligation, and the arbitrators are not bound by judicial formalities
or strict rule of law in interpreting this Reinsurance Agreement.
G. The decision of a majority of the arbitrators shall be final and
binding on both the Plan and Preferred Life subject to the parties'
rights to appeal an arbitrator's decision under New York law.
H. The expense of arbitration shall be divided between the Plan and
Preferred Life based on a decision made by the arbitrators.
I. Any such arbitration shall take place in New York, unless some other
location is mutually agreed upon.
J. The laws of New York shall govern the arbitration process in the event
they conflict with A through I above.
<PAGE>
ARTICLE VII
Insolvency/Cessation of Operations
A. In the event that Preferred Life should become insolvent, this
Reinsurance Agreement shall automatically terminate on the date of
Preferred Life's insolvency.
B. In the event that the Plan shall become insolvent, this Reinsurance
Agreement shall automatically terminate on the date of the Plan's
insolvency.
C. For purposes of this Reinsurance Agreement, "insolvent" or
"insolvency" shall mean that both of the following conditions occur:
1. A final determination is made by a court of competent
jurisdiction that the Plan or Preferred Life is insolvent; and
2. All operations of the Plan or Preferred Life cease.
The date of insolvency shall be determined as the date which the court
declares the Plan or Preferred Life insolvent or the date on which the
Plan or Preferred Life has ceased operations, whichever date is later
in time.
Operations of the Plan will not be considered ceased so long as the
Plan is under control of a Receiver (which, as used herein, includes a
court or state appointed supervisor, receiver, or rehabilitator) until
the date the Receiver stops paying for future services, publicly
declares its intention to not make payment for future services, and
orders Plan providers to stop rendering services on behalf of the Plan
other than those services for the remaining term for which providers
have previously been paid.
D. This change to the style sheet made 4/21/95 - Rec'd letter from the
State with requested language. jvh. In the event of the Insolvency of
the Plan, benefits owed by Preferred Life shall be payable directly to
the Plan, or to its liquidator, receiver, conservator or statutory
successor without diminution because of the Insolvency of the Plan or
because the liquidator, receiver, conservator or statutory successor
has failed to pay all or a portion of any claim. It is agreed,
however, that the liquidator, receiver, conservator or statutory
successor of the Plan shall give Preferred Life written notice of the
pendency of each claim or Loss which may involve the Reinsurance
afforded by this Agreement within a reasonable time after such claim
or Loss is filed in the conservation or liquidation preceding or in
the receivership. Preferred Life shall have the right to investigate
each such claim or Loss and interpose, at its own expense, in the
preceding where the claim or Loss is to be adjudicated, any defense or
defenses that it may deem available to the Plan or its liquidator,
receiver, conservator or statutory successor. The expense thus
incurred by Preferred Life shall be chargeable, subject to court
approval, against the Plan or its successor as part of the expense of
conservation or liquidation to the extent of a pro rata share of the
benefit which may accrue to the Plan solely as a result of the defense
undertaken by Preferred Life. In the event of that this Agreement
terminates due to the Insolvency of the Plan and premiums are due to
Preferred Life, then in this event, Preferred Life may offset premiums
due against claims owed to the Plan or to its liquidator, receiver,
conservator or statutory successor.
E. Notice of the Plan's or Preferred Life's date of insolvency or date of
cessation of operations shall be communicated to the other party at
the earliest possible point in time.
<PAGE>
ARTICLE VIII
Limitations of Reinsurance Coverage
A. Preferred Life's reimbursement of claims to the Plan shall not exceed,
in any event, the limits of coverage stated in Article II.
B. The Plan is solely responsible for providing all services to its
Members, for compensation of all liability to its Members, and for
payment of all expenses to its Members.
C. Preferred Life shall have no responsibility or obligation to provide
any services or payment to any Member of the Plan, directly or
indirectly.
D. To the extent the Plan receives or will receive any payment or
receives a reduction in its liability by reason of a Coordination of
Benefits provision in the Plan's Member Services Agreement or by any
right of subrogation, Preferred Life shall only indemnify the Plan in
respect of any excess beyond the amount of COB or subrogation amounts
received or applied currently or in the future as reductions in its
liability.
E. Preferred Life shall not reimburse the Plan for amounts incurred for
skilled nursing or rehabilitive services (including, but not limited
to treatments for motor function or mobility, physical therapy or
psychotherapies), unless such services are provided concurrent with
and incidental to Acute Care Services.
F. Preferred Life shall not be liable to the Plan, and the Plan shall
hold harmless and indemnify Preferred Life, for any of the following:
1. Professional liability or liability for any act or omission,
tortious or otherwise, in connection with any services rendered
to any person or group of persons by the Plan or any group,
entity, or person employed by or affiliated in any manner with
the Plan;
2. Expenses or losses for which the Plan has released any persons or
entity from its legal liability;
3. Liabilities which are non-pecuniary in nature (not having a
monetary value);
4. Liabilities, expenses, or losses which are based upon any
noncompliance or violation of any Federal or State statute, rule,
or regulation by the Plan;
5. Additional expenses or losses resulting from those services which
are billed in excess of the usual and customary charges for the
locality where same were administered;
6. Expenses which are paid or payable to Plan Members who are
enrolled in Part A and/or Part B of Title XVIII of the Social
Security Act of 1965 and any Amendments to it.
7. Any expenses to the extent the Plan receives a reduction in
charges because of a Coordination of Benefits provision in the
Plan's Membership Service Agreements or any right of subrogation;
<PAGE>
ARTICLE VIII
(Continued)
8. Any liability due to war or act of war;
9. Any liability for replacement of equipment, furniture, or
supplies which are not Eligible Hospital Services.
<PAGE>
ARTICLE IX
Effective Date, Duration and Termination
A. This Reinsurance Agreement shall become effective on the date set
forth in Article II.
B. This Reinsurance Agreement shall continue in effect from the Effective
Date until it is terminated.
C. This Reinsurance Agreement shall automatically terminate for
non-payment of premium by the Plan as set forth in Article III.
D. This Reinsurance Agreement shall automatically terminate on the date
of Preferred Life's insolvency or cessation of operations or on the
date of the Plan's insolvency or cessation of operations.
E. This Reinsurance Agreement can be terminated in accordance with
paragraph A. of Article X.
F. Termination of this Reinsurance Agreement shall not terminate the
rights or liabilities of either the Plan or Preferred Life arising
during any period when this Reinsurance Agreement was in force,
provided that nothing herein shall be construed to extend Preferred
Life's liability for reimbursements under this Reinsurance Agreement
for any Loss paid by the Plan which was incurred on or after the date
of termination of this Reinsurance Agreement.
G. The Plan and Preferred Life shall each have the right to terminate
this Reinsurance Agreement by giving the other party, and the State of
New York Health and Insurance Departments, written notice of such
intention to terminate at least thirty-one (31) days prior to the end
of any Contract Year.
<PAGE>
ARTICLE X
General Provisions
A. It is understood and agreed that if at any time while this Reinsurance
Agreement is in effect the Plan should:
1. Acquire the assets and liabilities of any other company,
corporation, or foundation; or
2. Be acquired, come under control of or be merged with any other
company, corporation, or foundation;
Preferred Life shall, at its option, have the right to charge an
additional premium to the Plan, or terminate this Reinsurance
Agreement by giving written notice by certified mail which shall set
forth the date and time of such termination, but not sooner than
thirty-one (31) days after the date of receipt of such notice.
B. The Plan shall give Preferred Life written notice in the event that
any of A. above should occur as soon as Plan is aware that such event
will occur.
C. This Reinsurance Agreement may be altered or amended at any time by
mutual consent of the Plan and Preferred Life either by written
Amendment or by correspondence signed by officers of the Plan and
Preferred Life. Any such Amendments or correspondence shall be binding
upon the Plan and Preferred Life and deemed to be an integral part of
this Reinsurance Agreement. Amendments are subject to approval by the
State of New York Health and Insurance Departments prior to
effectuation.
D. This Reinsurance Agreement shall not be assignable without the express
written consent of the other party.
E. Nothing in this Reinsurance Agreement shall create any right or legal
contractual relationship between Preferred Life and any Member under a
Member Services Agreement identified in Article I of this Reinsurance
Agreement.
F. The Plan is solely responsible for all services to Members, for all
liabilities to Members, and for payment of all claims of Members.
Preferred Life shall not have any responsibility or obligation to
provide any service or payment to any Member, directly or indirectly.
The Reinsurance Coverage provided herein is payable solely to the
Plan.
G. If any payment is made by Preferred Life under this Reinsurance
Agreement, Preferred Life shall be subrogated to all the Plan's rights
to recover such payment against any Member, person or organization,
and the Plan shall execute and deliver instruments and do whatever is
necessary to preserve and secure such rights. Any recovery made by the
Plan, net of attorney's fees charged to the Plan, shall be paid to
Preferred Life to the extent of payment made under this Reinsurance
Agreement.
<PAGE>
ARTICLE X
(Continued)
H. This Reinsurance Agreement, including Endorsements and attached
papers, if any, constitutes the entire contract of reinsurance. No
change in this Reinsurance Agreement shall be valid until approved by
an executive officer of Preferred Life and unless such approval be
endorsed hereon or attached hereto. No agent has authority to change
this Reinsurance Agreement or to waive any of its provisions.
I. Plan agrees to give Preferred Life written notice of any change in
Chief Operating Management, any fundamental change in the Management
Service Contract, or any change in majority ownership of the Plan.
J. As of November 1, 1996, all the promises, terms and conditions of this
Reinsurance Agreement will supersede those of Reinsurance Agreement
Policy Number 17055-016, dated November 1, 1993, and Reinsurance
Coverage will be deemed continuous.
IN WITNESS WHEREOF, the Plan and Preferred Life have, by their respective
officers, executed and delivered this Reinsurance Agreement in duplicate
effective from the date set out in Article II hereof.
WELLCARE OF NEW YORK FOR COMMERCIAL AND POINT OF
SERVICE ENROLLEES
Dated: By: /s/ Joseph R. Papa
------------------ ------------------------------------
Attest: /s/ Edward J. Halas Title:
---------------------- ---------------------------------
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Dated: 14 Sept 1998 By: /s/ Edward J. Bonach
---------------------- ------------------------------------
Attest: Title: Director
---------------------- ---------------------------------
<PAGE>
ENDORSEMENT NO. 1
Endorsement between Preferred Life Insurance Company of New York (hereinafter
referred to as "Preferred Life") and Wellcare of New York for Commercial and
Point of Service Enrollees (hereinafter referred to as "Plan") Policy No.
17055-016.
The following provision is hereby made a part of the Reinsurance Agreement
between Preferred Life and Plan, in order to protect Members when they no longer
can receive benefits from the Plan or its Receiver because of insolvency of the
Plan. This Endorsement does not provide any benefit for creditors, owners, or
the Receiver of the Plan, although payment of Plan benefits under Sections 1.
and 2. below may be to the Receiver for transfer to appropriate provider payees.
As used herein, the term "Receiver" includes a court or state appointed
supervisor, receiver, or rehabilitator.
Continuation of Benefits Provision:
The reinsurance liability of Preferred Life under the Reinsurance Agreement
shall terminate according to its terms. However, upon the date the Plan is
insolvent as defined in Article VII of the Reinsurance Agreement, Preferred Life
will provide limited continuation of benefits for Members as described below.
There is no liability of Preferred Life under this Endorsement prior to the date
all conditions of insolvency in Article VII have been met, including the
condition that operations cease.
1. Preferred Life will continue Plan benefits for Members who are
confined in an Acute Care hospital on the date Preferred Life becomes
liable for continuation of benefits, beginning on such date and
continuing until their discharge;
2. Added to the style sheet 9/7/95. This language was approved by HCFA on
8/3/95 and has been reviewed by the New York DOI via Preferred Care.
The insolvency language on Preferred and Allianz paper is now
consistent. jvh. Preferred Life will continue Plan benefits for
Members who are confined in other inpatient facilities on the date
Preferred Life becomes liable for continuation of benefits, beginning
on such date, not exceeding the benefits which would be provided under
the Plan's Member Services Agreement, or one hundred twenty (120)
days, whichever is less. Other inpatient facilities means skilled
nursing facilities and rehabilitation facilities if such care is
rendered concurrent with and incidental to Acute Care Services;
3. Coverage is contingent on payment of premium. Preferred Life will
continue Plan benefits for any Member beginning on the date Preferred
Life becomes liable for continuation of benefits until the end of the
contract period for which premium has been paid to the Plan by that
Member, not including any Plan benefits which are the contractual
obligation of a hospital or health care provider to the Member for
such period;
4. This provision has never been in the style sheet, but was added
4/21/95 per the request of the New York DOI. jvh. Preferred Life
conversion coverage will be made available to all Members for a period
of thirty-one (31) days, without evidence of insurability. The
conversion coverage will be that which is customarily issued by
Preferred Life at the then current rates and of the type available for
conversion.
5. Added to the style sheet 9/7/95. This language has been approved by
HCFA and has also been reviewed by the New York DOI via Preferred
Care. The Allianz and Preferred insolvency endorsements are now
consistent.
Any Title XVIII Medicare enrollees who are under an "at risk" contract with
the Health Care Financing Administration shall not be covered under this
Endorsement once the enrollee is eligible for coverage under other Title
XVIII provisions or any other federal program, except as noted below:
a. Preferred Life will continue Plan benefits for any Title XVIII
Medicare enrollees beginning on the date Preferred Life becomes liable
for continuation of benefits until the end of the Contract Period for
which premium has been paid to the Plan by the Health Care Financing
Administration, not including any Plan benefits which are the
contractual obligation of a hospital or health care provider to the
Member for such period.
<PAGE>
ENDORSEMENT NO. 1
(Continued)
Except as herein stated, all terms and conditions of the Reinsurance Agreement
remain unchanged.
The Effective Date of this Endorsement is November 1, 1996.
WELLCARE OF NEW YORK FOR COMMERCIAL AND POINT OF
SERVICE ENROLLEES
Dated: By: /s/ Joseph R. Papa
----------------------- ---------------------------------
Title:
---------------------------------
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Dated: 14 Sept 1998 By: /s/ Edward J. Bonach
----------------------- ---------------------------------
Title: Director
---------------------------------
<PAGE>
ENDORSEMENT NO. 2
Endorsement between Preferred Life Insurance Company of New York (hereinafter
referred to as "Preferred Life") and Wellcare of New York for Commercial and
Point of Service Enrollees (hereinafter referred to as "Plan") Policy No.
17055-016.
The following provision is hereby made a part of the Reinsurance Agreement
between Preferred Life and Plan.
Out of Area Conversion Provision
In the event that a Plan Member moves outside the Service Area of the
Plan, such Member, without evidence of insurability, shall have the
right of conversion for a period of thirty-one (31) days. The
Conversion Coverage will be that which is customarily issued by
Preferred Life at the then current rates and of the type available for
conversion.
Except as herein stated, all terms and conditions of the Reinsurance Agreement
remain unchanged.
The Effective Date of this Endorsement is November 1, 1996.
WELLCARE OF NEW YORK FOR COMMERCIAL AND POINT OF
SERVICE ENROLLEES
Dated: By: /s/ Joseph R. Papa
-------------------- ----------------------------------------
Title:
-------------------------------------
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Dated: 14 Sept 1998
------------------------ By: /s/ Edward J.Bonach
----------------------------------------
Title: Director
----------------------------------------
[GRAPHIC OMITTED]
152 West 57th Street, 18th Floor
New York, New York 10019
REINSURANCE AGREEMENT
between
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK New York, New York
(hereinafter referred to as "Preferred Life")
and
WELLCARE OF NEW YORK - MEDICAID Kingston,
New York (hereinafter referred to as "Plan")
For Medicaid Members - Metro August 1, 1996 through October 31, 2000
For Medicaid Members - Non-Metro October 1, 1996 through October 31, 2000
REINSURANCE POLICY NUMBER 17055-041
Tax I.D. #___________________
<PAGE>
TABLE OF CONTENTS
TITLE ARTICLE
Reinsurance Coverage
Definitions I
Schedule of Reinsurance II
Premium Payment III
Notice of Claims and Reimbursement IV
Reports, Records and Audits V
Arbitration VI
Insolvency/Cessation of Operations VII
Limitations of Reinsurance Coverage VIII
Effective Date, Duration and Termination IX
General Provisions X
Document Execution
Endorsements:
Continuation of Benefits 1
Out of Area Conversion Provision 2
<PAGE>
Reinsurance Coverage
It is hereby agreed that in consideration of the promises, terms, and conditions
contained in this Reinsurance Agreement, Plan shall cede to, and Preferred Life
shall reinsure, the portion specified herein of the Membership Service
Agreements issued by the Plan.
ARTICLE I
Definitions
A. "Member Services Agreement" shall mean those contractual agreements to
provide services to Members of the Plan which are approved by the
State of New York and are for those Members for whom Plan has
requested reinsurance coverage from Preferred Life. Applicable
Membership Service Agreements shall be appended to this Reinsurance
Agreement as Exhibit A.
B. "Service Area" shall mean the Service Area defined in the Member
Services Agreement.
C. "Member" shall mean any person or family dependent enrolled and
eligible to receive services under a Member Services Agreement.
D. "Reasonable and Customary" shall mean expenses generally incurred for
cases of comparable nature and severity in the geographical area
involved.
E. "Contract Year" shall mean the twelve (12) month period which begins
on the Effective Date of this Reinsurance Agreement, or any
anniversary of the Effective Date.
F. "Acute Care Services" shall mean those services which are necessary to
the care and treatment of an unstable medical condition caused by the
onset of a severe illness or injury which places the patient's health
in severe jeopardy and requires immediate medical attention. Acute
Care Services do not include health care or other services which are
for custodial care, or services which assist in or are intended to
improve the usual activities of daily living.
G. "Approved Fixed Procedural Fee Hospital" shall mean a hospital with
fixed per diems or fixed case rates which have been reviewed and
approved by Preferred Life prior to any service being rendered. This
does not include any discounted fee-for-service arrangements, nor does
it include per diems or case rates which revert to a discount off
actual charges for fee-for-service once an outlier or stoploss
threshold has been reached.
H. "Prior Approved Transplant Reimbursement Schedule" shall mean a
reimbursement schedule for a specific transplant procedure that is
approved, in writing, by Preferred Life prior to the transplant
admission. Instructions for obtaining prior approval are available
from Preferred Life upon request.
I. "Deductible" shall mean the Deductible amount shown in the Schedule of
Reinsurance. The Deductible will be applied to any Loss as follows:
1. If the Loss consists of Eligible Hospital Services incurred
during a period of continuous, uninterrupted confinement at one
or more facilities, charges from each facility will be applied to
the Deductible in an amount equal to the proportion of that
facility's Services to total Eligible Hospital Services.
<PAGE>
ARTICLE I
(Continued)
2. If the Loss consists of Eligible Hospital Services incurred
during two or more periods of noncontinuous confinement, Services
will be applied to the Deductible based on the date incurred
beginning with charges incurred earliest in the Contract Year and
continuing in incurred date order until the Deductible is
satisfied.
J. "Eligible Hospital Services" shall mean those Acute Care Services for
Members who require Acute Care while registered bed patients, which are
generally and customarily provided by the Plan's participating hospitals or
other specialized institutions within the Service Area of the Plan and
which are prescribed, directed, or authorized by or on behalf of the Plan.
Eligible Hospital Services shall mean the lesser of:
1. The amount of the Plan's negotiated hospital rate; or
2. The amount of the Reasonable and Customary charges;
but in any event, Eligible Hospital Services shall be limited to an average
of $2,000 per day of each period of continuous hospital confinement.
Operating room charges are excluded from the calculation of the average
daily limit. Eligible Hospital Services shall also include Referral
Services, and the hospital portion of Emergency Out of Area Services, but
shall not include physician or surgeon charges, other professional fees, or
charges for take-home items or durable medical devices.
K. "Referral Services" shall mean those Acute Care Services provided to a
Member by a non-participating hospital which, due to the specialized nature
of the service or facility required, cannot be provided by the Plan's
participating hospitals. Referral Services shall be considered Eligible
Hospital Services if such services are specifically authorized by the Plan.
Referral Services shall mean the lesser of:
1. The amount of the negotiated charges; or
2. The amount of the Reasonable and Customary charges;
but in any event Referral Services, to the extent they are Eligible
Hospital Services, shall be limited to an average of $2,000 per day of each
period of continuous hospital confinement. Operating room charges are
excluded from the calculation of the average daily limit. Referral Services
shall not include physician or surgeon charges, other professional fees, or
charges for take-home items or durable medical devices.
L. "Emergency Out of Area Services" shall mean those services provided by a
Member by a hospital, physician, or surgeon and which due to an emergency
are provided outside the Service Area covered by the Membership Service
Agreement. An emergency exists when there is a sudden onset of illness or
accidental injury requiring such immediate treatment that the life or
health of the Member might be jeopardized if taken to a hospital,
physician, or surgeon within the service area covered by the Membership
Service Agreement; or when the Member is incapable of making the decision
on treatment. Emergency Out of Area Services shall be limited to the lesser
of:
1. The amount of the negotiated charges; or
2. The amount of the Reasonable and Customary charges;
<PAGE>
ARTICLE I
(Continued)
but in any event Emergency Out of Area Services, to the extent they are
Eligible Hospital Services, shall be limited to an average of $2,000 per
day of each period of continuous hospital confinement, not including
operating room charges.
L. "Loss" shall mean only such eligible amounts as are incurred during the
Contract Year, or under the previous year's "carry forward" provision, as
defined in Article II, D., for treatment and services rendered to a Member
while this Reinsurance Agreement is in effect and provided such treatment
and services are covered by the Member Services Agreement. The word "Loss"
shall not include:
1. Compensation paid to salaried officers or employees of the Plan or any
other overhead expenses;
2. Any amount paid by the Plan for punitive or exemplary damages, or
compensatory damages awarded to any Member arising out of the conduct
of the Plan in the investigation, trial, or settlement of any claims
or failure to pay or delay in payment of benefits under its Member
Services Agreement;
3. Any Statutory penalty imposed upon the Plan on account of any unfair
trade practice or any unfair claims practice.
<PAGE>
ARTICLE II
Schedule of Reinsurance
A. The Effective Date for this Reinsurance Agreement shall be August 1,
1996 through October 31, 2000 for Medicaid Members for Metro and
October 1, 1996 through October 31, 2000 for Medicaid Members for
Non-Metro.
B. The monthly premium for the Reinsurance Coverage defined in paragraph
C. below shall be $0.77 per Medicaid Member for Metro and $0.63 per
Medicaid Member for Non-Metro. This amount shall be guaranteed for a
period of 3 years following the effective date of this Reinsurance
Agreement, provided, however, that Preferred Life shall have the
authority to review and revise rates at the beginning of each contract
year.
C. The Reinsurance Coverage to be provided under this Reinsurance
Agreement shall be defined as follows:
1. For Eligible Hospital Services, the Deductible amount for such
Reinsurance Coverage shall be $115,000 of the Loss for each
Member for each Contract Year. Once the Deductible has been
satisfied, Preferred Life shall indemnify the Plan for:
a. The excess Loss for Eligible Hospital Services in that
Contract Year for any Member who is under one year of age at
the start of the Contract Year shall be reimbursed as
follows:
1) 90% if services are performed in a "per diem", DRG, or
approved fixed procedural fee hospital.
2) 70% if services are performed in any other hospital.
b. The excess Loss for Eligible Hospital Services in that
Contract Year for any Member who is one year of age or over
at the start of the Contract Year shall be reimbursed as
follows:
1) 90% if services are performed in a "per diem", DRG, or
approved fixed procedural fee hospital.
2) 80% if services are performed in any other hospital
c. The excess Loss for Eligible Hospital Services in that Contract
Year for expenses related to organ and bone marrow transplant
therapy shall be reimbursed as follows:
1) 80% if services are performed in a hospital with a Prior
Approved Transplant Reimbursement Schedule for that
confinement.
2) 50% if services are performed in any other hospital.
3) 50% for organ and bone marrow Retransplantation Services
performed in any hospital. Retransplantation Services shall
mean retransplantation of the same organ/bone tissue type
performed within one year of the date of the initial
transplant procedure.
<PAGE>
ARTICLE II
(Continued)
The acquisition cost of the "live" organ is not included as
a benefit in this Reinsurance Agreement for any organ
transplant procedure.
d. In the event an excess Loss could be indemnified under more
than one of the above subsections, the subsection providing
the least indemnity shall apply.
e. Notwithstanding the above, the lifetime maximum reinsurance
indemnity payable under this Reinsurance Agreement for
Eligible Hospital Services for each Member shall be
$2,000,000.
D. Loss incurred by the Plan during the last thirty-one (31) days of a
Contract Year for which no benefits were payable under this
Reinsurance Agreement because such Loss was applied to the Deductible
for that Contract Year shall be applied toward the Deductible for the
succeeding Contract Year.
E. The preceding Schedule of Reinsurance is subject to the Limitations as
defined in Article VIII.
<PAGE>
ARTICLE III
Premium Payment
A. The amount of premiums to be paid by the Plan to Preferred Life for
Reinsurance Coverage under this Reinsurance Agreement is set forth in
Article II herein.
B. Premiums shall be payable monthly and shall be based on the number of
Members enrolled and eligible to receive Eligible Hospital Services
during the month.
C. Premiums shall be due on the first day of the month for which
Reinsurance Coverage is provided and are payable to Preferred Life at
its office in New York, New York.
D. A grace period not to exceed one month shall be granted to the Plan
for the payment of every premium due.
E. If any premium is not paid before the expiration of the grace period,
this Reinsurance Agreement may terminate as of the expiration of the
period for which premium has been paid. Preferred Life shall give
written notification of such termination.
F. The premium payment by the Plan to Preferred Life shall be accompanied
by a statement signed by an authorized Plan official in which the
number of enrolled and eligible Members for that month is given.
G. Preferred Life shall have the right to change the premium at the end
of the third Contract Year of this Reinsurance Agreement and at any
time thereafter, provided this Reinsurance Agreement has not had the
premium changed within the preceding thirty six (36) months and
further provided that at least thirty-one (31) days written notice has
been given by Preferred Life to the Plan. The Plan must give Preferred
Life written notice of any change in coverage within thirty-one (31)
days. Upon notice of such change of coverage, Preferred Life may elect
to exclude the modification of coverage from Reinsurance Coverage or
charge additional premium therefore. Preferred Life shall not be
liable for any modification of coverage of the Reinsured Policy in the
event that the Plan fails to properly notify Preferred Life. Any
change in premium that is solely the result of a change in coverage
shall not be considered a change in premium requiring the thirty six
(36) month period of time before another change in premium can be
made.
<PAGE>
ARTICLE IV
Notice of Claims and Reimbursement
A. The Plan shall give Preferred Life timely written notice of any claim
or potential claim. The Planshall use its best efforts to give
Preferred Life notice of claim or potential claim within thirty-one
(31) days from the date on which the claim or potential claim is
incurred.
B. Preferred Life shall furnish the Plan with a supply of claim forms to
be used in filing a claim.
C. The Plan shall file completed proof of Loss by sending to Preferred
Life the information requested on the claim form, along with copies of
the various bills and itemized expenses involved.
D. In accordance with the terms and conditions of this Reinsurance
Agreement, Preferred Life shall make payment to the Plan within thirty
(30) days of Preferred Life's receipt of complete written proof of
such Loss, subject to E. below.
E. Preferred Life shall not be liable with regard to any Loss for which
it has not received written notice within the twelve (12) months after
the end of the Contract Year in which the Loss was incurred, except in
the case of insolvency, as defined in Article VII.
<PAGE>
ARTICLE V
Reports, Records and Audits
A. The Plan shall submit a monthly report to Preferred Life listing the
names and amounts for those Members who have received Eligible
Hospital Services during the Contract Year which exceed seventy-five
(75) percent of the per Member Deductible as set forth in Article II.
B. The Plan shall report to Preferred Life any changes of a material
nature in its Membership Service Agreements. Such report shall be sent
to Preferred Life at least thirty-one (31) days before the Effective
Date of the change so that Preferred Life may evaluate the need for
any changes in this Reinsurance Agreement.
C. The Plan shall report to Preferred Life any investigation or request
for information of a material nature by a State Insurance Department
regarding the conduct of the Plan. Such report must be provided in
writing by the Plan to Preferred Life within thirty-one (31) days
following the date the Plan receives notice, written or otherwise, of
such investigation or request from the State Insurance Department.
D. The Plan shall keep a record of the monthly enrollment of Members
covered by its Membership Service Agreements and the Eligible Hospital
Services received by each Member while covered under this Reinsurance
Agreement. Such record shall be kept during the time this Reinsurance
Agreement is in effect and for a one (1) year period after its
termination date.
E. The Plan's books and records, to the extent permitted by law, shall be
made available to Preferred Life for inspection and audit at any time
during normal business hours during the time this Reinsurance
Agreement is in effect and for a one (1) year period after its
termination date. Preferred Life shall give reasonable notice prior to
the date of such audit.
F. All information disclosed to Preferred Life by the Plan or to the Plan
by Preferred Life, either in the course of conducting negotiations or
as the result of complying with the terms and conditions of this
Reinsurance Agreement, shall be considered to be privileged and
confidential information by both the Plan and Preferred Life.
G. The submission of this Reinsurance Agreement to any Department of
Insurance or any State or Federal agency shall not be considered a
violation of F above.
<PAGE>
ARTICLE VI
Arbitration
A. In the event of any dispute or difference of opinion arising out of
this Agreement which cannot beamicably resolved by the Plan and
Preferred Life, the Plan and Preferred Life agree that such dispute or
difference of opinion shall be submitted to and settled by
arbitration.
B. Except as otherwise provided herein, the arbitration shall be
conducted in accordance with the Commercial Arbitration Rules of the
American Arbitration Association (the "AAA" and the "AAA's Rules")
which shall be in effect on the date of delivery of demand for
arbitration. In the event that the AAA's Rules conflict with any
provisions of this Article, this Article shall govern.
C. The party that determines that a dispute should be resolved by
arbitration (the "Initiating Party") shall give written notice to the
other party (the "Responding Party") of its desire to compel
arbitration, which notice shall contain a statement setting forth the
nature of the dispute, the amount involved, if any, and the remedy
sought.
D. The arbitration tribunal shall consist of three arbitrators who must
be disinterested parties, unaffiliated with the Plan or Preferred
Life. The Plan shall appoint one arbitrator, and Preferred Life shall
appoint one arbitrator. The third arbitrator shall be appointed by the
previous two (2) arbitrators. If the two previous arbitrators cannot
agree on a third arbitrator, then the third arbitrator shall be
appointed by AAA.
E. If either party refuses or neglects to appoint an arbitrator within
sixty (60) days after receipt of written notice from the other party
requesting it to do so, the requesting party shall instruct AAA to
appoint a neutral second arbitrator. The two appointed arbitrators can
then appoint the third.
F. For the purposes of arbitration, this Reinsurance Agreement shall be
considered an honorable engagement rather than a mere legal
obligation, and the arbitrators are not bound by judicial formalities
or strict rule of law in interpreting this Reinsurance Agreement.
G. The decision of a majority of the arbitrators shall be final and
binding on both the Plan and Preferred Life subject to the parties'
rights to appeal an arbitrator's decision under New York law.
H. The expense of arbitration shall be divided between the Plan and
Preferred Life based on a decision made by the arbitrators.
I. Any such arbitration shall take place in New York, unless some other
location is mutually agreed upon.
J. The laws of New York shall govern the arbitration process in the event
they conflict with A through I above.
<PAGE>
ARTICLE VII
Insolvency/Cessation of Operations
A. In the event that Preferred Life should become insolvent, this
Reinsurance Agreement shall automatically terminate on the date of
Preferred Life's insolvency.
B. In the event that the Plan shall become insolvent, this Reinsurance
Agreement shall automatically terminate on the date of the Plan's
insolvency.
C. For purposes of this Reinsurance Agreement, "insolvent" or
"insolvency" shall mean that both of the following conditions occur:
1. A final determination is made by a court of competent
jurisdiction that the Plan or Preferred Life is insolvent; and
2. All operations of the Plan or Preferred Life cease.
The date of insolvency shall be determined as the date which the court
declares the Plan or Preferred Life insolvent or the date on which the
Plan or Preferred Life has ceased operations, whichever date is later
in time.
Operations of the Plan will not be considered ceased so long as the
Plan is under control of a Receiver (which, as used herein, includes a
court or state appointed supervisor, receiver, or rehabilitator) until
the date the Receiver stops paying for future services, publicly
declares its intention to not make payment for future services, and
orders Plan providers to stop rendering services on behalf of the Plan
other than those services for the remaining term for which providers
have previously been paid.
D. This change to the style sheet made 4/21/95 - Rec'd letter from the
State with requested language. jvh. In the event of the Insolvency of
the Plan, benefits owed by Preferred Life shall be payable directly to
the Plan, or to its liquidator, receiver, conservator or statutory
successor without diminution because of the Insolvency of the Plan or
because the liquidator, receiver, conservator or statutory successor
has failed to pay all or a portion of any claim. It is agreed,
however, that the liquidator, receiver, conservator or statutory
successor of the Plan shall give Preferred Life written notice of the
pendency of each claim or Loss which may involve the Reinsurance
afforded by this Agreement within a reasonable time after such claim
or Loss is filed in the conservation or liquidation preceding or in
the receivership. Preferred Life shall have the right to investigate
each such claim or Loss and interpose, at its own expense, in the
preceding where the claim or Loss is to be adjudicated, any defense or
defenses that it may deem available to the Plan or its liquidator,
receiver, conservator or statutory successor. The expense thus
incurred by Preferred Life shall be chargeable, subject to court
approval, against the Plan or its successor as part of the expense of
conservation or liquidation to the extent of a pro rata share of the
benefit which may accrue to the Plan solely as a result of the defense
undertaken by Preferred Life. In the event of that this Agreement
terminates due to the Insolvency of the Plan and premiums are due to
Preferred Life, then in this event, Preferred Life may offset premiums
due against claims owed to the Plan or to its liquidator, receiver,
conservator or statutory successor.
E. Notice of the Plan's or Preferred Life's date of insolvency or date of
cessation of operations shall be communicated to the other party at
the earliest possible point in time.
<PAGE>
ARTICLE VIII
Limitations of Reinsurance Coverage
A. Preferred Life's reimbursement of claims to the Plan shall not exceed,
in any event, the limits of coverage stated in Article II.
B. The Plan is solely responsible for providing all services to its
Members, for compensation of all liability to its Members, and for
payment of all expenses to its Members.
C. Preferred Life shall have no responsibility or obligation to provide
any services or payment to any Member of the Plan, directly or
indirectly.
D. To the extent the Plan receives or will receive any payment or
receives a reduction in its liability by reason of a Coordination of
Benefits provision in the Plan's Member Services Agreement or by any
right of subrogation, Preferred Life shall only indemnify the Plan in
respect of any excess beyond the amount of COB or subrogation amounts
received or applied currently or in the future as reductions in its
liability.
E. Preferred Life shall not reimburse the Plan for amounts incurred for
skilled nursing or rehabilitive services (including, but not limited
to treatments for motor function or mobility, physical therapy or
psychotherapies), unless such services are provided concurrent with
and incidental to Acute Care Services.
F. Preferred Life shall not be liable to the Plan, and the Plan shall
hold harmless and indemnify Preferred Life, for any of the following:
1. Professional liability or liability for any act or omission,
tortious or otherwise, in connection with any services rendered
to any person or group of persons by the Plan or any group,
entity, or person employed by or affiliated in any manner with
the Plan;
2. Expenses or losses for which the Plan has released any persons or
entity from its legal liability;
3. Liabilities which are non-pecuniary in nature (not having a
monetary value);
4. Liabilities, expenses, or losses which are based upon any
noncompliance or violation of any Federal or State statute, rule,
or regulation by the Plan;
5. Additional expenses or losses resulting from those services which
are billed in excess of the usual and customary charges for the
locality where same were administered;
6. Losses which are paid or payable to Plan Members who are enrolled
in Part A and/or Part B of Title XVIII of the Social Security Act
of 1965 and any Amendments to it;
7. Any expenses to the extent the Plan receives a reduction in
charges because of a Coordination of Benefits provision in the
Plan's Membership Service Agreements or any right of subrogation;
<PAGE>
ARTICLE VIII
(Continued)
8. Any liability due to war or act of war;
9. Any liability for replacement of equipment, furniture, or
supplies which are not Eligible Hospital Services.
<PAGE>
ARTICLE IX
Effective Date, Duration and Termination
A. This Reinsurance Agreement shall become effective on the date set
forth in Article II.
B. This Reinsurance Agreement shall continue in effect from the Effective
Date until it is terminated.
C. This Reinsurance Agreement shall automatically terminate for
non-payment of premium by the Plan as set forth in Article III.
D. This Reinsurance Agreement shall automatically terminate on the date
of Preferred Life's insolvency or cessation of operations or on the
date of the Plan's insolvency or cessation of operations.
E. This Reinsurance Agreement can be terminated in accordance with
paragraph A. of Article X.
F. Termination of this Reinsurance Agreement shall not terminate the
rights or liabilities of either the Plan or Preferred Life arising
during any period when this Reinsurance Agreement was in force,
provided that nothing herein shall be construed to extend Preferred
Life's liability for reimbursements under this Reinsurance Agreement
for any Loss paid by the Plan which was incurred on or after the date
of termination of this Reinsurance Agreement.
G. The Plan and Preferred Life shall each have the right to terminate
this Reinsurance Agreement by giving the other party, and the State of
New York Health and Insurance Departments, written notice of such
intention to terminate at least thirty-one (31) days prior to the end
of any Contract Year.
<PAGE>
ARTICLE X
General Provisions
A. It is understood and agreed that if at any time while this Reinsurance
Agreement is in effect the Plan should:
1. Acquire the assets and liabilities of any other company,
corporation, or foundation; or
2. Be acquired, come under control of or be merged with any other
company, corporation, or foundation;
Preferred Life shall, at its option, have the right to charge an
additional premium to the Plan, or terminate this Reinsurance
Agreement by giving written notice by certified mail which shall set
forth the date and time of such termination, but not sooner than
thirty-one (31) days after the date of receipt of such notice.
B. The Plan shall give Preferred Life written notice in the event that
any of A. above should occur as soon as Plan is aware that such event
will occur.
C. This Reinsurance Agreement may be altered or amended at any time by
mutual consent of the Plan and Preferred Life either by written
Amendment or by correspondence signed by officers of the Plan and
Preferred Life. Any such Amendments or correspondence shall be binding
upon the Plan and Preferred Life and deemed to be an integral part of
this Reinsurance Agreement. Amendments are subject to approval by the
State of New York Health and Insurance Departments prior to
effectuation.
D. This Reinsurance Agreement shall not be assignable without the express
written consent of the other party.
E. Nothing in this Reinsurance Agreement shall create any right or legal
contractual relationship between Preferred Life and any Member under a
Member Services Agreement identified in Article I of this Reinsurance
Agreement.
F. The Plan is solely responsible for all services to Members, for all
liabilities to Members, and for payment of all claims of Members.
Preferred Life shall not have any responsibility or obligation to
provide any service or payment to any Member, directly or indirectly.
The Reinsurance Coverage provided herein is payable solely to the
Plan.
G. If any payment is made by Preferred Life under this Reinsurance
Agreement, Preferred Life shall be subrogated to all the Plan's rights
to recover such payment against any Member, person or organization,
and the Plan shall execute and deliver instruments and do whatever is
necessary to preserve and secure such rights. Any recovery made by the
Plan, net of attorney's fees charged to the Plan, shall be paid to
Preferred Life to the extent of payment made under this Reinsurance
Agreement.
<PAGE>
ARTICLE X
(Continued)
H. This Reinsurance Agreement, including Endorsements and attached
papers, if any, constitutes the entire contract of reinsurance. No
change in this Reinsurance Agreement shall be valid until approved by
an executive officer of Preferred Life and unless such approval be
endorsed hereon or attached hereto. No agent has authority to change
this Reinsurance Agreement or to waive any of its provisions.
I. Plan agrees to give Preferred Life written notice of any change in
Chief Operating Management, any fundamental change in the Management
Service Contract, or any change in majority ownership of the Plan.`
J. IN WITNESS WHEREOF, the Plan and Preferred Life have, by their
respective officers, executed and delivered this Reinsurance Agreement
in duplicate effective from the date set out in Article II hereof.
WELLCARE OF NEW YORK - MEDICAID
Dated: By: /s/ Joseph R. Papa
------------------------ ----------------------------
Attest: /s/ Edward J. Halas Title:
---------------------- -------------------------
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Dated: 14 Sept 1998 By: /s/ Edward J. Bonach
----------------------- -----------------------------
Attest: Director Title: Director
--------------------- --------------------------
<PAGE>
ENDORSEMENT NO. 1
Endorsement between Preferred Life Insurance Company of New York (hereinafter
referred to as "Preferred Life") and Wellcare of New York - Medicaid
(hereinafter referred to as "Plan") Policy No. 17055-041.
The following provision is hereby made a part of the Reinsurance Agreement
between Preferred Life and Plan, in order to protect Members when they no longer
can receive benefits from the Plan or its Receiver because of insolvency of the
Plan. This Endorsement does not provide any benefit for creditors, owners, or
the Receiver of the Plan, although payment of Plan benefits under Sections 1.
and 2. below may be to the Receiver for transfer to appropriate provider payees.
As used herein, the term "Receiver" includes a court or state appointed
supervisor, receiver, or rehabilitator.
Continuation of Benefits Provision:
The reinsurance liability of Preferred Life under the Reinsurance Agreement
shall terminate according to its terms. However, upon the date the Plan is
insolvent as defined in Article VII of the Reinsurance Agreement, Preferred Life
will provide limited continuation of benefits for Members as described below.
There is no liability of Preferred Life under this Endorsement prior to the date
all conditions of insolvency in Article VII have been met, including the
condition that operations cease.
1. Preferred Life will continue Plan benefits for Members who are
confined in an Acute Care hospital on the date Preferred Life becomes
liable for continuation of benefits, beginning on such date and
continuing until their discharge;
2. Preferred Life will continue Plan benefits for Members who are
confined in other inpatient facilities on the date Preferred Life
becomes liable for continuation of benefits, beginning on such date,
not exceeding the benefits which would be provided under the Plan's
Member Services Agreement, or one hundred twenty (120) days, whichever
is less. Other inpatient facilities means skilled nursing facilities
and rehabilitation facilities if such care is rendered concurrent with
and incidental to Acute Care Services;
3. Coverage is contingent on payment of premium. Preferred Life will
continue Plan benefits for any Member beginning on the date Preferred
Life becomes liable for continuation of benefits until the end of the
contract period for which premium has been paid to the Plan by that
Member, not including any Plan benefits which are the contractual
obligation of a hospital or health care provider to the Member for
such period; 4This provision has never been in the style sheet, but
was added 4/21/95 per the request of the New York DOI. jvh.
4. Preferred Life conversion coverage will be made available to all
Members for a period of thirty-one (31) days, without evidence of
insurability. The conversion coverage will be that which is
customarily issued by Preferred Life at the then current rates and of
the type available for conversion.
5. Any Title XVIII Medicare enrollees who are under an "at risk" contract
with the Health Care Financing Administration shall not be covered
under this Endorsement once the enrollee is eligible for coverage
under other Title XVIII provisions or any other federal program,
except as noted below:
a. Preferred Life will continue Plan benefits for any Title XVIII
Medicare enrollees beginning on the date Preferred Life becomes
liable for continuation of benefits until the end of the Contract
Period for which premium has been paid to the Plan by the Health
Care Financing Administration, not including any Plan benefits
which are the contractual obligation of a hospital or health care
provider to the Member for such period.
<PAGE>
ENDORSEMENT NO. 1
(Continued)
Except as herein stated, all terms and conditions of the Reinsurance Agreement
remain unchanged.
The Effective Date of this Endorsement is August 1, 1996 through October 31,
2000 for Medicaid Members for Metro and October 1, 1996 through October 31, 2000
for Medicaid Members for Non-Metro.
WELLCARE OF NEW YORK - MEDICAID
Dated: By: /s/ Joseph R. Papa
------------------------ ----------------------------
Title:
-------------------------
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Dated: 14 Sept 1998 By: /s/ Edward J. Bonach
----------------------- -----------------------------
Attest: Director Title: Director
--------------------- --------------------------
<PAGE>
ENDORSEMENT NO. 2
Endorsement between Preferred Life Insurance Company of New York (hereinafter
referred to as "Preferred Life") and Wellcare of New York - Medicaid
(hereinafter referred to as "Plan") Policy No. 17055-041.
The following provision is hereby made a part of the Reinsurance Agreement
between Preferred Life and Plan.
Out of Area Conversion Provision
In the event that a Plan Member moves outside the Service Area of the
Plan, such Member, without evidence of insurability, shall have the
right of conversion for a period of thirty-one (31) days. The
Conversion Coverage will be that which is customarily issued by
Preferred Life at the then current rates and of the type available for
conversion.
Except as herein stated, all terms and conditions of the Reinsurance Agreement
remain unchanged.
The Effective Date of this Endorsement is August 1, 1996 through October 31,
2000 for Medicaid Members for Metro and October 1, 1996 through October 31, 2000
for Medicaid Members for Non-Metro.
WELLCARE OF NEW YORK - MEDICAID
Dated: By: /s/ Joseph R. Papa
------------------------ ----------------------------
Title:
-------------------------
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Dated: 14 Sept 1998 By: /s/ Edward J. Bonach
----------------------- -----------------------------
Title: Director
--------------------------
[GRAPHIC OMITTED]
152 West 57th Street, 18th Floor
New York, New York 10019
REINSURANCE AGREEMENT
between
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK New York, New York
(hereinafter referred to as "Preferred Life")
and
WELLCARE OF CONNECTICUT, INC.
North Haven, Connecticut
(hereinafter referred to as "Plan")
November 1, 1996 RENEWAL
REINSURANCE POLICY NUMBER 17055-042
Tax I.D. #___________________
<PAGE>
TABLE OF CONTENTS
TITLE ARTICLE
Reinsurance Coverage
Definitions I
Schedule of Reinsurance II
Premium Payment III
Notice of Claims and Reimbursement IV
Reports, Records and Audits V
Arbitration VI
Insolvency/Cessation of Operations VII
Limitations of Reinsurance Coverage VIII
Effective Date, Duration and Termination IX
General Provisions X
Document Execution
Endorsements:
Continuation of Benefits 1
Out of Area Conversion Provision 2
<PAGE>
Reinsurance Coverage
It is hereby agreed that in consideration of the promises, terms, and conditions
contained in this Reinsurance Agreement, Plan shall cede to, and Preferred Life
shall reinsure, the portion specified herein of the Membership Service
Agreements issued by the Plan.
ARTICLE I
Definitions
A. "Member Services Agreement" shall mean those contractual agreements to
provide services to Members of the Plan which are approved by the
State of Connecticut and are for those Members for whom Plan has
requested reinsurance coverage from Preferred Life. Applicable
Membership Service Agreements shall be appended to this Reinsurance
Agreement as Exhibit A.
B. "Service Area" shall mean the Service Area defined in the Member
Services Agreement.
C. "Member" shall mean any person or family dependent enrolled and
eligible to receive services under a Member Services Agreement.
D. "Reasonable and Customary" shall mean expenses generally incurred for
cases of comparable nature and severity in the geographical area
involved.
E. "Contract Year" shall mean the twelve (12) month period which begins
on the Effective Date of this Reinsurance Agreement, or any
anniversary of the Effective Date.
F. "Acute Care Services" shall mean those services which are necessary to
the care and treatment of an unstable medical condition caused by the
onset of a severe illness or injury which places the patient's health
in severe jeopardy and requires immediate medical attention. Acute
Care Services do not include health care or other services which are
for custodial care, or services which assist in or are intended to
improve the usual activities of daily living.
G. "Approved Fixed Procedural Fee Hospital" shall mean a hospital with
fixed per diems or fixed case rates which have been reviewed and
approved by Preferred Life prior to any service being rendered. This
does not include any discounted fee-for-service arrangements, nor does
it include per diems or case rates which revert to a discount off
actual charges for fee-for-service once an outlier or stoploss
threshold has been reached.
H. "Prior Approved Transplant Reimbursement Schedule" shall mean a
reimbursement schedule for a specific transplant procedure that is
approved, in writing, by Preferred Life prior to the transplant
admission. Instructions for obtaining prior approval are available
from Preferred Life upon request.
I. "Deductible" shall mean the Deductible amount shown in the Schedule of
Reinsurance. The Deductible will be applied to any Loss as follows:
1. If the Loss consists of Eligible Hospital Services incurred
during a period of continuous, uninterrupted confinement at one
or more facilities, charges from each facility will be applied to
the Deductible in an amount equal to the proportion of that
facility's Services to total Eligible Hospital Services.
<PAGE>
ARTICLE I
(Continued)
2. If the Loss consists of Eligible Hospital Services incurred
during two or more periods of noncontinuous confinement, Services
will be applied to the Deductible based on the date incurred
beginning with charges incurred earliest in the Contract Year and
continuing in incurred date order until the Deductible is
satisfied.
J. "Eligible Hospital Services" shall mean those Acute Care Services for
Members who require Acute Care while registered bed patients, which
are generally and customarily provided by the Plan's participating
hospitals or other specialized institutions within the Service Area of
the Plan and which are prescribed, directed, or authorized by or on
behalf of the Plan. Eligible Hospital Services shall mean the lesser
of:
1. The amount of the Plan's negotiated hospital rate; or
2. The amount of the Reasonable and Customary charges; but in any
event, Eligible Hospital Services shall be limited to an average
of $2,000 per day of each period of continuous hospital
confinement. Operating room charges are excluded from the
calculation of the average daily limit. Eligible Hospital
Services shall also include Referral Services, and the hospital
portion of Emergency Out of Area Services, but shall not include
physician or surgeon charges, other professional fees, or charges
for take-home items or durable medical devices.
K. "Referral Services" shall mean those Acute Care Services provided to a
Member by a non-participating hospital which, due to the specialized
nature of the service or facility required, cannot be provided by the
Plan's participating hospitals. Referral Services shall be considered
Eligible Hospital Services if such services are specifically
authorized by the Plan. Referral Services shall mean the lesser of:
1. The amount of the negotiated charges; or
2. The amount of the Reasonable and Customary charges; but in any
event Referral Services, to the extent they are Eligible Hospital
Services, shall be limited to an average of $2,000 per day of
each period of continuous hospital confinement. Operating room
charges are excluded from the calculation of the average daily
limit. Referral Services shall not include physician or surgeon
charges, other professional fees, or charges for take-home items
or durable medical devices.
L. "Emergency Out of Area Services" shall mean those services provided to
a Member by a hospital, physician, or surgeon and which due to an
emergency are provided outside the Service Area covered by the
Membership Service Agreement. An emergency exists when there is a
sudden onset of illness or accidental injury requiring such immediate
treatment that the life or health of the Member might be jeopardized
if taken to a hospital, physician, or surgeon within the service area
covered by the Membership Service Agreement; or when the Member is
incapable of making the decision on treatment. Emergency Out of Area
Services shall be limited to the lesser of:
1. The amount of the negotiated charges; or
2. The amount of the Reasonable and Customary charges;
<PAGE>
ARTICLE I
(Continued)
but in any event Emergency Out of Area Services, to the extent they
are Eligible Hospital Services, shall be limited to an average of
$2,000 per day of each period of continuous hospital confinement, not
including operating room charges.
M. "Loss" shall mean only such eligible amounts as are incurred during
the Contract Year, or under the previous year's "carry forward"
provision, as defined in Article II, D., for treatment and services
rendered to a Member while this Reinsurance Agreement is in effect and
provided such treatment and services are covered by the Member
Services Agreement. The word "Loss" shall not include: Compensation
paid to salaried officers or employees of the Plan or any other
overhead expenses;
2. Any amount paid by the Plan for punitive or exemplary damages, or
compensatory damages awarded to any Member arising out of the
conduct of the Plan in the investigation, trial, or settlement of
any claims or failure to pay or delay in payment of benefits
under its Member Services Agreement;
3. Any Statutory penalty imposed upon the Plan on account of any
unfair trade practice or any unfair claims practice.
<PAGE>
ARTICLE II
Schedule of Reinsurance
A. The Effective Date for this Reinsurance Agreement shall be November 1,
1996.
B. The monthly premium for the Reinsurance Coverage defined in paragraph
C. below shall be $.70 per Member. This amount shall be guaranteed for
a period of 3 years following the effective date of this Reinsurance
Agreement, provided, however, that Preferred Life shall have the
authority to review and revise rates at the beginning of each contract
year.
C. The Reinsurance Coverage to be provided under this Reinsurance
Agreement shall be defined as follows:
1. For Eligible Hospital Services, the Deductible amount for such
Reinsurance Coverage shall be $85,000 of the Loss for each Member
for each Contract Year. Once the Deductible has been satisfied,
Preferred Life shall indemnify the Plan for:
a. The excess Loss for Eligible Hospital Services in that
Contract Year for any Member who is under one year of age at
the start of the Contract Year shall be reimbursed as
follows:
1) 90% if services are performed in a "per diem", DRG, or
approved fixed procedural fee hospital.
2) 70% if services are performed in any other hospital.
b. The excess Loss for Eligible Hospital Services in that
Contract Year for any Member who is one year of age or over
at the start of the Contract Year shall be reimbursed as
follows:
1) 90% if services are performed in a "per diem", DRG, or
approved fixed procedural fee hospital.
2) 80% if services are performed in any other hospital
c. The excess Loss for Eligible Hospital Services in that
Contract Year for expenses related to organ and bone marrow
transplant therapy shall be reimbursed as follows:
1) 80% if services are performed in a hospital with a
Prior Approved Transplant Reimbursement Schedule for
that confinement.
2) 50% if services are performed in any other hospital.
3) 50% for organ and bone marrow Retransplantation
Services performed in any hospital. Retransplantation
Services shall mean retransplantation of the same
organ/bone tissue type performed within one year of the
date of the initial transplant procedure.
The acquisition cost of the "live" organ is not included as a benefit in this
Reinsurance Agreement for any organ transplant procedure.
<PAGE>
ARTICLE II
(Continued)
d. In the event an excess Loss could be indemnified under more than
one of the above subsections, the subsection providing the least
indemnity shall apply.
e. Except for the hospitals listed below, expenses incurred at
hospitals having "per diem" arrangements with the Plan shall be
reimbursed on the basis of the contracted hospital's actual
charges to the Member or Plan, but in an amount which does not
exceed the "per diem" rate. For the hospitals listed below,
eligible charges shall be limited to the amounts stated.
PER DIEM HOSPITALS SERVICES PER DIEM
LIMITS
(PER DAY)
St. Vincent's Hospital Acute Care $1,488.00
Phychiatric $600.00
St. Joseph's Hospital Acute Care $1,488.00
Psychiatric $600.00
Stamford Hospital Acute Care $1,488.00
Psychiatric $600.00
Charlotte Hungerford Hospital Medical/Surgical $1,275.00
ICU/CCU $1,675.00
Maternity - Normal & C/S 1sf day $1,760.00
Maternity - Normal & C/S each additional
day $640.00
Newborn - Well $495.00
Newborn - Sick $575.00
Psychiatric $670.00
St. Raphael Hospital Acute Care $1,488.00
Psychiatric $600.00
Yale-New Haven Health
Services Corporation Medical/Surgical $2,200.00
NeoNatology $1,950.00
Maternity (Normal) (Total Cost) $3,200.00
Cesarean Section (Total Cost) $4,900.00
<PAGE>
ARTICLE II
(Continued)
Psychiatric $675.00
Greenwich Hospital Acute Care $1,488.00
Psychiatric $600.00
Sharon Hospital Acute Care $1,488.00
Psychiatric $600.00
St. Francis Physicians
Health Organization Acute Care $1,488.00
Psychiatric $600.00
Bradley Hospital Acute Care $1,488.00
Psychiatric $6
St. Mary's Hospital Acute Care $1,488.00
Psychiatric $600.00
Johnson Memorial Hospital Acute Care $1,488.00
Psychiatric $600.00
Windham Hospital Acute Care $1,488.00
Psychiatric $600.00
f. Notwithstanding the above, the lifetime maximum reinsurance
indemnity payable under this Reinsurance Agreement for Eligible
Hospital Services for each Member shall be $2,000,000.
D. Loss incurred by the Plan during the last thirty-one (31) days of a
Contract Year for which no benefits were payable under this
Reinsurance Agreement because such Loss was applied to the Deductible
for that Contract Year shall be applied toward the Deductible for the
succeeding Contract Year.
E. The preceding Schedule of Reinsurance is subject to the Limitations as
defined in Article VIII.
<PAGE>
ARTICLE III
Premium Payment
A. The amount of premiums to be paid by the Plan to Preferred Life for
Reinsurance Coverage under this Reinsurance Agreement is set forth in
Article II herein.
B. Premiums shall be payable monthly and shall be based on the number of
Members enrolled and eligible to receive Eligible Hospital Services
during the month.
C. Premiums shall be due on the first day of the month for which
Reinsurance Coverage is provided and are payable to Preferred Life at
its office in New York, New York.
D. A grace period not to exceed one month shall be granted to the Plan
for the payment of every premium due.
E. If any premium is not paid before the expiration of the grace period,
this Reinsurance Agreement may terminate as of the expiration of the
period for which premium has been paid. Preferred Life shall give
written notification of such termination.
F. The premium payment by the Plan to Preferred Life shall be accompanied
by a statement signed by an authorized Plan official in which the
number of enrolled and eligible Members for that month is given.
G. Preferred Life shall have the right to change the premium at the end
of the third Contract Year of this Reinsurance Agreement and at any
time thereafter, provided this Reinsurance Agreement has not had the
premium changed within the preceding thirty six (36) months and
further provided that at least thirty-one (31) days written notice has
been given by Preferred Life to the Plan. The Plan must give Preferred
Life written notice of any change in coverage within thirty-one (31)
days. Upon notice of such change of coverage, Preferred Life may elect
to exclude the modification of coverage from Reinsurance Coverage or
charge additional premium therefore. Preferred Life shall not be
liable for any modification of coverage of the Reinsured Policy in the
event that the Plan fails to properly notify Preferred Life. Any
change in premium that is solely the result of a change in coverage
shall not be considered a change in premium requiring the thirty six
(36) month period of time before another change in premium can be
made.
<PAGE>
ARTICLE IV
Notice of Claims and Reimbursement
A. The Plan shall give Preferred Life timely written notice of any claim
or potential claim. The Plan shall use its best efforts to give
Preferred Life notice of claim or potential claim within thirty-one
(31) days from the date on which the claim or potential claim is
incurred.
B. Preferred Life shall furnish the Plan with a supply of claim forms to
be used in filing a claim.
C. The Plan shall file completed proof of Loss by sending to Preferred
Life the information requested on the claim form, along with copies of
the various bills and itemized expenses involved.
D. In accordance with the terms and conditions of this Reinsurance
Agreement, Preferred Life shall make payment to the Plan within thirty
(30) days of Preferred Life's receipt of complete written proof of
such Loss, subject to E. below.
E. Preferred Life shall not be liable with regard to any Loss for which
it has not received written notice within the twelve (12) months after
the end of the Contract Year in which the Loss was incurred, except in
the case of insolvency, as defined in Article VII.
<PAGE>
ARTICLE V
Reports, Records and Audits
A. The Plan shall submit a monthly report to Preferred Life listing the
names and amounts for those Members who have received Eligible
Hospital Services during the Contract Year which exceed seventy-five
(75) percent of the per Member Deductible as set forth in Article II.
B. The Plan shall report to Preferred Life any changes of a material
nature in its Membership Service Agreements. Such report shall be sent
to Preferred Life at least thirty-one (31) days before the Effective
Date of the change so that Preferred Life may evaluate the need for
any changes in this Reinsurance Agreement.
C. The Plan shall report to Preferred Life any investigation or request
for information of a material nature by a State Insurance Department
regarding the conduct of the Plan. Such report must be provided in
writing by the Plan to Preferred Life within thirty-one (31) days
following the date the Plan receives notice, written or otherwise, of
such investigation or request from the State Insurance Department.
D. The Plan shall keep a record of the monthly enrollment of Members
covered by its Membership Service Agreements and the Eligible Hospital
Services received by each Member while covered under this Reinsurance
Agreement. Such record shall be kept during the time this Reinsurance
Agreement is in effect and for a one (1) year period after its
termination date.
E. The Plan's books and records, to the extent permitted by law, shall be
made available to Preferred Life for inspection and audit at any time
during normal business hours during the time this Reinsurance
Agreement is in effect and for a one (1) year period after its
termination date. Preferred Life shall give reasonable notice prior to
the date of such audit.
F. All information disclosed to Preferred Life by the Plan or to the Plan
by Preferred Life, either in thecourse of conducting negotiations or
as the result of complying with the terms and conditions of this
Reinsurance Agreement, shall be considered to be privileged and
confidential information by both the Plan and Preferred Life.
G. The submission of this Reinsurance Agreement to any Department of
Insurance or any State or Federal agency shall not be considered a
violation of F above.
<PAGE>
ARTICLE VI
Arbitration
A. In the event of any dispute or difference of opinion arising out of
this Agreement which cannot be amicably resolved by the Plan and
Preferred Life, the Plan and Preferred Life agree that such dispute or
difference of opinion shall be submitted to and settled by
arbitration.
B. Except as otherwise provided herein, the arbitration shall be
conducted in accordance with the Commercial Arbitration Rules of the
American Arbitration Association (the "AAA" and the "AAA's Rules")
which shall be in effect on the date of delivery of demand for
arbitration. In the event that the AAA's Rules conflict with any
provisions of this Article, this Article shall govern.
C. The party that determines that a dispute should be resolved by
arbitration (the "Initiating Party") shall give written notice to the
other party (the "Responding Party") of its desire to compel
arbitration, which notice shall contain a statement setting forth the
nature of the dispute, the amount involved, if any, and the remedy
sought.
D. The arbitration tribunal shall consist of three arbitrators who must
be disinterested parties, unaffiliated with the Plan or Preferred
Life. The Plan shall appoint one arbitrator, and Preferred Life shall
appoint one arbitrator. The third arbitrator shall be appointed by the
previous two (2) arbitrators. If the two previous arbitrators cannot
agree on a third arbitrator, then the third arbitrator shall be
appointed by AAA.
E. If either party refuses or neglects to appoint an arbitrator within
sixty (60) days after receipt of written notice from the other party
requesting it to do so, the requesting party shall instruct AAA to
appoint a neutral second arbitrator. The two appointed arbitrators can
then appoint the third.
F. For the purposes of arbitration, this Reinsurance Agreement shall be
considered an honorable engagement rather than a mere legal
obligation, and the arbitrators are not bound by judicial formalities
or strict rule of law in interpreting this Reinsurance Agreement.
G. The decision of a majority of the arbitrators shall be final and
binding on both the Plan and Preferred Life subject to the parties'
rights to appeal an arbitrator's decision under New York law.
H. The expense of arbitration shall be divided between the Plan and
Preferred Life based on a decision made by the arbitrators.
I. Any such arbitration shall take place in Connecticut, unless some
other location is mutually agreed upon.
J. The laws of Connecticut shall govern the arbitration process in the
event they conflict with A through I above.
<PAGE>
ARTICLE VII
Insolvency/Cessation of Operations
A. In the event that Preferred Life should become insolvent, this
Reinsurance Agreement shall automatically terminate on the date of
Preferred Life's insolvency.
B. In the event that the Plan shall become insolvent, this Reinsurance
Agreement shall automatically terminate on the date of the Plan's
insolvency.
C. For purposes of this Reinsurance Agreement, "insolvent" or
"insolvency" shall mean that both of the following conditions occur:
1. A final determination is made by a court of competent
jurisdiction that the Plan or Preferred Life is insolvent; and
2. All operations of the Plan or Preferred Life cease.
The date of insolvency shall be determined as the date which the court
declares the Plan or Preferred Life insolvent or the date on which the
Plan or Preferred Life has ceased operations, whichever date is later
in time.
Operations of the Plan will not be considered ceased so long as the
Plan is under control of a Receiver (which, as used herein, includes a
court or state appointed supervisor, receiver, or rehabilitator) until
the date the Receiver stops paying for future services, publicly
declares its intention to not make payment for future services, and
orders Plan providers to stop rendering services on behalf of the Plan
other than those services for the remaining term for which providers
have previously been paid.
D. This change to the style sheet made 4/21/95 - Rec'd letter from the
State with requested language. jvh. In the event of the Insolvency of
the Plan, benefits owed by Preferred Life shall be payable directly to
the Plan, or to its liquidator, receiver, conservator or statutory
successor without diminution because of the Insolvency of the Plan or
because the liquidator, receiver, conservator or statutory successor
has failed to pay all or a portion of any claim. It is agreed,
however, that the liquidator, receiver, conservator or statutory
successor of the Plan shall give Preferred Life written notice of the
pendency of each claim or Loss which may involve the Reinsurance
afforded by this Agreement within a reasonable time after such claim
or Loss is filed in the conservation or liquidation preceding or in
the receivership. Preferred Life shall have the right to investigate
each such claim or Loss and interpose, at its own expense, in the
preceding where the claim or Loss is to be adjudicated, any defense or
defenses that it may deem available to the Plan or its liquidator,
receiver, conservator or statutory successor. The expense thus
incurred by Preferred Life shall be chargeable, subject to court
approval, against the Plan or its successor as part of the expense of
conservation or liquidation to the extent of a pro rata share of the
benefit which may accrue to the Plan solely as a result of the defense
undertaken by Preferred Life. In the event of that this Agreement
terminates due to the Insolvency of the Plan and premiums are due to
Preferred Life, then in this event, Preferred Life may offset premiums
due against claims owed to the Plan or to its liquidator, receiver,
conservator or statutory successor.
E. Notice of the Plan's or Preferred Life's date of insolvency or date of
cessation of operations shall be communicated to the other party at
the earliest possible point in time.
<PAGE>
ARTICLE VIII
Limitations of Reinsurance Coverage
A. Preferred Life's reimbursement of claims to the Plan shall not exceed,
in any event, the limits of coverage stated in Article II.
B. The Plan is solely responsible for providing all services to its
Members, for compensation of all liability to its Members, and for
payment of all expenses to its Members.
C. Preferred Life shall have no responsibility or obligation to provide
any services or payment to any Member of the Plan, directly or
indirectly.
D. To the extent the Plan receives or will receive any payment or
receives a reduction in its liability by reason of a Coordination of
Benefits provision in the Plan's Member Services Agreement or by any
right of subrogation, Preferred Life shall only indemnify the Plan in
respect of any excess beyond the amount of COB or subrogation amounts
received or applied currently or in the future as reductions in its
liability.
E. Preferred Life shall not reimburse the Plan for amounts incurred for
skilled nursing or rehabilitive services (including, but not limited
to treatments for motor function or mobility, physical therapy or
psychotherapies), unless such services are provided concurrent with
and incidental to Acute Care Services.
F. Preferred Life shall not be liable to the Plan, and the Plan shall
hold harmless and indemnify Preferred Life, for any of the following:
1. Professional liability or liability for any act or omission,
tortious or otherwise, in connection with any services rendered
to any person or group of persons by the Plan or any group,
entity, or person employed by or affiliated in any manner with
the Plan;
2. Expenses or losses for which the Plan has released any persons or
entity from its legal liability;
3. Liabilities which are non-pecuniary in nature (not having a
monetary value);
4. Liabilities, expenses, or losses which are based upon any
noncompliance or violation of any Federal or State statute, rule,
or regulation by the Plan;
5. Additional expenses or losses resulting from those services which
are billed in excess of the usual and customary charges for the
locality where same were administered;
6. Losses which are paid or payable to Plan Members who are enrolled
in Part A and/or Part B of Title XVIII of the Social Security Act
of 1965 and any Amendments to it;
7. Any expenses to the extent the Plan receives a reduction in
charges because of a Coordination of Benefits provision in the
Plan's Membership Service Agreements or any right of subrogation;
<PAGE>
ARTICLE VIII
(Continued)
8. Any liability due to war or act of war;
9. Any liability for replacement of equipment, furniture, or
supplies which are not Eligible Hospital Services.
<PAGE>
ARTICLE IX
Effective Date, Duration and Termination
A. This Reinsurance Agreement shall become effective on the date set
forth in Article II.
B. This Reinsurance Agreement shall continue in effect from the Effective
Date until it is terminated.
C. This Reinsurance Agreement shall automatically terminate for
non-payment of premium by the Plan as set forth in Article III.
D. This Reinsurance Agreement shall automatically terminate on the date
of Preferred Life's insolvency or cessation of operations or on the
date of the Plan's insolvency or cessation of operations.
E. This Reinsurance Agreement can be terminated in accordance with
paragraph A. of Article X.
F. Termination of this Reinsurance Agreement shall not terminate the
rights or liabilities of either the Plan or Preferred Life arising
during any period when this Reinsurance Agreement was in force,
provided that nothing herein shall be construed to extend Preferred
Life's liability for reimbursements under this Reinsurance Agreement
for any Loss paid by the Plan which was incurred on or after the date
of termination of this Reinsurance Agreement.
G. The Plan and Preferred Life shall each have the right to terminate
this Reinsurance Agreement by giving the other party, and the State of
Connecticut Health and Insurance Departments, written notice of such
intention to terminate at least thirty-one (31) days prior to the end
of any Contract Year.
<PAGE>
ARTICLE X
General Provisions
A. It is understood and agreed that if at any time while this Reinsurance
Agreement is in effect the Plan should:
1. Acquire the assets and liabilities of any other company,
corporation, or foundation; or
2. Be acquired, come under control of or be merged with any other
company, corporation, or foundation;
Preferred Life shall, at its option, have the right to charge an
additional premium to the Plan, or terminate this Reinsurance
Agreement by giving written notice by certified mail which shall set
forth the date and time of such termination, but not sooner than
thirty-one (31) days after the date of receipt of such notice.
B. The Plan shall give Preferred Life written notice in the event that
any of A. above should occur as soon as Plan is aware that such event
will occur.
C. This Reinsurance Agreement may be altered or amended at any time by
mutual consent of the Plan and Preferred Life either by written
Amendment or by correspondence signed by officers of the Plan and
Preferred Life. Any such Amendments or correspondence shall be binding
upon the Plan and Preferred Life and deemed to be an integral part of
this Reinsurance Agreement. Amendments are subject to approval by the
State of Connecticut Health and Insurance Departments prior to
effectuation.
D. This Reinsurance Agreement shall not be assignable without the express
written consent of the other party.
E. Nothing in this Reinsurance Agreement shall create any right or legal
contractual relationship between Preferred Life and any Member under a
Member Services Agreement identified in Article I of this Reinsurance
Agreement.
F. The Plan is solely responsible for all services to Members, for all
liabilities to Members, and for payment of all claims of Members.
Preferred Life shall not have any responsibility or obligation to
provide any service or payment to any Member, directly or indirectly.
The Reinsurance Coverage provided herein is payable solely to the
Plan.
G. If any payment is made by Preferred Life under this Reinsurance
Agreement, Preferred Life shall be subrogated to all the Plan's rights
to recover such payment against any Member, person or organization,
and the Plan shall execute and deliver instruments and do whatever is
necessary to preserve and secure such rights. Any recovery made by the
Plan, net of attorney's fees charged to the Plan, shall be paid to
Preferred Life to the extent of payment made under this Reinsurance
Agreement.
<PAGE>
ARTICLE X
(Continued)
H. This Reinsurance Agreement, including Endorsements and attached
papers, if any, constitutes the entire contract of reinsurance. No
change in this Reinsurance Agreement shall be valid until approved by
an executive officer of Preferred Life and unless such approval be
endorsed hereon or attached hereto. No agent has authority to change
this Reinsurance Agreement or to waive any of its provisions.
I. Plan agrees to give Preferred Life written notice of any change in
Chief Operating Management, any fundamental change in the Management
Service Contract, or any change in majority ownership of the Plan
J. As of November 1, 1996, all the promises, terms and conditions of this
Reinsurance Agreement will supersede those of Reinsurance Agreement
Policy Number 17055-042, dated June 1, 1996 through October 1, 1996,
and Reinsurance Coverage will be deemed continuous.
IN WITNESS WHEREOF, the Plan and Preferred Life have, by their respective
officers, executed and delivered this Reinsurance Agreement in duplicate
effective from the date set out in Article II hereof.
WELLCARE OF CONNECTICUT, INC.
Dated: By: /s/ Joseph R. Papa
---------------------- --------------------------
Attest: /s/ Edward J. Halas Title:
--------------------- -----------------------
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Dated: 14 Sept 1998 By: /s/ Edward J. Bonach
---------------------- -------------------------
Attest: Title: Director
--------------------- ----------------------
<PAGE>
ENDORSEMENT NO. 1
Endorsement between Preferred Life Insurance Company of New York (hereinafter
referred to as "Preferred Life") and Wellcare of Connecticut, Inc. (hereinafter
referred to as "Plan") Policy No. 17055-042.
The following provision is hereby made a part of the Reinsurance Agreement
between Preferred Life and Plan, in order to protect Members when they no longer
can receive benefits from the Plan or its Receiver because of insolvency of the
Plan. This Endorsement does not provide any benefit for creditors, owners, or
the Receiver of the Plan, although payment of Plan benefits under Sections 1.
and 2. below may be to the Receiver for transfer to appropriate provider payees.
As used herein, the term "Receiver" includes a court or state appointed
supervisor, receiver, or rehabilitator.
Continuation of Benefits Provision:
The reinsurance liability of Preferred Life under the Reinsurance Agreement
shall terminate according to its terms. However, upon the date the Plan is
insolvent as defined in Article VII of the Reinsurance Agreement, Preferred Life
will provide limited continuation of benefits for Members as described below.
There is no liability of Preferred Life under this Endorsement prior to the date
all conditions of insolvency in Article VII have been met, including the
condition that operations cease.
1. Preferred Life will continue Plan benefits for Members who are
confined in an Acute Care hospital on the date Preferred Life becomes
liable for continuation of benefits, beginning on such date and
continuing until their discharge;
2. Added to the style sheet 9/7/95. This language was approved by HCFA on
8/3/95 and has been reviewed by the New York DOI via Preferred Care.
The insolvency language on Preferred and Allianz paper is now
consistent. jvh.. Preferred Life will continue Plan benefits for
Members who are confined in other inpatient facilities on the date
Preferred Life becomes liable for continuation of benefits, beginning
on such date, not exceeding the benefits which would be provided under
the Plan's Member Services Agreement, or one hundred twenty (120)
days, whichever is less. Other inpatient facilities means skilled
nursing facilities and rehabilitation facilities if such care is
rendered concurrent with and incidental to Acute Care Services;
3. Coverage is contingent on payment of premium. Preferred Life will
continue Plan benefits for any Member beginning on the date Preferred
Life becomes liable for continuation of benefits until the end of the
contract period for which premium has been paid to the Plan by that
Member, not including any Plan benefits which are the contractual
obligation of a hospital or health care provider to the Member for
such period;
4. This provision has never been in the style sheet, but was added
4/21/95 per the request of the New York DOI. jvh. Preferred Life
conversion coverage will be made available to all Members for a period
of thirty-one (31) days, without evidence of insurability. The
conversion coverage will be that which is customarily issued by
Preferred Life at the then current rates and of the type available for
conversion.
5. Added to the style sheet 9/7/95. This language has been approved by
HCFA and has also been reviewed by the New York DOI via Preferred
Care. The Allianz and Preferred insolvency endorsements are now
consistent.. Any Title XVIII Medicare enrollees who are under an "at
risk" contract with the Health Care Financing Administration shall not
be covered under this Endorsement once the enrollee is eligible for
coverage under other Title XVIII provisions or any other federal
program, except as noted below:
a. Preferred Life will continue Plan benefits for any Title XVIII
Medicare enrollees beginning on the date Preferred Life becomes
liable for continuation of benefits until the end of the Contract
Period for which premium has been paid to the Plan by the Health
Care Financing Administration, not including any Plan benefits
which are the contractual obligation of a hospital or health care
provider to the Member for such period.
<PAGE>
ENDORSEMENT NO. 1
(Continued)
Except as herein stated, all terms and conditions of the Reinsurance Agreement
remain unchanged.
The Effective Date of this Endorsement is November 1, 1996.
WELLCARE OF CONNECTICUT, INC.
Dated: By: /s/ Joseph R. Papa
---------------------- --------------------------
Title:
-----------------------
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Dated: 14 Sept 1998 By: /s/ Edward J. Bonach
---------------------- -------------------------
Title: Director
----------------------
<PAGE>
ENDORSEMENT NO. 2
Endorsement between Preferred Life Insurance Company of New York (hereinafter
referred to as "Preferred Life") and Wellcare of Connecticut, Inc. (hereinafter
referred to as "Plan") Policy No. 17055-042.
The following provision is hereby made a part of the Reinsurance Agreement
between Preferred Life and Plan.
Out of Area Conversion Provision
In the event that a Plan Member moves outside the Service Area of
the Plan, such Member, without evidence of insurability, shall
have the right of conversion for a period of thirty-one (31)
days. The Conversion Coverage will be that which is customarily
issued by Preferred Life at the then current rates and of the
type available for conversion.
Except as herein stated, all terms and conditions of the Reinsurance Agreement
remain unchanged. The Effective Date of this Endorsement is November 1, 1996.
WELLCARE OF CONNECTICUT, INC.
Dated: By: /s/ Joseph R. Papa
---------------------- --------------------------
Title:
-----------------------
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Dated: 14 Sept 1998 By: /s/ Edward J. Bonach
---------------------- -------------------------
Title: Director
----------------------
[GRAPHIC OMITTED]
152 West 57th Street, 18th Floor
New York, New York 10019
REINSURANCE AGREEMENT
between
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK New York, New York
(hereinafter referred to as "Preferred Life")
and
WELLCARE OF NEW YORK - MEDICARE Kingston, New York
(hereinafter referred to as "Plan")
November 1, 1996
REINSURANCE POLICY NUMBER 17055-044
Tax I.D. #___________________
<PAGE>
TABLE OF CONTENTS
TITLE ARTICLE
Reinsurance Coverage
Definitions I
Schedule of Reinsurance II
Premium Payment III
Notice of Claims and Reimbursement IV
Reports, Records and Audits V
Arbitration VI
Insolvency/Cessation of Operations VII
Limitations of Reinsurance Coverage VIII
Effective Date, Duration and Termination IX
General Provisions X
Document Execution
Endorsements:
Continuation of Benefits 1
Out of Area Conversion Provision 2
<PAGE>
Reinsurance Coverage
It is hereby agreed that in consideration of the promises, terms, and conditions
contained in this Reinsurance Agreement, Plan shall cede to, and Preferred Life
shall reinsure, the portion specified herein of the Membership Service
Agreements issued by the Plan.
ARTICLE I
Definitions
A. "Member Services Agreement" shall mean those contractual agreements to
provide services to Members of the Plan which are approved by the
State of New York and are for those Members for whom Plan has
requested reinsurance coverage from Preferred Life. Applicable
Membership Service Agreements shall be appended to this Reinsurance
Agreement as Exhibit A.
B. "Service Area" shall mean the Service Area defined in the Member
Services Agreement.
C. "Member" shall mean any person or family dependent enrolled and
eligible to receive services under a Member Services Agreement.
D. "Reasonable and Customary" shall mean expenses generally incurred for
cases of comparable nature and severity in the geographical area
involved.
E. "Contract Year" shall mean the twelve (12) month period which begins
on the Effective Date of this Reinsurance Agreement, or any
anniversary of the Effective Date.
F. "Acute Care Services" shall mean those services which are necessary to
the care and treatment of an unstable medical condition caused by the
onset of a severe illness or injury which places the patient's health
in severe jeopardy and requires immediate medical attention. Acute
Care Services do not include health care or other services which are
for custodial care, or services which assist in or are intended to
improve the usual activities of daily living.
G. "Approved Fixed Procedural Fee Hospital" shall mean a hospital with
fixed per diems or fixed case rates which have been reviewed and
approved by Preferred Life prior to any service being rendered. This
does not include any discounted fee-for-service arrangements, nor does
it include per diems or case rates which revert to a discount off
actual charges for fee-for-service once an outlier or stoploss
threshold has been reached.
H. "Prior Approved Transplant Reimbursement Schedule" shall mean a
reimbursement schedule for a specific transplant procedure that is
approved, in writing, by Preferred Life prior to the transplant
admission. Instructions for obtaining prior approval are available
from Preferred Life upon request.
I. "Deductible" shall mean the Deductible amount shown in the Schedule of
Reinsurance. The Deductible will be applied to any Loss as follows:
1. If the Loss consists of Eligible Hospital Services incurred
during a period of continuous, uninterrupted confinement at one
or more facilities, charges from each facility will be applied to
the Deductible in an amount equal to the proportion of that
facility's Services to total Eligible Hospital Services.
<PAGE>
ARTICLE I
(Continued)
2. If the Loss consists of Eligible Hospital Services incurred
during two or more periods of noncontinuous confinement, Services
will be applied to the Deductible based on the date incurred
beginning with charges incurred earliest in the Contract Year and
continuing in incurred date order until the Deductible is
satisfied.
J. "Eligible Hospital Services" shall mean those Acute Care Services for
Members who require Acute Care while registered bed patients, which
are generally and customarily provided by the Plan's participating
hospitals or other specialized institutions within the Service Area of
the Plan and which are prescribed, directed, or authorized by or on
behalf of the Plan. Eligible Hospital Services shall mean the lesser
of:
1. The amount of the Plan's negotiated hospital rate; or
2. The amount of the Reasonable and Customary charges; but in any
event, Eligible Hospital Services shall be limited to an average
of $2,000 per day of each period of continuous hospital
confinement. Operating room charges are excluded from the
calculation of the average daily limit. Eligible Hospital
Services shall also include Referral Services, and the hospital
portion of Emergency Out of Area Services, but shall not include
physician or surgeon charges.
K. "Referral Services" shall mean those Acute Care Services provided to a
Member by a non-participating hospital which, due to the specialized
nature of the service or facility required, cannot be provided by the
Plan's participating hospitals. Referral Services shall be considered
Eligible Hospital Services if such services are specifically
authorized by the Plan. Referral Services shall mean the lesser of:
1. The amount of the negotiated charges; or
2. The amount of the Reasonable and Customary charges; but in any
event Referral Services, to the extent they are Eligible Hospital
Services, shall be limited to an average of $2,000 per day of
each period of continuous hospital confinement. Operating room
charges are excluded from the calculation of the average daily
limit. Referral Services shall not include physician or surgeon
charges, other professional fees, or charges for take-home items
or durable medical devices.
L. "Emergency Out of Area Services" shall mean those services provided to
a Member by a hospital, physician, or surgeon and which due to an
emergency are provided outside the Service Area covered by the
Membership Service Agreement. An emergency exists when there is a
sudden onset of illness or accidental injury requiring such immediate
treatment that the life or health of the Member might be jeopardized
if taken to a hospital, physician, or surgeon within the service area
covered by the Membership Service Agreement; or when the Member is
incapable of making the decision on treatment. Emergency Out of Area
Services shall be limited to the lesser of:
1. The amount of the negotiated charges; or
2. The amount of the Reasonable and Customary charges;
<PAGE>
ARTICLE I
(Continued)
but in any event Emergency Out of Area Services, to the extent they
are Eligible Hospital Services, shall be limited to an average of
$2,000 per day of each period of continuous hospital confinement, not
including operating room charges.
L. "Loss" shall mean only such eligible amounts as are incurred during
the Contract Year, or under the previous year's "carry forward"
provision, as defined in Article II, D. for treatment and services
rendered to a Member while this Reinsurance Agreement is in effect and
provided such treatment and services are covered by the Member
Services Agreement. The word "Loss" shall not include:
1. Compensation paid to salaried officers or employees of the Plan
or any other overhead expenses;
2. Any amount paid by the Plan for punitive or exemplary damages, or
compensatory damages awarded to any Member arising out of the
conduct of the Plan in the investigation, trial, or settlement of
any claims or failure to pay or delay in payment of benefits
under its Member Services Agreement;
3. Any Statutory penalty imposed upon the Plan on account of any
unfair trade practice or any unfair claims practice.
<PAGE>
ARTICLE II
Schedule of Reinsurance
A. The Effective Date for this Reinsurance Agreement shall be November 1,
1996.
B. The monthly premium for the Reinsurance Coverage defined in paragraph
C. below shall be $0.27 per Member. This amount shall be guaranteed
for a period of 3 years following the effective date of this
Reinsurance Agreement, provided, however, that Preferred Life shall
have the authority to review and revise rates at the beginning of each
contract year.
C. The Reinsurance Coverage to be provided under this Reinsurance
Agreement shall be defined as follows:
1. For Eligible Hospital Services, the Deductible amount for such
Reinsurance Coverage shall be $200,000 of the Loss for each
Member for each Contract Year. Once the Deductible has been
satisfied, Preferred Life shall indemnify the Plan for:
a. The excess Loss for Eligible Hospital Services in that
Contract Year for any Member at the start of the Contract
Year shall be reimbursed as follows:
1) 90% if services are performed in a "per diem", DRG or
approved fixed procedural fee hospital.
2) 80% if services are performed in any other hospital
b. The excess Loss for Eligible Hospital Services in that
Contract Year for expenses related to organ and bone marrow
transplant therapy shall be reimbursed as follows:
1) 80% if services are performed in a hospital with a
Prior Approved Transplant Reimbursement Schedule for
that confinement.
2) 50% if services are performed in any other hospital.
3) 50% for organ and bone marrow Retransplantation
Services performed in any hospital. Retransplantation
Services shall mean retransplantation of the same
organ/bone tissue type performed within one year of the
date of the initial transplant procedure.
The acquisition cost of the "live" organ is not included as
a benefit in this Reinsurance Agreement for any organ
transplant procedure.
<PAGE>
ARTICLE II
(Continued)
c. In the event an excess Loss could be indemnified under more than
one of the above subsections, the subsection providing the least
indemnity shall apply.
d. Non-Emergency admission into the following Philadelphia,
Pennsylvania hospitals shall have coinsurance of 50% of Loss
incurred:
1) Hospital of University Medical Center of Pennsylvania;
2) Jefferson Hospital;
3) Children's Hospital.
e. Notwithstanding the above, the lifetime maximum reinsurance
indemnity payable under this Reinsurance Agreement for Eligible
Hospital Services for each Member shall be $2,000,000.
D. Loss incurred by the Plan during the last thirty-one (31) days of a
Contract Year for which no benefits were payable under this
Reinsurance Agreement because such Loss was applied to the Deductible
for that Contract Year shall be applied toward the Deductible for the
succeeding Contract Year.
E. The preceding Schedule of Reinsurance is subject to the Limitations as
defined in Article VIII.
<PAGE>
ARTICLE III
Premium Payment
A. The amount of premiums to be paid by the Plan to Preferred Life for
Reinsurance Coverage under this Reinsurance Agreement is set forth in
Article II herein.
B. Premiums shall be payable monthly and shall be based on the number of
Members enrolled and eligible to receive Eligible Hospital Services
during the month.
C. Premiums shall be due on the first day of the month for which
Reinsurance Coverage is provided and are payable to Preferred Life at
its office in New York, New York.
D. A grace period not to exceed one month shall be granted to the Plan
for the payment of every premium due.
E. If any premium is not paid before the expiration of the grace period,
this Reinsurance Agreement may terminate as of the expiration of the
period for which premium has been paid. Preferred Life shall give
written notification of such termination.
F. The premium payment by the Plan to Preferred Life shall be accompanied
by a statement signed by an authorized Plan official in which the
number of enrolled and eligible Members for that month is given.
G. Preferred Life shall have the right to change the premium at the end
of the third Contract Year of this Reinsurance Agreement and at any
time thereafter, provided this Reinsurance Agreement has not had the
premium changed within the preceding thirty six (36) months and
further provided that at least thirty-one (31) days written notice has
been given by Preferred Life to the Plan. The Plan must give Preferred
Life written notice of any change in coverage within thirty-one (31)
days.. Upon notice of such change of coverage, Preferred Life may
elect to exclude the modification of coverage from Reinsurance
Coverage or charge additional premium therefore. Preferred Life shall
not be liable for any modification of coverage of the Reinsured Policy
in the event that the Plan fails to properly notify Preferred Life.
Any change in premium that is solely the result of a change in
coverage shall not be considered a change in premium requiring the
thirty six (36) month period of time before another change in premium
can be made.
<PAGE>
ARTICLE IV
Notice of Claims and Reimbursement
A. The Plan shall give Preferred Life timely written notice of any claim
or potential claim. The Plan shall use its best efforts to give
Preferred Life notice of claim or potential claim within thirty-one
(31) days from the date on which the claim or potential claim is
incurred.
B. Preferred Life shall furnish the Plan with a supply of claim forms to
be used in filing a claim.
C. The Plan shall file completed proof of Loss by sending to Preferred
Life the information requested on the claim form, along with copies of
the various bills and itemized expenses involved.
D. In accordance with the terms and conditions of this Reinsurance
Agreement, Preferred Life shall make payment to the Plan within thirty
(30) days of Preferred Life's receipt of complete written proof of
such Loss, subject to E. below.
E. Preferred Life shall not be liable with regard to any Loss for which
it has not received written notice within the twelve (12) months after
the end of the Contract Year in which the Loss was incurred, except in
the case of insolvency, as defined in Article VII.
<PAGE>
ARTICLE V
Reports, Records and Audits
A. The Plan shall submit a monthly report to Preferred Life listing the
names and amounts for those Members who have received Eligible
Hospital Services during the Contract Year which exceed seventy-five
(75) percent of the per Member Deductible as set forth in Article II.
B. The Plan shall report to Preferred Life any changes of a material
nature in its Membership Service Agreements. Such report shall be sent
to Preferred Life at least thirty-one (31) days before the Effective
Date of the change so that Preferred Life may evaluate the need for
any changes in this Reinsurance Agreement.
C. The Plan shall report to Preferred Life any investigation or request
for information of a material nature by a State Insurance Department
regarding the conduct of the Plan. Such report must be provided in
writing by the Plan to Preferred Life within thirty-one (31) days
following the date the Plan receives notice, written or otherwise, of
such investigation or request from the State Insurance Department.
D. The Plan shall keep a record of the monthly enrollment of Members
covered by its Membership Service Agreements and the Eligible Hospital
Services received by each Member while covered under this Reinsurance
Agreement. Such record shall be kept during the time this Reinsurance
Agreement is in effect and for a one (1) year period after its
termination date.
E. The Plan's books and records, to the extent permitted by law, shall be
made available to Preferred Life for inspection and audit at any time
during normal business hours during the time this Reinsurance
Agreement is in effect and for a one (1) year period after its
termination date. Preferred Life shall give reasonable notice prior to
the date of such audit.
F. All information disclosed to Preferred Life by the Plan or to the Plan
by Preferred Life, either in the course of conducting negotiations or
as the result of complying with the terms and conditions of this
Reinsurance Agreement, shall be considered to be privileged and
confidential information by both the Plan and Preferred Life.
G. The submission of this Reinsurance Agreement to any Department of
Insurance or any State or Federal agency shall not be considered a
violation of F above.
<PAGE>
ARTICLE VI
Arbitration
A. In the event of any dispute or difference of opinion arising out of
this Agreement which cannot be amicably resolved by the Plan and
Preferred Life, the Plan and Preferred Life agree that such dispute or
difference of opinion shall be submitted to and settled by
arbitration.
B. Except as otherwise provided herein, the arbitration shall be
conducted in accordance with the Commercial Arbitration Rules of the
American Arbitration Association (the "AAA" and the "AAA's Rules")
which shall be in effect on the date of delivery of demand for
arbitration. In the event that the AAA's Rules conflict with any
provisions of this Article, this Article shall govern.
C. The party that determines that a dispute should be resolved by
arbitration (the "Initiating Party") shall give written notice to the
other party (the "Responding Party") of its desire to compel
arbitration, which notice shall contain a statement setting forth the
nature of the dispute, the amount involved, if any, and the remedy
sought.
D. The arbitration tribunal shall consist of three arbitrators who must
be disinterested parties, unaffiliated with the Plan or Preferred
Life. The Plan shall appoint one arbitrator, and Preferred Life shall
appoint one arbitrator. The third arbitrator shall be appointed by the
previous two (2) arbitrators. If the two previous arbitrators cannot
agree on a third arbitrator, then the third arbitrator shall be
appointed by AAA.
E. If either party refuses or neglects to appoint an arbitrator within
sixty (60) days after receipt of written notice from the other party
requesting it to do so, the requesting party shall instruct AAA to
appoint a neutral second arbitrator. The two appointed arbitrators can
then appoint the third.
F. For the purposes of arbitration, this Reinsurance Agreement shall be
considered an honorable engagement rather than a mere legal
obligation, and the arbitrators are not bound by judicial formalities
or strict rule of law in interpreting this Reinsurance Agreement.
G. The decision of a majority of the arbitrators shall be final and
binding on both the Plan and Preferred Life subject to the parties'
rights to appeal an arbitrator's decision under New York law.
H. The expense of arbitration shall be divided between the Plan and
Preferred Life based on a decision made by the arbitrators.
I. Any such arbitration shall take place in New York, unless some other
location is mutually agreed upon.
J. The laws of New York shall govern the arbitration process in the event
they conflict with A through I above.
<PAGE>
ARTICLE VII
Insolvency/Cessation of Operations
A. In the event that Preferred Life should become insolvent, this
Reinsurance Agreement shall automatically terminate on the date of
Preferred Life's insolvency.
B. In the event that the Plan shall become insolvent, this Reinsurance
Agreement shall automatically terminate on the date of the Plan's
insolvency.
C. For purposes of this Reinsurance Agreement, "insolvent" or
"insolvency" shall mean that both of the following conditions occur:
1. A final determination is made by a court of competent
jurisdiction that the Plan or Preferred Life is insolvent; and
2. All operations of the Plan or Preferred Life cease.
The date of insolvency shall be determined as the date which the court
declares the Plan or Preferred Lifeinsolvent or the date on which the
Plan or Preferred Life has ceased operations, whichever date is later
in time.
Operations of the Plan will not be considered ceased so long as the
Plan is under control of a Receiver (which, as used herein, includes a
court or state appointed supervisor, receiver, or rehabilitator) until
the date the Receiver stops paying for future services, publicly
declares its intention to not make payment for future services, and
orders Plan providers to stop rendering services on behalf of the Plan
other than those services for the remaining term for which providers
have previously been paid.
D. This change to the style sheet made 4/21/95 - Rec'd letter from the
State with requested language. jvh. In the event of the Insolvency of
the Plan, benefits owed by Preferred Life shall be payable directly to
the Plan, or to its liquidator, receiver, conservator or statutory
successor without diminution because of the Insolvency of the Plan or
because the liquidator, receiver, conservator or statutory successor
has failed to pay all or a portion of any claim. It is agreed,
however, that the liquidator, receiver, conservator or statutory
successor of the Plan shall give Preferred Life written notice of the
pendency of each claim or Loss which may involve the Reinsurance
afforded by this Agreement within a reasonable time after such claim
or Loss is filed in the conservation or liquidation preceding or in
the receivership. Preferred Life shall have the right to investigate
each such claim or Loss and interpose, at its own expense, in the
preceding where the claim or Loss is to be adjudicated, any defense or
defenses that it may deem available to the Plan or its liquidator,
receiver, conservator or statutory successor. The expense thus
incurred by Preferred Life shall be chargeable, subject to court
approval, against the Plan or its successor as part of the expense of
conservation or liquidation to the extent of a pro rata share of the
benefit which may accrue to the Plan solely as a result of the defense
undertaken by Preferred Life. In the event of that this Agreement
terminates due to the Insolvency of the Plan and premiums are due to
Preferred Life, then in this event, Preferred Life may offset premiums
due against claims owed to the Plan or to its liquidator, receiver,
conservator or statutory successor.
E. Notice of the Plan's or Preferred Life's date of insolvency or date of
cessation of operations shall be communicated to the other party at
the earliest possible point in time.
<PAGE>
ARTICLE VIII
Limitations of Reinsurance Coverage
A. Preferred Life's reimbursement of claims to the Plan shall not exceed,
in any event, the limits of coverage stated in Article II.
B. The Plan is solely responsible for providing all services to its
Members, for compensation of all liability to its Members, and for
payment of all expenses to its Members.
C. Preferred Life shall have no responsibility or obligation to provide
any services or payment to any Member of the Plan, directly or
indirectly.
D. To the extent the Plan receives or will receive any payment or
receives a reduction in its liability by reason of a Coordination of
Benefits provision in the Plan's Member Services Agreement or by any
right of subrogation, Preferred Life shall only indemnify the Plan in
respect of any excess beyond the amount of COB or subrogation amounts
received or applied currently or in the future as reductions in its
liability.
E. Preferred Life shall not reimburse the Plan for amounts incurred for
skilled nursing or rehabilitive services (including, but not limited
to treatments for motor function or mobility, physical therapy or
psychotherapies), unless such services are provided concurrent with
and incidental to Acute Care Services.
F. Preferred Life shall not be liable to the Plan, and the Plan shall
hold harmless and indemnify Preferred Life, for any of the following:
1. Professional liability or liability for any act or omission,
tortious or otherwise, in connection with any services rendered
to any person or group of persons by the Plan or any group,
entity, or person employed by or affiliated in any manner with
the Plan;
2. Expenses or losses for which the Plan has released any persons or
entity from its legal liability;
3. Liabilities which are non-pecuniary in nature (not having a
monetary value);
4. Liabilities, expenses, or losses which are based upon any
noncompliance or violation of any Federal or State statute, rule,
or regulation by the Plan;
5. Additional expenses or losses resulting from those services which
are billed in excess of the usual and customary charges for the
locality where same were administered;
6. Any expenses to the extent the Plan receives a reduction in
charges because of a Coordination of Benefits provision in the
Plan's Membership Service Agreements or any right of subrogation;
7. Any liability due to war or act of war;
8. Any liability for replacement of equipment, furniture, or
supplies which are not Eligible Hospital Services.
<PAGE>
ARTICLE IX
Effective Date, Duration and Termination
A. This Reinsurance Agreement shall become effective on the date set
forth in Article II.
B. This Reinsurance Agreement shall continue in effect from the Effective
Date until it is terminated.
C. This Reinsurance Agreement shall automatically terminate for
non-payment of premium by the Plan as set forth in Article III.
D. This Reinsurance Agreement shall automatically terminate on the date
of Preferred Life's insolvency or cessation of operations or on the
date of the Plan's insolvency or cessation of operations.
E. This Reinsurance Agreement can be terminated in accordance with
paragraph A. of Article X.
F. Termination of this Reinsurance Agreement shall not terminate the
rights or liabilities of either the Plan or Preferred Life arising
during any period when this Reinsurance Agreement was in force,
provided that nothing herein shall be construed to extend Preferred
Life's liability for reimbursements under this Reinsurance Agreement
for any Loss paid by the Plan which was incurred on or after the date
of termination of this Reinsurance Agreement.
G. The Plan and Preferred Life shall each have the right to terminate
this Reinsurance Agreement by giving the other party, and the State of
New York Health and Insurance Departments, written notice of such
intention to terminate at least thirty-one (31) days prior to the end
of any Contract Year.
<PAGE>
ARTICLE X
General Provisions
A. It is understood and agreed that if at any time while this Reinsurance
Agreement is in effect the Plan should:
1. Acquire the assets and liabilities of any other company,
corporation, or foundation; or
2. Be acquired, come under control of or be merged with any other
company, corporation, or foundation;
Preferred Life shall, at its option, have the right to charge an
additional premium to the Plan, or terminate this Reinsurance
Agreement by giving written notice by certified mail which shall set
forth the date and time of such termination, but not sooner than
thirty-one (31) days after the date of receipt of such notice.
B. The Plan shall give Preferred Life written notice in the event that
any of A. above should occur as soon as Plan is aware that such event
will occur.
C. This Reinsurance Agreement may be altered or amended at any time by
mutual consent of the Plan and Preferred Life either by written
Amendment or by correspondence signed by officers of the Plan and
Preferred Life. Any such Amendments or correspondence shall be binding
upon the Plan and Preferred Life and deemed to be an integral part of
this Reinsurance Agreement. Amendments are subject to approval by the
State of New York Health and Insurance Departments prior to
effectuation.
D. This Reinsurance Agreement shall not be assignable without the express
written consent of the other party.
E. Nothing in this Reinsurance Agreement shall create any right or legal
contractual relationship between Preferred Life and any Member under a
Member Services Agreement identified in Article I of this Reinsurance
Agreement.
F. The Plan is solely responsible for all services to Members, for all
liabilities to Members, and for payment of all claims of Members.
Preferred Life shall not have any responsibility or obligation to
provide any service or payment to any Member, directly or indirectly.
The Reinsurance Coverage provided herein is payable solely to the
Plan.
G. If any payment is made by Preferred Life under this Reinsurance
Agreement, Preferred Life shall be subrogated to all the Plan's rights
to recover such payment against any Member, person or organization,
and the Plan shall execute and deliver instruments and do whatever is
necessary to preserve and secure such rights. Any recovery made by the
Plan, net of attorney's fees charged to the Plan, shall be paid to
Preferred Life to the extent of payment made under this Reinsurance
Agreement.
<PAGE>
ARTICLE X
(Continued)
H. This Reinsurance Agreement, including Endorsements and attached
papers, if any, constitutes the entire contract of reinsurance. No
change in this Reinsurance Agreement shall be valid until approved by
an executive officer of Preferred Life and unless such approval be
endorsed hereon or attached hereto. No agent has authority to change
this Reinsurance Agreement or to waive any of its provisions.
I. Plan agrees to give Preferred Life written notice of any change in
Chief Operating Management, any fundamental change in the Management
Service Contract, or any change in majority ownership of the Plan.
J. IN WITNESS WHEREOF, the Plan and Preferred Life have, by their
respective officers, executed and delivered this Reinsurance Agreement
in duplicate effective from the date set out in Article II hereof.
WELLCARE OF NEW YORK - MEDICARE
Dated: By: Joseph R. Papa
----------------------- ----------------------------
Attest: /s/ Edward J. Halas Title:
---------------------- -------------------------
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Dated: By: /s/ Thomas J. Lynch
----------------------- ----------------------------
Attest: /s/ Paula Cayemberg Title:
---------------------- -------------------------
<PAGE>
ENDORSEMENT NO. 1
Endorsement between Preferred Life Insurance Company of New York (hereinafter
referred to as "Preferred Life") and Wellcare of New York - Medicare
(hereinafter referred to as "Plan") Policy No. 17055-044.
The following provision is hereby made a part of the Reinsurance Agreement
between Preferred Life and Plan, in order to protect Members when they no longer
can receive benefits from the Plan or its Receiver because of insolvency of the
Plan. This Endorsement does not provide any benefit for creditors, owners, or
the Receiver of the Plan, although payment of Plan benefits under Sections 1.
and 2. below may be to the Receiver for transfer to appropriate provider payees.
As used herein, the term "Receiver" includes a court or state appointed
supervisor, receiver, or rehabilitator.
Continuation of Benefits Provision:
The reinsurance liability of Preferred Life under the Reinsurance Agreement
shall terminate according to its terms. However, upon the date the Plan is
insolvent as defined in Article VII of the Reinsurance Agreement, Preferred Life
will provide limited continuation of benefits for Members as described below.
There is no liability of Preferred Life under this Endorsement prior to the date
all conditions of insolvency in Article VII have been met, including the
condition that operations cease.
1. Preferred Life will continue Plan benefits for Members who are
confined in an Acute Care hospital on the date Preferred Life becomes
liable for continuation of benefits, beginning on such date and
continuing until their discharge;
2. Added to the style sheet 9/7/95. This language was approved by HCFA on
8/3/95 and has been reviewed by the New York DOI via Preferred Care.
The insolvency language on Preferred and Allianz paper is now
consistent. jvh.. Preferred Life will continue Plan benefits for
Members who are confined in other inpatient facilities on the date
Preferred Life becomes liable for continuation of benefits, beginning
on such date, not exceeding the benefits which would be provided under
the Plan's Member Services Agreement, or one hundred twenty (120)
days, whichever is less. Other inpatient facilities means skilled
nursing facilities and rehabilitation facilities if such care is
rendered concurrent with and incidental to Acute Care Services;
3. Coverage is contingent on payment of premium. Preferred Life will
continue Plan benefits for any Member beginning on the date Preferred
Life becomes liable for continuation of benefits until the end of the
contract period for which premium has been paid to the Plan by that
Member, not including any Plan benefits which are the contractual
obligation of a hospital or health care provider to the Member for
such period; 4This provision has never been in the style sheet, but
was added 4/21/95 per the request of the New York DOI. jvh. Preferred
Life conversion coverage will be made available to all Members for a
period of thirty-one (31) days, without evidence of insurability. The
conversion coverage will be that which is customarily issued by
Preferred Life at the then current rates and of the type available for
conversion. 5Added to the style sheet 9/7/95. This language has been
approved by HCFA and has also been reviewed by the New York DOI via
Preferred Care. The Allianz and Preferred insolvency endorsements are
now consistent.. Any Title XVIII Medicare enrollees who are under an
"at risk" contract with the Health Care Financing Administration shall
not be covered under this Endorsement once the enrollee is eligible
for coverage under other Title XVIII provisions or any other federal
program, except as noted below:
a. Preferred Life will continue Plan benefits for any Title XVIII
Medicare enrollees beginning on the date Preferred Life becomes
liable for continuation of benefits until the end of the Contract
Period for which premium has been paid to the Plan by the Health
Care Financing Administration, not including any Plan benefits
which are the contractual obligation of a hospital or health care
provider to the Member for such period.
<PAGE>
ENDORSEMENT NO. 1
(Continued)
Except as herein stated, all terms and conditions of the Reinsurance Agreement
remain unchanged.
The Effective Date of this Endorsement is November 1, 1996.
WELLCARE OF NEW YORK - MEDICARE
Dated: By: Joseph R. Papa
----------------------- ----------------------------
Title:
-------------------------
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Dated: By: /s/ Thomas J. Lynch
----------------------- ----------------------------
Title:
-------------------------
<PAGE>
ENDORSEMENT NO. 2
Endorsement between Preferred Life Insurance Company of New York (hereinafter
referred to as "Preferred Life") and Wellcare of New York - Medicare
(hereinafter referred to as "Plan") Policy No. 17055-044.
The following provision is hereby made a part of the Reinsurance Agreement
between Preferred Life and Plan.
Out of Area Conversion Provision
In the event that a Plan Member moves outside the Service Area of
the Plan, such Member, without evidence of insurability, shall
have the right of conversion for a period of thirty-one (31)
days. The Conversion Coverage will be that which is customarily
issued by Preferred Life at the then current rates and of the
type available for conversion.
Except as herein stated, all terms and conditions of the Reinsurance Agreement
remain unchanged.
The Effective Date of this Endorsement is November 1, 1996.
WELLCARE OF NEW YORK - MEDICARE
Dated: By: Joseph R. Papa
----------------------- ----------------------------
Title:
-------------------------
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
Dated: By: /s/ Thomas J. Lynch
----------------------- ----------------------------
Title:
-------------------------
AMENDMENT
This Amendment is made to Reinsurance Policy Numbers #17055-016 and #17055-044
by the parties, Preferred Life Insurance Company of New York ("Preferred Life")
and WellCare of New York ("Plan").
In consideration of the promises contained herein, the past contractual
relationships of the parties, the desire of the parties for continuing into the
future a contractual relationship on mutually beneficial terms, and for other
considerations the sufficiency and receipt of which are hereby acknowledged by
the parties, the parties agree:
1. The Contract Year November 1, 1997 through October 31, 1998 is extended one
month, to November 30, 1998; and
2. That liability of Preferred Life for limited continuation of benefits under
Endorsements No. 1 is further limited in the aggregate to the first three
million four hundred thousand ($3,400,000) dollars of claims incurred by
Preferred Life under Endorsements No. 1, using the date of the health
service to determine which claims are first. In no event will Preferred
Life be responsible for more than three million four hundred thousand
dollars of liability in the aggregate under these Endorsements.
This Amendment is effective on the date signed below.
WELLCARE OF NEW YORK
By: /s/ Joseph R. Papa
-----------------------------
Title: President/CEO
-----------------------------
Date Signed: 9-30-98
-----------------------------
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
By: /s/ Michael T. Westermeyer
-----------------------------
Title: Secretary
-----------------------------
Date Signed: 9-30-98
-----------------------------
AMENDMENT
This Amendment is made to Reinsurance Policy Number #17055-041 (for NY Metro
Medicaid members only) by the parties, Preferred Life Insurance Company of New
York ("Preferred Life") and WellCare of New York ("Plan").
In consideration of the promises contained herein, the past contractual
relationships of the parties, the desire of the parties for continuing into the
future a contractual relationship on mutually beneficial terms, and for other
considerations the sufficiency and receipt of which are hereby acknowledged by
the parties, the parties agree:
1. The Contract Year November 1, 1997 through October 31, 1998 is extended one
month, to November 30, 1998; and
2. That liability of Preferred Life for limited continuation of benefits under
Endorsements No. 1 is further limited in the aggregate to the first six
hundred thousand ($600,000) dollars of claims incurred by Preferred Life
under Endorsements No. 1, using the date of the health service to determine
which claims are first. In no event will Preferred Life be responsible for
more than six hundred thousand dollars of liability in the aggregate under
these Endorsements.
3. By signing this agreement, Plan does not waive any rights it may have under
policy #17055-041, by arbitrating the issue of the definition of contract
year, and effective date, and renewal date.
This Amendment is effective on the date signed below.
WELLCARE OF NEW YORK
By: /s/ Joseph R. Papa
------------------------------
Title: President/CEO
------------------------------
Date Signed: 9-30-98
------------------------------
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
By: /s/ Michael T. Westermeyer
------------------------------
Title: Secretary
------------------------------
Date Signed: 9-30-98
------------------------------
AMENDMENT
This Amendment is made to Reinsurance Policy Numbers #17055-042 by the parties,
Preferred Life Insurance Company of New York ("Preferred Life") and WellCare of
Connecticut ("Plan").
In consideration of the promises contained herein, the past contractual
relationships of the parties, the desire of the parties for continuing into the
future a contractual relationship on mutually beneficial terms, and for other
considerations the sufficiency and receipt of which are hereby acknowledged by
the parties, the parties agree:
1. The Contract Year November 1, 1997 through October 31, 1998 is extended one
month, to November 30, 1998; and
2. That liability of Preferred Life for limited continuation of benefits under
Endorsement No. 1 is further limited in the aggregate to the first one
million dollars of claims incurred by Preferred Life under Endorsement No.
1, using the date of the health service to determine which claims are
first. In no event will Preferred Life be responsible for more than one
million dollars of liability under Endorsement No. 1.
This Amendment is effective on the date signed below.
WELLCARE OF CONNECTICUT
By: /s/ Joseph R. Papa
----------------------------
Title: President/CEO
----------------------------
Date Signed: 9-30-98
----------------------------
PREFERRED LIFE INSURANCE COMPANY OF NEW YORK
By: /s/ Michael T. Westermeyer
----------------------------
Title: Secretary
----------------------------
Date Signed: 9-29-98
----------------------------
[LETTERHEAD OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK]
October 29, 1998
Mr. Joseph Papa
The WellCare Management Group
Park West/Hurley Avenue Extension
Kingston, NY 12402
Re: Termination of Reinsurance Coverage
Policy 17055-016 WellCare of New York - Commercial and Point of
Service Enrollees Policy 17055-041 WellCare of New York - Medicaid
Enrollees Policy 17055-016 WellCare of New York - Medicare Enrollees
Dear Joe:
As discussed, in accordance with Article IX of the above Reinsurance Policy
entitled "Effective Date, Duration and Termination", Preferred Life Insurance
Company of New York is exercising its right not to renew. Therefore, in
accordance with this Article, all coverage under the above policy will terminate
as of midnight, November 30, 1998.
We understand that the replacement reinsurance WellCare has negotiated may take
effect as early as November 1, 1998. Please notify us in the event of that
earlier termination date. Otherwise, coverage under the above policy will end as
of midnight, November 30, 1998.
Joe, we have appreciated working with you and your staff over the years. Please
consider us in the future for your reinsurance needs. If you have any questions
regarding the above reinsurance policy, please contact Greg Anderson at
612/337-6493.
Sincerely,
/s/ Eugene K. Long
- - -----------------------
Eugene K. Long
EKL:prc
cc: Charles S. Hendricks, Deputy Chief - Health Bureau
State of New York Insurance Department
25 Beaver St., New York, NY 10004
By Fax @ 212-480-5216 and by FEDEX
[LETTERHEAD OF PREFERRED LIFE INSURANCE COMPANY OF NEW YORK]
October 29, 1998
Mr. Joseph Papa
The WellCare Management Group
Park West/Hurley Avenue Extension
Kingston, NY 12402
Re: Termination of Reinsurance Coverage
Policy 17055-042 WellCare of Connecticut, Inc.
Dear Joe:
As discussed, in accordance with Article IX of the above Reinsurance Policy
entitled "Effective Date, Duration and Termination", Preferred Life Insurance
Company of New York is exercising its right not to renew. Therefore, in
accordance with this Article, all coverage under the above policy will terminate
as of midnight, November 30, 1998.
We understand that the replacement reinsurance WellCare has negotiated may take
effect as early as November 1, 1998. Please notify us in the event of that
earlier termination date. Otherwise, coverage under the above policy will end as
of midnight, November 30, 1998.
Joe, we have appreciated working with you and your staff over the years. Please
consider us in the future for your reinsurance needs. If you have any questions
regarding the above reinsurance policy, please contact Greg Anderson at
612/337-6493.
Sincerely,
/s/ Eugene K. Long
- - ------------------
Eugene K. Long
EKL/prc
cc: Joseph DeMarco
Insurance Department
State of Connecticut
P.O.B. 816, Hartford, CT 06142-0816
By FAX @ 860-297-3978
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE OF COMMON STOCK
(in thousands, except per share data)
(unaudited)
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- ------------------
1998 1997 1998 1997
---- ---- ---- ----
Loss before income taxes ($2,949) ($4,422) ($6,649) ($17,319)
Income taxes -- -- -- --
------- ------- ------- --------
NET LOSS ($2,949) ($4,422) ($6,649) ($17,319)
======= ======= ======= ========
LOSS PER SHARE - BASIC ($ 0.39) ($ 0.70) ($ 0.96) ($ 2.75)
======= ======= ======= ========
Weighted average share of
Common Stock outstanding 7,549 6,298 6,924 6,298
======= ======= ======= ========
LOSS PER SHARE - DILUTED ($ 0.39) ($ 0.70) ($ 0.96) ($ 2.75)
======= ======= ======= ========
Weighted average shares of
Common Stock and Common
Stock equivalents
outstanding 7,549 6,298 6,924 6,298
======= ======= ======= ========
36
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>I
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet of The WellCare Management Group, Inc. and
Subsidiaries as of September 30, 1998 and the related Statement of Operations
for the period ended September 30, 1998, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 3,025
<SECURITIES> 1
<RECEIVABLES> 10,327
<ALLOWANCES> 2,808
<INVENTORY> 0
<CURRENT-ASSETS> 17,675
<PP&E> 18,176
<DEPRECIATION> 7,470
<TOTAL-ASSETS> 45,045
<CURRENT-LIABILITIES> 28,826
<BONDS> 0
0
0
<COMMON> 75
<OTHER-SE> (3,575)
<TOTAL-LIABILITY-AND-EQUITY> 45,045
<SALES> 108,863
<TOTAL-REVENUES> 110,232
<CGS> 0
<TOTAL-COSTS> 91,438
<OTHER-EXPENSES> 25,443
<LOSS-PROVISION> 1,915
<INTEREST-EXPENSE> 1,308
<INCOME-PRETAX> (6,649)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,649)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,649)
<EPS-PRIMARY> (0.96)
<EPS-DILUTED> (0.96)
</TABLE>
